Good morning and welcome to the New Mountain Finance Corporation’s Second Quarter 2017 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] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Rob Hamwee, CEO. Please go ahead.

Thank you and good morning, everyone and welcome to New Mountain Finance Corporation’s second quarter earnings call for 2017. 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, but 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 that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our August 8 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’d 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 adjusted net investment income for the quarter ended June 30, 2017, was $0.34 per share in the middle of our guidance of $0.33 to $0.35 per share and once again covering our quarterly dividend of $0.34 per share. New Mountain Finance’s book value was $13.63 per share as compared to $13.56 per share last quarter, or $0.07 increase per share. We’re also able to announce our regular dividend for the current quarter, which will again be $0.34 per share and annualized yield in excess of 9% based on last Friday’s close. The company had another productive quarter of deal generation invest in $258 million in gross originations. Repayments in the quarter were $182 million. We continue to be fully invested and credit quality remains strong. I and other members of New Mountain continued to be very large owners of our stock with aggregate ownership of 9.1 million shares approximately 12% of total shares outstanding. 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 model and extensive fundamental research within 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 utilized 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 August 4, 2017. In the six plus years since our IPO, we have generated a compounded annual return to our initial public investors of 11.5%, meaningfully higher than our peers in the high yield index and well over 1000 basis points per annum above relevant risk free benchmarks. Page 8 goes into a little more detail around relative performance against our peers that benchmarking against the ten 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 NII. As the bar on the far right illustrates, over the six plus years…

Thanks, Rob. As outlined on Page 13, the credit markets are stronger today than they have been since we went public in 2011. Even since our last call we have seen credit spreads continue to tighten in this competitive market. Leverage levels for high quality sponsor-backed companies continue to be fall. However, we’re still seeing equity contributions of 45% to 60% of total enterprise value, representing meaningful capital at risk below our debt. We’ve experience a tailwind and base rates with three-month LIBOR now at 1.3%. This base rate increase has provided NMFC with a small or dyeable offset to the spread compression we have experienced. Looking forward, we believe there’s currently a high-level of sponsored activity in the market, which should lead to very strong deal flow this fall. We have some hope that more leverage buyout transactions will cause the aforementioned spread tightening to lesson or reverse. However, we’re prepared to operate our business successfully in the event the existing environment persists. More than ever, we rely on the importance of our disciplined focus on defensive growth industries and differentiated access to deal flow afforded to us by the broader New Mountain platform. Turning Page 14, NMFC continues to be well positioned in the event of future rate increases, as 86% of our portfolio is invested in floating rate debt. Meanwhile, we have locked in 49% of our liabilities at fixed rates to ensure attractive borrowing costs over the medium term. Three-month LIBOR has increased to 131 basis points, which is roughly 30 basis points above the average LIBOR floor on our floating-rate assets. As the chart on the bottom of the page shows, given our investment portfolio and liability mix, NMFC is very strongly positioned in the event of an increase in short-term rates. Even a moderate…

Thank you, John. For more details on our financial results in today’s commentary, please refer to the Form 10-Q that was filed last evening with the SEC. Now, I’d like to turn your attention to Slide 21. The portfolio had approximately $1.88 billion in investments at fair value at June 30, 2017 and total assets of $1.95 billion. We had total liabilities of $919 million, of which total statutory debt outstanding was $752 million, excluding $127 million of drawn SBA-guaranteed debentures. Net asset value of $1 billion or $13.63 per share was up $0.07 from the prior quarter. As of June 30, our statutory debt to equity ratio was 0.73 to 1. On Slide 22, we show our historical leverage ratios, which are broadly consistent with our current target statutory leverage of between 0.7 and 0.8 to 1. On the slide, we also show the historical NAV adjusted for the cumulative impact of special dividends, which portrays a more accurate reflection of true economic value creation. On Slide 23, we show our quarterly income statement results. We believe that our adjusted 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 continue to generate stable net investment income above the line. Focusing on the quarter ended June 30, 2017, we earned total investment income of approximately $50 million. This represents an increase of $6.7 million from the prior quarter, largely attributable to an increase in prepayment income an increase in investment income from a larger asset-based. Total net expenses were approximately $24.2 million, an increase of $4.3 million from the prior quarter, due primarily to an increase in incentive fees and no incentive fee waiver this quarter. As in prior quarters, the…

Thanks, Shiraz. It continues to remain our intention to consistently pay the $0.34 per share on a quarterly basis for future quarters so long as the adjusted NII 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?

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Jonathan Bock of Wells Fargo Securities. Please go ahead. Fin O’Shea: Hi, guys, Fin O’Shea on for Jonathan this morning, thanks for taking our question. Awesome. We saw in June, you guys received – presented relief to coinvestment other funds. Can you kind of give us some color as to whether these are – this is kind of funds in place on the platform or whether you intend to build out beyond the BDC a larger direct lending apparatus?

Yes. So we have a relatively new fund – a private fund, that had its first closing earlier in the year, we’re at about $250 million of commitments to that fund and we’re open for another couple of months here. So we are building out a little bit on the private side. We do feel our deal flow and the opportunities set continues to increase to the point where our broader capital base makes sense. So that’s what really that speaks to. Fin O’Shea: Very well. And then just a question, I’m sure you hear from time to time, given the defensive nature of your selection. We hear sectors like software, for example, because they are defensive and study going at very elevated multiples, the leverage attachments can get pretty high, too. Can you kind of give us a feel what you’re seeing in those verticals and, which maybe sub-verticals you find attractive today?

Yes, absolutely. I mean, we have definitely seeing purchase price multiples in the private equity in general and they’re certainly exception to that. But in general these attractive defensive areas, purchase price multiples have continue to expand. What’s interesting is that leverage multiples haven’t expanded on a ratable basis. I mean, there’s real cap on the leverage multiple side. So we have just seen increasing sponsor equity contributions. To give you some sense, we have seen purchase multiples in some deals, 14x, 15x, 16x, 17x, with leverage multiples typically capped in somewhere between 6x and 7x. So you’re seeing sponsor equity contributions well north of 50% in many of the deals that we are involved with. Fin O’Shea: Thank you so much.

You’re welcome.

[Operator Instructions] Our next question comes from Paul Johnson of KBW. Please go ahead.

Good morning, guys. Thanks for taking my questions.

Yes, no problem, Paul.

I had a question, you guys mention Sierra Hamilton, it was restructured post quarter end. Can we expect that the second quarter 2017 fair value mark is reflective of what you will receive out of that restructuring?

Yes, absolutely at any mean – there’s been restructuring we’ve been talking about now for two or three quarters. So the mark has reflected that for some time and certainly the Q2 mark is fully reflective of the reorganized securities that we have not received.

Okay, thanks. And then, another portfolio company Pinnacle software I saw what you guys took a pretty nice markup in the quarter. Can you guys give any color around that company? Has there been a recovery in the business? Or anything that you can provide there would be nice too.

Yes, so the color that we can provide is that there was a Wall Street Journal article. And this is – can provided, because it’s public. The Wall Street Journal article in late in the quarter, some mid-June, that talked about some possible M&A around that company and that led to an increase in the visible marks on that – that we use as a part of our valuation process for those valuations. So it’s really the speculation about a possible sale of that enterprise and a pretty high-value that led to that. Obviously, we have no color beyond that, as to the likelihood or the lack of likelihood of any type of transaction coming there.

Okay great. And then, another one I just had kind of quickly back into this, but I kind of wanted to see if you guys were able to provide exactly what the income from the net lease assets on your portfolio was? I know you’ve got a slide in there with the SLF and the net lease income combined, if I sort of do some rough math, I get about $1 million or so for the quarter, does that sound right?

Net income from the lease – from the REIT, that’s a little high, about 700,000 or so roughly.

700,000, Okay.

So, it’s still a pretty small.

Sure. That’s fine. Okay, and my last question just to be sort of a general question, which is you guys were able deploy nice amount of capital in the quarter. I’m just curious at a time with high refi activity M&A, a lot of BDC managers seeing net repayments versus net originations. What allowed you to really be able to successfully deploy that amount on capital in the quarter? And I guess on top of that, is there any particular part of the market that you guys are seeing value or particular asset that you’re targeting?

Yes. I think John touched on a little bit, which is – it’s really the breath of the – and the increasing breath of the New Mountain platform, that allows us, I think, to both see and evaluate, perhaps more opportunities than some of our brethren. We haven’t changed anything, we’re still only doing investments in businesses that we know and like from our New Mountain platform, but that platform has continued to grow and that generates increased looks, as well as increased areas, subareas within our broader verticals of expertise. So in terms of what we like in this environment, it’s still the same type of defensive growth businesses of the same attributes of high free cash flow, a cyclicality recurring revenue, that we have talked about in the past. And really, it’s that expanded platform that allows us to see a lot of good looks and we continue to maintain great discipline around the quality of the business and the loan to value proposition that we’re willing to accept. We have seen some, as John touched some modest spread compression within that and that we can live with, but we will never lived with is meaningfully changing our underwriting standard. John, if you want to add anything to that?

That’s right on.

Okay, thank you very much.

Great, thank you.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Rob Hamwee for any closing remarks.

Well, thanks, everyone. Appreciate the time and interest and look forward to speaking again next quarter. Bye-bye.