NEW MOUNTAIN FINANCE CORPORATION The information in management's discussion and analysis of financial condition and results of operations relates toNew Mountain Finance Corporation , including its wholly-owned direct and indirect subsidiaries (collectively, "we", "us", "our", "NMFC" or the "Company"). 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 our future performance or our financial 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 the impact of interest and inflation rates, and the COVID-19 pandemic on the industries in which we invest; •our future operating results, our business prospects, the adequacy of our cash resources and working capital, and the impact of the COVID-19 pandemic thereon; •the ability of our portfolio companies to achieve their objectives and the impact of COVID-19 pandemic thereon; •our ability to make investments consistent with our investment objectives, including with respect to the size, nature and terms of our investments; •the ability ofNew 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 theInvestment Adviser andNew Mountain Capital Group , L.P. (together withNew Mountain Capital, L.L.C. and its affiliates, "New Mountain Capital ") whose ultimate owners includeSteven B. Klinsky and related and other vehicles; and •the risk factors set forth in Item 1A.-Risk Factors contained in our annual report on Form 10-K for the year endedDecember 31, 2019 and in this quarterly report on Form 10-Q. 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 in Item 1A.-Risk Factors contained in our annual report on Form 10-K for the year endedDecember 31, 2019 and in this quarterly report on Form 10-Q. 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 theUnited States Securities and Exchange Commission (the "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 We are aDelaware corporation that was originally incorporated onJune 29, 2010 and completed our initial public offering ("IPO") onMay 19, 2011 . We 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"). We have elected to be treated, and intend 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"). Since our IPO, and throughSeptember 30, 2020 , we raised approximately$893.2 million in net proceeds from additional offerings of our common stock. The Investment Adviser is a wholly-owned subsidiary ofNew 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. The Investment Adviser manages our day-to-day operations and provides us with investment advisory and management services. The Investment Adviser also manages other 91 -------------------------------------------------------------------------------- Table of Contents funds that may have investment mandates that are similar, in whole or in part, to ours.New Mountain Finance Administration, L.L.C. (the "Administrator"), a wholly-owned subsidiary ofNew Mountain Capital , provides the administrative services necessary to conduct our day-to-day operations. We have established the following wholly-owned direct and indirect subsidiaries: •New Mountain Finance Holdings, L.L.C. ("NMF Holdings " or the "Predecessor Operating Company ") andNew Mountain Finance DB, L.L.C. ("NMFDB"), whose assets are used to secureNMF Holdings' credit facility and NMFDB's credit facility, respectively; •New Mountain Finance SBIC, L.P. ("SBIC I") and New Mountain Finance SBIC II, L.P. ("SBIC II"),who have received licenses fromthe United States ("U.S.")Small Business Administration ("SBA") to operate as small business investment companies ("SBICs") under Section 301(c) of the Small Business Investment Act of 1958, as amended (the "1958 Act") and their general partners,New Mountain Finance SBIC G.P., L.L.C. ("SBIC I GP") andNew Mountain Finance SBIC II G.P., L.L.C. ("SBIC II GP"), respectively; •NMF Ancora Holdings Inc. ("NMF Ancora"),NMF QID Holdings, Inc. ("NMF QID") andNMF YP Holdings Inc. ("NMF YP"), which serve as tax blocker corporations by holding equity or equity-like investments in portfolio companies organized as limited liability companies (or other forms of pass-through entities); we consolidate our tax blocker corporations for accounting purposes but the tax blocker corporations are not consolidated forU.S. federal income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies; and •New Mountain Finance Servicing, L.L.C. ("NMF Servicing"), which serves as the administrative agent on certain investment transactions.New Mountain Net Lease Corporation ("NMNLC") is a majority-owned consolidated subsidiary of ours, which acquires commercial real estate properties that are subject to ''triple net'' leases has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a real estate investment trust, or REIT, within the meaning of Section 856(a) of the Code. 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. The first lien debt may include traditional first lien senior secured loans or unitranche loans. Unitranche loans combine characteristics of traditional first lien senior secured loans as well as second lien and subordinated loans. Unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the "last out" tranche. In some cases, our investments may also include equity interests. Our 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 us, SBIC I's and SBIC II's investment objectives are to generate current income and capital appreciation under our investment criteria. However, SBIC I's and SBIC II's investments must be in SBA-eligible small businesses. Our portfolio may be concentrated in a limited number of industries. As ofSeptember 30, 2020 , our top five industry concentrations were software, business services, healthcare services, education and investment funds (which includes our investments in our joint ventures). As ofSeptember 30, 2020 , our net asset value was approximately$1,184.8 million and our portfolio had a fair value of approximately$2,896.6 million in 105 portfolio companies, with a weighted average yield to maturity at cost for income producing investments ("YTM at Cost") of approximately 8.6% and a weighted average yield to maturity at cost for all investments ("YTM at Cost for Investments") of approximately 7.8%. The YTM at Cost calculation assumes that all investments, including secured collateralized agreements, not on non-accrual are purchased at cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at maturity. The YTM at Cost for Investments calculation assumes that all investments, including secured collateralized agreements, are purchased at cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at maturity. YTM at Cost and YTM at Cost for Investments calculations exclude the impact of existing leverage. YTM at Cost and YTM at Cost for Investments use 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 our portfolio or other factors. Recent Developments
On
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COVID-19 Developments
OnMarch 11, 2020 , theWorld Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has had, and continues to have, a significant impact on theU.S. economy. The extent of the continued impact of the COVID-19 pandemic on the financial performance of our current and future investments will depend on future developments, including the duration and spread of the virus, related advisories and restrictions, and the health of the financial markets and economy as a result of COVID-19, all of which are highly uncertain and cannot be predicted. To the extent our portfolio companies continue to be adversely impacted by the effects of the COVID-19 pandemic, such impact may have a material adverse impact on our future net investment income, the fair value of our portfolio investments, our financial condition and results of operations and the financial condition of our portfolio companies. An increase in unrealized depreciation of our investment portfolio due to decreases in fair value of investments attributable to the COVID-19 pandemic has resulted in a significant reduction in our net asset value as ofSeptember 30, 2020 , as compared to our net asset value as ofDecember 31, 2019 . As ofSeptember 30, 2020 , we were in compliance with our asset coverage requirements under the 1940 Act. In addition, we are not in default of any of the asset coverage requirements under any of our credit facilities as ofSeptember 30, 2020 . However, any continued increase in unrealized depreciation of our investment portfolio or further significant reductions in our net asset value, as a result of the effects of the COVID-19 pandemic or otherwise, increases the risk of breaching the relevant covenants. For additional discussion on the impact of COVID-19 on our portfolio companies, see "Monitoring of Portfolio Investments". We will continue to monitor the rapidly evolving situation surrounding the COVID-19 pandemic and guidance fromU.S. and international authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation. For example, recurring COVID-19 outbreaks have led to the re-introduction or continuation of certain public health restrictions (such as instituting quarantines, prohibitions on travel and the closure of offices, business, schools, retail stores and other public venues) in certain states inthe United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impact of COVID-19 on our financial condition, results of operations or cash flows in the future.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States of America ("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 We consolidate our wholly-owned direct and indirect subsidiaries:NMF Holdings , NMF Servicing, NMFDB, SBIC I, SBIC I GP, SBIC II, SBIC II GP, NMF Ancora, NMF QID and NMF YP and our majority-owned consolidated subsidiary, NMNLC. We are an investment company following accounting and reporting guidance as described in Accounting Standards Codification Topic 946, Financial Services-Investment Companies, ("ASC 946"). Valuation and Leveling of Portfolio Investments
At all times consistent with GAAP and the 1940 Act, we conduct a valuation of assets, which impacts our net asset value.
We value our assets on a quarterly basis, or more frequently if required under
the 1940 Act. In all cases, our board of directors is ultimately and solely
responsible for determining the fair value of our 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 our portfolio investments require a fair value determination.
Security transactions are accounted for on a trade date basis. Our 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.
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(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 perform the following procedures:
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.
We will evaluate the reasonableness of the quote, and if the quote is determined
to not be representative of fair value, we will use one or more of the
methodologies outlined below to determine fair value;
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.
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 a commitment 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 our investments may fluctuate from period to
period and the fluctuations could be material.
GAAP fair value measurement guidance classifies the inputs used in measuring fair value into three levels as follows:
Level I-Quoted prices (unadjusted) are available in active markets for
identical investments and we 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"), we, to the extent that we hold
such investments, do not adjust the quoted price for these investments, even in
situations where we hold a large position and a sale could reasonably impact the
quoted price.
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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 and 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 and unobservable 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. The following table summarizes the levels in the fair value hierarchy that our portfolio investments fall into as ofSeptember 30, 2020 : (in thousands) Total Level I Level II Level III First lien$ 1,662,653 $ -$ 167,616 $ 1,495,037 Second lien 689,319 - 93,784 595,535 Subordinated 43,536 - - 43,536 Equity and other 501,115 - - 501,115 Total investments$ 2,896,623 $ -$ 261,400 $ 2,635,223 We generally use the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs. We typically determine the fair value of our 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 our due diligence process, we evaluate the overall performance and financial stability of the portfolio company. Post investment, we 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. We also attempt 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 our original investment thesis. This analysis is specific to each portfolio company. We leverage the knowledge gained from our original due diligence process, augmented by this subsequent monitoring, to continually refine our outlook for each of our portfolio companies and ultimately form the valuation of our investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale occurs, we 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. 95 -------------------------------------------------------------------------------- Table of Contents Market Based Approach: We may estimate the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies and comparable transactions. We consider numerous factors when selecting the appropriate companies whose trading multiples are used to value our portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, and relevant risk factors, as well as size, profitability and growth expectations. We 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. Significant increases or decreases in the EBITDA multiple will result in an increase or decrease in enterprise value, which may result in an increase or decrease in the fair value estimate of the investment. In applying the market based approach as ofSeptember 30, 2020 , we used the relevant EBITDA multiple ranges set forth in the table below to determine the enterprise value of our portfolio companies. We believe these were reasonable ranges in light of current comparable company trading levels and the specific portfolio companies involved. Income Based Approach: We 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 combination of a yield calibration approach and a comparable investment approach. The yield calibration approach 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. The comparable investment approach utilizes an average yield-to maturity of a selected set of high-quality, liquid investments to determine a comparable investment discount rate. 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 ofSeptember 30, 2020 , we used the discount ranges set forth in the table below to value investments in our portfolio companies. The unobservable inputs used in the fair value measurement of our Level III investments as ofSeptember 30, 2020 were as follows: (in thousands) Range Fair Value as of September 30, Weighted Type 2020 Approach Unobservable Input Low High Average First lien$ 1,438,801 Market & income approach EBITDA multiple 5.0x 35.0x 14.0x Revenue multiple 3.5x 11.0x 5.9x Discount rate 4.5 % 17.0 % 8.3 % 43,769 Market quote Broker quote N/A N/A N/A 12,467 Other N/A(1) N/A N/A N/A Second lien 531,932 Market & income approach EBITDA multiple 7.0x 34.0x 15.1x Discount rate 6.8 % 21.7 % 9.5 % 48,603 Market quote Broker quote N/A N/A N/A 15,000 Other N/A(1) N/A N/A N/A Subordinated 43,536 Market & income approach EBITDA multiple 9.0x 15.0x 12.0x Discount rate 10.2 % 35.0 % 18.0 % Equity and other 500,257 Market & income approach EBITDA multiple 6.5x 19.5x 12.6x Discount rate 6.0 % 47.7 % 12.1 % 700 Black Scholes analysis Expected life in years 5.5 5.5 5.5 Volatility 52.3 % 52.3 % 52.3 % Discount rate 0.7 % 0.7 % 0.7 % 158 Other N/A(1) N/A N/A N/A
$ 2,635,223 (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. 96 -------------------------------------------------------------------------------- Table of ContentsNMFC Senior Loan Program I LLC NMFC Senior Loan Program I LLC ("SLP I") was formed as aDelaware limited liability company onMay 27, 2014 and commenced operations onJune 10, 2014 . SLP I is a portfolio company held by us. SLP I is structured as a private investment fund, in which all of the investors are "qualified purchasers", as such term is defined in section 2(a)(51) of 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 "SLP I Agreement") and will continue in existence untilAugust 31, 2022 , subject to earlier termination pursuant to certain terms of the SLP I Agreement. The term may be extended pursuant to certain terms of the SLP I Agreement. SLP I's re-investment period ended onAugust 31, 2020 . 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 and debt from a revolving credit facility and is managed by us. Our capital commitment is$23.0 million , representing less than 25.0% ownership, with third party investors representing the remaining capital commitments. As ofSeptember 30, 2020 , SLP I had total investments with an aggregate fair value of approximately$292.9 million , debt outstanding of$220.1 million and capital that had been called and funded of$93.0 million . As ofDecember 31, 2019 , SLP I had total investments with an aggregate fair value of approximately$313.7 million , debt outstanding of$227.4 million and capital that had been called and funded of$93.0 million . Our investment in SLP I is disclosed on our Consolidated Schedule of Investments as ofSeptember 30, 2020 andDecember 31, 2019 . We, as an investment adviser registered under the Advisers Act, act as the collateral manager to SLP I and are entitled to receive a management fee for our investment management services provided to SLP I. As a result, SLP I is classified as our affiliate. No management fee is charged on our investment in SLP I in connection with the administrative services provided to SLP I. For the three and nine months endedSeptember 30, 2020 , we earned approximately$0.3 million and$0.8 million , respectively, in management fees related to SLP I, which is included in other income. For the three and nine months endedSeptember 30, 2019 , we earned approximately$0.3 million and$0.9 million , respectively, in management fees related to SLP I, which is included in other income. As ofSeptember 30, 2020 andDecember 31, 2019 , approximately$0.5 million and$0.3 million , respectively, of management fees related to SLP I was included in receivable from affiliates. For the three and nine months endedSeptember 30, 2020 , we earned approximately$0.7 million and$2.1 million , respectively, of dividend income related to SLP I, which is included in dividend income. For the three and nine months endedSeptember 30, 2019 , we earned approximately$0.8 million and$2.3 million , respectively, of dividend income related to SLP I, which is included in dividend income. As ofSeptember 30, 2020 andDecember 31, 2019 , approximately$0.8 million and$0.7 million , respectively, of dividend income related to SLP I was included in interest and dividend receivable.NMFC Senior Loan Program II LLC NMFC Senior Loan Program II LLC ("SLP II") was formed as aDelaware limited liability company onMarch 9, 2016 and commenced operations onApril 12, 2016 . SLP II is structured as a private joint venture investment fund between us andSkyKnight Income, LLC ("SkyKnight") and operates under a limited liability company agreement (the "SLP II Agreement"). The purpose of the joint venture is to invest primarily in senior secured loans issued by portfolio companies within our core industry verticals. These investments are typically broadly syndicated first lien loans. All investment decisions must be unanimously approved by the board of managers of SLP II, which has equal representation from us and SkyKnight. SLP II's investment period ended onApril 12, 2020 and SLP II will continue in existence untilApril 12, 2022 . The term may be extended for up to one year pursuant to certain terms of the SLP II Agreement. SLP II is capitalized with equity contributions which were called from its members, on a pro-rata basis based on their equity commitments, as transactions are completed. Any decision by SLP II to call down on capital commitments requires approval by the board of managers of SLP II. As ofSeptember 30, 2020 , we and SkyKnight have committed and contributed$79.4 million and$20.6 million , respectively, of equity to SLP II. Our investment in SLP II is disclosed on our Consolidated Schedule of Investments as ofSeptember 30, 2020 andDecember 31, 2019 . 97 -------------------------------------------------------------------------------- Table of Contents OnApril 12, 2016 , SLP II entered into its revolving credit facility withWells Fargo Bank, National Association , which matures onApril 12, 2022 and bears interest at a rate of the LIBOR plus 1.60% per annum. As ofSeptember 30, 2020 andDecember 31, 2019 , SLP II had total investments with an aggregate fair value of approximately$286.4 million and$340.0 million , respectively, and debt outstanding under its credit facility of$204.5 million and$246.9 million , respectively. As ofSeptember 30, 2020 andDecember 31, 2019 , none of SLP II's investments were on non-accrual. Additionally, as ofSeptember 30, 2020 andDecember 31, 2019 , SLP II had unfunded commitments in the form of delayed draws of$0.2 million and$3.2 million , respectively. Below is a summary of SLP II's portfolio, along with a listing of the individual investments in SLP II's portfolio as ofSeptember 30, 2020 andDecember 31, 2019 : (in thousands) September 30, 2020 December 31, 2019 First lien investments (1) $ 300,199 351,160 Weighted average interest rate on first lien investments (2) 5.11 % 6.29 % Number of portfolio companies in SLP II 34 37 Largest portfolio company investment (1) $ 17,322 17,456 Total of five largest portfolio company investments (1) $ 78,225 78,932
(1)Reflects principal amount or par value of investments. (2)Computed as the all in interest rate in effect on accruing investments divided by the total principal amount of investments.
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The following table is a listing of the individual investments in SLP II's
portfolio as of
Principal
Portfolio Company and Type of Amount or Par Fair
Investment Industry Interest Rate (1) Maturity Date Value Cost Value (2)
Funded Investments - First lien: (in thousands) (in thousands) (in thousands)
Access CIG, LLC Business Services 3.91% (L + 3.75%) 2/27/2025 $ 4,625 $ 4,609 $ 4,532
6.25 % (L + 2.50%
ADG, LLC Healthcare Services + 2.75% PIK) 9/28/2023 16,412 16,335 14,876
Advisor Group Holdings, Inc. Consumer Services 5.15% (L + 5.00%) 7/31/2026 4,962 4,920 4,815
Bearcat Buyer, Inc. Healthcare Services 5.25% (L + 4.25%) 7/9/2026 90 89 90
Bearcat Buyer, Inc. Healthcare Services 5.25% (L + 4.25%) 7/9/2026 1,368 1,363 1,368
Bleriot US Bidco Inc. Federal Services 4.97% (L + 4.75%) 10/31/2026 1,345 1,332 1,335
Bleriot US Bidco Inc. Federal Services 4.97% (L + 4.75%) 10/30/2026 8,605 8,528 8,546
Brave Parent Holdings, Inc. Software 4.15% (L + 4.00%) 4/18/2025 3,662 3,652 3,622
CentralSquare Technologies, LLC Software 3.90% (L + 3.75%) 8/29/2025 14,737 14,710 13,286
CHA Holdings, Inc. Business Services 5.50% (L + 4.50%) 4/10/2025 2,031 2,023 1,899
CHA Holdings, Inc. Business Services 5.50% (L + 4.50%) 4/10/2025 10,615 10,582 9,925
CommerceHub, Inc. Software 3.65% (L + 3.50%) 5/21/2025 2,444 2,435 2,389
Distribution &
Dealer Tire, LLC Logistics 4.40% (L + 4.25%) 12/12/2025 7,444 7,427 7,295
Drilling Info Holdings, Inc. Business Services 4.40% (L + 4.25%) 7/30/2025 14,646 14,598 14,139
Edgewood Partners Holdings LLC Business Services 5.25% (L + 4.25%) 9/6/2024 7,375 7,320 7,117
eResearchTechnology, Inc. Healthcare Services 5.50% (L + 4.50%) 2/4/2027 3,137 3,108 3,129
Distribution &
Fastlane Parent Company, Inc. Logistics 4.65% (L + 4.50%) 2/4/2026 3,447 3,392 3,328
Greenway Health, LLC Software 4.75% (L + 3.75%) 2/16/2024 14,512 14,474 12,989
Help/Systems Holdings, Inc. Software 5.75% (L + 4.75%) 11/19/2026 4,422 4,382 4,362
Institutional Shareholder Services
Inc. Business Services 4.72% (L + 4.50%) 3/5/2026 13,790 13,678 13,376
Keystone Acquisition Corp. Healthcare Services 6.25% (L + 5.25%) 5/1/2024 5,238 5,208 4,767
LSCS Holdings, Inc. Healthcare Services 4.47% (L + 4.25%) 3/17/2025 1,870 1,868 1,776
LSCS Holdings, Inc. Healthcare Services 4.47% (L + 4.25%) 3/17/2025 7,243 7,236 6,881
Market Track, LLC Business Services 5.25% (L + 4.25%) 6/5/2024 11,610 11,577 11,432
Medical Solutions Holdings, Inc. Healthcare Services 5.50% (L + 4.50%) 6/14/2024 2,774 2,766 2,684
Ministry Brands, LLC Software 5.00% (L + 4.00%) 12/2/2022 2,078 2,074 2,059
Ministry Brands, LLC Software 5.00% (L + 4.00%) 12/2/2022 873 871 865
Ministry Brands, LLC Software 5.00% (L + 4.00%) 12/2/2022 12,066 12,039 11,955
Peraton Corp. (fka MHVC Acquisition
Corp.) Federal Services 6.25% (L + 5.25%) 4/29/2024 10,159 10,130 10,083
Premise Health Holding Corp. Healthcare Services 3.72% (L + 3.50%) 7/10/2025 1,362 1,357 1,318
Project Accelerate Parent, LLC Business Services 5.25% (L + 4.25%) 1/2/2025 12,450 12,409 11,329
PSC Industrial Holdings Corp. Industrial Services 4.98% (L + 3.75%) 10/11/2024 3,036 3,017 2,892
Quest Software US Holdings Inc. Software 4.51% (L + 4.25%) 5/16/2025 14,737 14,685 14,467
Salient CRGT Inc. Federal Services 7.50% (L + 6.50%) 2/28/2022 12,665 12,625 12,484
Distribution &
Wirepath LLC Logistics 4.22% (L + 4.00%) 8/5/2024 14,700 14,700 13,524
WP CityMD Bidco LLC Healthcare Services 5.54% (L + 4.50%) 8/13/2026 5,432 5,384 5,413
Wrench Group LLC Consumer Services 4.22% (L + 4.00%) 4/30/2026 5,935 5,883 5,816
YI, LLC Healthcare Services 5.00% (L + 4.00%) 11/7/2024 14,687 14,679 12,851
Healthcare
Information
Zelis Cost Management Buyer, Inc. Technology 4.90% (L + 4.75%) 9/30/2026 4,099 4,062 4,077
Zywave, Inc. Software 6.00% (L + 5.00%) 11/17/2022 16,844 16,810 16,844
Zywave, Inc. Software 6.00% (L + 5.00%) 11/17/2022 478 474 478
Total Funded Investments $ 300,005 $ 298,811 $ 286,413
Unfunded Investments - First lien:
Bearcat Buyer, Inc. Healthcare Services - 7/9/2021 $ 194 $
(1) $ -
Total Unfunded Investments $ 194 $ (1) $ -
Total Investments $ 300,199 $ 298,810 $ 286,413
(1)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 LIBOR (L), the Prime Rate (P) and the alternative base rate
(Base). For each investment, the current interest rate provided reflects the
rate in effect as of September 30, 2020 .
(2)Represents the fair value in accordance with ASC 820. Our board of directors
does not determine the fair value of the investments held by SLP II.
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Table of Contents
The following table is a listing of the individual investments in SLP II's
portfolio as of
Principal
Portfolio Company and Type of Amount or Par Fair
Investment Industry Interest Rate (1) Maturity Date Value Cost Value (2)
Funded Investments - First lien (in thousands) (in thousands) (in thousands)
Access CIG, LLC Business Services 5.44% (L + 3.75%) 2/27/2025 $ 9,833 $ 9,794 $ 9,841
7.17% (L + 4.75%
ADG, LLC Healthcare Services + 0.50% PIK) 9/28/2023 16,074 15,980 15,813
Advisor Group Holdings, Inc. Consumer Services 6.80% (L + 5.00%) 7/31/2026 5,000 4,952 4,972
Bearcat Buyer, Inc. Healthcare Services 6.19% (L + 4.25%) 7/9/2026 1,379 1,372 1,372
Bearcat Buyer, Inc. Healthcare Services 6.19% (L + 4.25%) 7/9/2026 90 90 90
Bleriot US Bidco Inc. Federal Services 6.69% (L + 4.75%) 10/30/2026 8,649 8,563 8,746
Brave Parent Holdings, Inc. Software 5.93% (L + 4.00%) 4/18/2025 15,267 15,222 15,045
CentralSquare Technologies, LLC Software 5.55% (L + 3.75%) 8/29/2025 14,850 14,819 14,231
CHA Holdings, Inc. Business Services 6.44% (L + 4.50%) 4/10/2025 10,697 10,658 10,683
CHA Holdings, Inc. Business Services 6.44% (L + 4.50%) 4/10/2025 2,047 2,037 2,044
CommerceHub, Inc. Software 5.30% (L + 3.50%) 5/21/2025 2,463 2,453 2,432
Drilling Info Holdings, Inc. Business Services 6.05% (L + 4.25%) 7/30/2025 14,758 14,703 14,696
Edgewood Partners Holdings LLC Business Services 6.05% (L + 4.25%) 9/6/2024 7,432 7,367 7,413
Explorer Holdings, Inc. Healthcare Services 6.26% (L + 4.50%) 11/20/2026 3,145 3,113 3,171
Fastlane Parent Company, Inc. Distribution & Logistics 6.44% (L + 4.50%) 2/4/2026 3,474 3,411 3,448
Greenway Health, LLC Software 5.69% (L + 3.75%) 2/16/2024 14,625 14,578 13,053
Help/Systems Holdings, Inc. Software 6.55% (L + 4.75%) 11/19/2026 4,444 4,400 4,428
Idera, Inc. Software 6.30% (L + 4.50%) 6/28/2024 4,446 4,417 4,449
Institutional Shareholder
Services Inc. Business Services 6.44% (L + 4.50%) 3/5/2026 13,895 13,769 13,687
Keystone Acquisition Corp. Healthcare Services 7.19% (L + 5.25%) 5/1/2024 5,278 5,243 5,173
LSCS Holdings, Inc. Healthcare Services 6.31% (L + 4.25%) 3/17/2025 7,298 7,290 7,225
LSCS Holdings, Inc. Healthcare Services 6.31% (L + 4.25%) 3/17/2025 1,884 1,882 1,865
Market Track, LLC Business Services 6.18% (L + 4.25%) 6/5/2024 11,700 11,660 10,530
MediaOcean, LLC Software 5.80% (L + 4.00%) 8/18/2025 7,392 7,372 7,410
Medical Solutions Holdings ,
Inc. Healthcare Services 6.30% (L + 4.50%) 6/14/2024 2,795 2,786 2,791
Ministry Brands, LLC Software 5.85% (L + 4.00%) 12/2/2022 12,160 12,124 12,160
Ministry Brands, LLC Software 5.85% (L + 4.00%) 12/2/2022 2,095 2,089 2,095
Ministry Brands, LLC Software 5.85% (L + 4.00%) 12/2/2022 880 877 880
NorthStar Financial Services
Group, LLC Software 5.30% (L + 3.50%) 5/25/2025 5,885 5,861 5,789
Peraton Corp. (fka MHVC
Acquisition Corp.) Federal Services 7.05% (L + 5.25%) 4/29/2024 10,237 10,203 10,193
Premise Health Holding Corp. Healthcare Services 5.44% (L + 3.50%) 7/10/2025 1,372 1,367 1,358
Project Accelerate Parent, LLC Business Services 5.99% (L + 4.25%) 1/2/2025 13,545 13,494 13,511
PSC Industrial Holdings Corp. Industrial Services 5.49% (L + 3.75%) 10/11/2024 7,305 7,252 7,269
Quest Software US Holdings Inc. Software 6.18% (L + 4.25%) 5/16/2025 14,850 14,790 14,739
Salient CRGT Inc. Federal Services 8.29% (L + 6.50%) 2/28/2022 13,134 13,071 12,510
Spring Education Group, Inc.
(fka SSH Group Holdings, Inc.) Education 6.19% (L + 4.25%) 7/30/2025 716 715 721
Wirepath LLC Distribution & Logistics 5.94% (L + 4.00%) 8/5/2024 14,813 14,813 12,886
WP CityMD Bidco LLC Healthcare Services 6.44% (L + 4.50%) 8/13/2026 15,000 14,855 15,038
Wrench Group LLC Consumer Services 6.19% (L + 4.25%) 4/30/2026 4,478 4,435 4,488
YI, LLC Healthcare Services 5.94% (L + 4.00%) 11/7/2024 14,801 14,791 13,839
Zelis Cost Management Buyer,
Inc. Healthcare I.T. 6.55% (L + 4.75%) 9/30/2026 10,363 10,261 10,427
Zywave, Inc. Software 6.93% (L + 5.00%) 11/17/2022 16,975 16,930 16,975
Zywave, Inc. Software 6.84% (L + 5.00%) 11/17/2022 481 477 481
Total Funded Investments $ 348,005 $ 346,336 $ 339,967
Unfunded Investments - First
lien
Bearcat Buyer, Inc. Healthcare Services - 7/9/2021 $ 194 $ (1) $ (1)
Bleriot US Bidco Inc. Federal Services - 10/31/2020 1,351 (14) 15
Premise Health Holding Corp. Healthcare Services - 7/10/2020 110 - -
Wrench Group LLC Consumer Services - 4/30/2021 $ 1,500 $ - $ 4
Total Unfunded Investments 3,155 (15) 18
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Table of Contents
Principal
Portfolio Company and Type of Amount or Par Fair
Investment Industry Interest Rate (1) Maturity Date Value Cost Value (2)
Total Investments $ 351,160 $ 346,321 $ 339,985
(1)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 LIBOR (L), the Prime Rate (P) and the alternative base rate
(Base). For each investment, the current interest rate provided reflects the
rate in effect as of December 31, 2019 .
(2)Represents the fair value in accordance with ASC 820. Our board of directors
does not determine the fair value of the investments held by SLP II.
Below is certain summarized financial information for SLP II as of
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