Good morning and welcome to the New Mountain Finance Corporation’s Fourth 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 Rob Hamwee, CEO. Please go ahead.

Thank you and good morning everyone and welcome to New Mountain Finance Corporation’s fourth quarter earnings call for 2017. On the line with me here today are John Kline, President and COO of NMFC and Shiraz Kajee, CFO of NMFC. Our Chairman Steve Klinsky is unable to join the call today but will rejoin us on future calls. I would like to start by asking 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 November 7 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 Rob Hamwee, who will give some highlights beginning on Pages 4 and 5 of the slide presentation. Rob?

Thanks Shiraz. 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, 2017 was $0.35 per share at the high end 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 stable at $13.63 per share as compared to $13.61 per share last quarter. We are also able to announce our regular dividend which for the 24th straight quarter will again be $0.34 per share and annualized yield of 10.5% based on Monday's close. The company had another productive quarter of deal generation investing $190 million in growth originations versus repayments of $213 million which keeps us fully invested. Credit quality remains particularly strong as for the third consecutive quarter not only was there no new non-accruals but we had no portfolio companies on our credit watch list. I and other members of New Mountain continue to be very large owners of our stock with aggregate ownership of 9 million shares approximately 12% 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 130 key members. Before diving into the details of the quarter, as always I would 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 are taking 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 industries that…

Thanks Rob. As outlined on page 13, the leverage credit markets continue to be exceptionally strong. The middle market which is our primary focus remains very competitive. The highest quality deals are highly sought after by the lender community which spreads have declined even compared to Q4. So far in Q1 syndicated deals have taken share from middle market executions as sponsors seek to maximize competitive tension between lenders. Additionally sponsor driven re-pricing continues to be a growing trend especially in the first lien market. While the second lien market has also been impacted by re-pricing activity it has been less prevalent than the first lien market due to higher levels of call protection, more concentrated lender groups, and smaller tranch sizes. NMFC's biggest earnings tailwind which has helped offset spread pressure has been the steady increase of three months LIBOR which has increased from 1.4% since our last call in November to nearly 2% today. Additionally while January and February are typically seasonally weak from a deal flow perspective, we have seen strong new origination volume and while the market continues to be competitive we remain confident in our ability to source great deals in our core defensive growth industries in the coming quarters. Turning to page 14 NMFC continues to be positively exposed to rising rates as 85% of our portfolio is invested in floating rate debt. Meanwhile we have locked in 51% of our liabilities at fixed rates to ensure attractive borrowing costs over the medium term. Three months LIBOR has increased to 198 basis points which is roughly 100 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 remained strongly positioned in the event of…

Thank you John. For more details on our financial results in today's commentary please refer to our Form 10-K that was filed last evening with the SEC. Now I would like to turn your attention to slide 22. Portfolio had approximately $1.85 billion in investments at fair value on December 31, 2017 and total assets of $1.93 billion. We had total liabilities of 893 million with total statutory debt outstanding was 735 million excluding 150 million of growing SBA guaranteed debentures. Net asset value of $1 billion or $13.63 per share was up $0.02 from the prior quarter. As of December 31st our statutory debt to equity ratio was 0.71 to 1. On slide 23, we show how historical leverage ratios which are broadly consistent with our current target statutory leverage of between 0.7 and 0.821. On this slide we also show that historical NAV adjusted for the cumulative impact of special dividends which portrays a more accurate reflection of true economic value creation. On slide 24 we shall call it income statement results. We believe that our NII is the most appropriate measure of quarterly performance. This slide highlights that 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 December 31, 2017 we owned total investment income of $53.2 million up. This represents an increase of $2 million dollars from the prior quarter largely attributable to an increase in other fee income. Total net expenses were approximately 26.6 million, a $1.7 million increase from the prior quarter. As in prior quarters the investment advisor continues to waive certain management fees such that the effective annualized management fee is 1.4%. It is important to note that the investment advisor capital fees…

Thanks Shiraz. To continue to remain our intention to consistently pay the $0.34 per share on a quarterly basis for future quarters so long as the net investment income covers the dividend in line with our current expectations. In closing I would just like to say that we are continually pleased with our performance to date most importantly from a credit perspective our portfolio overall continues to be healthy. Before turning the call back to the operator to open up the line Q&A a few questions came in a just prior to the call offline so I just want to address and then again we'll go to live Q&A.

The first question was around the impact of a rising rate environment on our borrowers ability to service their debt?

And the short answer is we are very comfortable with that I mean for the following reasons; one, our borrowers are very high free cash flow, generating a lot of CAPEX for working capital requirements, so our interest coverages are quite robust. Second, and even more importantly most of our borrowers are hedging out the majority of this risk through interest rate swaps and cap so it doesn't really follow to them if they've taken that, if you transfer that risk to someone else. And third again at the margin borrowers are reducing spreads so they're offsetting their rising rate impact by lower spreads. So again we are very comfortable with that item.

In terms of -- second question in terms of the mix of underlying assets and how does that change the profile, the risk profile of the portfolio?

Again we're very comfortable here. Our guiding principle is we will never trade material risk at the asset level for increased deal that kind of math just never worked. We believe that and we will say it again but when you get hurt this business is taking losses and that's our first, second, and third goal to avoid credit losses. So more specifically I think first of all the mix is still within our parameters. We believe it is 50:50 plus or minus 10. I think right now we're at 55:45 and as John pointed out Q1 it is going to swing back to a more senior heavy. So we are going to keep that 50:50 plus or minus 10. So there is not going to be a dramatic change in the mix. And secondly, we've said this other times in the past that well, we would rather lend at a junior level to an extraordinary company that we know intimately than at the senior level to a okay company that we are tired now. So, again we don't believe that that risk is correlated only with where you fit in the capital structure.

And final question was general dues of the BDC market today?

And look I think BDC stocks in general you see it has certainly owned stock and have been hit in the last few months. Obviously there's lots of reasons different people can speculate. Our view is that people are worried about credit cycle, worried about -- have been BDCs that have had problems. I think some people sometimes may get linked inappropriately with interest sensitive stocks but again with floating rate as most of our peers so we don’t think that makes a lot of fans. But I think our view relative to NMFC is we're still printing out a 10% ROE and doing it with -- in a world where base rates that have gone from 0 to 2 but that is still 800 basis points of extra spread that still should be an attractive value propositions. So we are puzzled frankly why the stock rates were traded. So hopefully that was helpful. But with that operator perhaps you can open up the line to live Q&A. Thank you.

[Operator Instructions]. Our first question comes from Jonathan Bock with Wells Fargo Securities. Please go ahead.

Hi guys Fino Shane [ph] for Jonathan this morning. Thanks for taking our question and congratulations on some robust returns this quarter. First on portfolio company, the largest one Hitech Corp just kind of looking for an overview on performance in that name, I think it came on the books about a year ago. It's a piece of very high dividend 15% and I think you initially outlined that it had a convertible structure. So is that something that -- should we look into -- and it's marked at cost of course but it's something that one might have thought would see some appreciation. So if you can kind of give an overview of that name?

Yeah, absolutely. So, I think Hitech is performing very well at the end of the line business level and I think as we stated before it's only modestly leveraged, through both any debt that is ahead of us as well as through our security. Leverage points are well below the average of the portfolio and it's a very valuable franchise, one of the -- by far the most direct comp is being acquired at a double-digit multiple by [indiscernible] sponsor. So we feel very, very good about that position. We have not -- I mean to evaluate the quarter do we need to based on the convertibility markup on an as converted basis. Obviously we haven't done that. We will continue to revaluate that at some point that that may become necessary. But right now we're comfortable holding it at cost but we certainly feel and proudly about the credit profile there.

Very well and thank you for the color, another on the net lease REIT, those are on the contrary marked a little bit of both cost and we're trying to get a little color on that, are they spinning out higher dividends or NOI or is this sort of -- or is it like equity evaluation via rising interest rates if you will?

So here is what is going on there that the primary driver is that there are rent escalators in our deals [ph]. Right so, when you think about the yield, the cash yield which is what we sort of show flowing through the income statement that is lower than the IRR, right because the IRR is going to be inclusive of 15 years of typically 1.5% to 2.5% rent escalators and those compound and become quite meaningful over time. So the equity value increases you are seeing is primarily a function of these contractual rent escalators at the portfolio seasoned year plus on each individual deal that's going to flow through. And the other thing that could impact, it didn’t have a really dramatic impact this quarter but over time it could go either way, right, it is going to be cap rates. Because these unlike virtually everything else in our portfolio these are long duration assets at a fixed rate. So, cap rate could move up or down that would also impact the equity value. But the driver this quarter and last couple quarters has been these escalators taking in.

Thank you for that as well and just one more on the SLP, just doing a little glance at those returns one versus two, SLP and correct me if I'm wrong here SLP I seems to give a little bit higher of a ROE and that amount seems to be close to the management fee amount that NMFC receives. Is this if I'm right is this just a different underlying composition or is this management fee just additional capture of economics that you are able to structure there?

Yeah, no, it is the latter. I mean SLP I does have a management fee that NMFC again not the manager but NMFC collects ahead because about 75% of the equity in SLP I is third party and there is a fee there. SLP II is different that we're putting up 80% of the capital while not charging the management fee on the minority there. So, that is the primary driver, that delta you end up there.

Excellent, okay guys, well thank you again and that's all for us.

Great, thank you very much.

[Operator Instructions]. Our next question comes from Casey Alexander with Compass Point Research and Trading. Oh, I am sorry, our next question comes from Ryan Lynch with KBW. Please go ahead.

Good morning, thank you for taking my questions. Hey, first one just wanted to talk about Edmentum, you guys have that market about 80% of your costs. I know you guys can't comment on other people's valuation but there are a couple other BDCs in the market to have that investment market at zero and at 74%. And again I know you can't comment on other people's valuations or their methodology but could you just provide a little color on how you guys got comfortable with that value that I think it's calculated at 80% valuation and why you're comfortable at that level?

Yeah, look I mean we are the single largest shareholder in that right now, I think we're more intimately involved with the business than anyone else. And I think it is a private equity sector that we're very well versed in. So, I think we're incredibly well positioned to value that security. Time will tell who is right or who is wrong but we by definition are incredibly comfortable with that evaluation and we'll see over time. But I certainly don't think anyone is in possession of anymore facts than we are.

Okay, fair enough. And then going back to your net lease business. I mean that business was mostly flat, didn't really grow much in 2017 except in this most recent quarter you guys made an investment and then we saw so far in the first quarter 2018 you guys made another investment so I was just curious if you could provide any more details of why that business is now starting to see some more growth recently?

Yeah, look I think it is episodic. I can't point to any one particular thing that will drive that to be more active in one quarter than in another quarter or six month period. We do see a pretty good pipeline today. So if I had to guess I would say the next six months will look a little bit more like the last quarter or two than the bulk of 2017. But like everything else we do we have a pretty high bar for what we're willing to do there and everything in the pipeline could fall away. So we don't have any mandate to deploy any amount of capital over any time period in that business. It's wherever we find really attractive opportunities then we do have I think one of the leading teams in that space now. But we are going to be very disciplined about what we do there. So yeah, sorry I can't give you any more clarity around what led me to drive it. It's pretty idiosyncratic led by nature.

Okay, yes that is helpful, I understand it. So, multi business and tough to predict. And you guys mentioned on the call a couple of times about rising rates, rising LIBOR. I want to talk about you guys liability structure for a minute. You guys did some attractive -- issued some attractive 4.9% yield in unsecured notes in January to help further fixed out the interest rates on your debt capital structure. As you guys continue to tap the bond markets for debt financing, is there any thought that try to pursue potentially getting an investment grade rating. I would think given your size and track record that would be something that you guys would be able to achieve and can maybe trim off some costs on your guys unsecured bonds that you guys continue to place those in the market?

Yes, it is a good question. It is really something that is where we're we are thoughtful about and we are obviously looking at a lot of people to minimize our volume costs. Clearly investment grade rating would be helpful to that endeavor so that's not lost on us beyond that I can't say more.

Okay, well thank you for taking my questions. That's all from me and nice quarter.

Great, thank you.

[Operator Instructions]. Our next question comes from Art Winston with Pilot Advisor. Please go ahead.

Thank you and we issue [indiscernible] and I am sure shareholders are really happy the way the credit losses have evolved through the years, a very small. But I was wondering if you could think out loud, if you can come up with any circumstances and what would have to happen for the dividend to go up which seems quite unlikely and I'm sure that you would consider like you've done from time to time buying shares back if the share price would fall, so I wonder if you could comment on these two things?

Yes, absolutely. So, we are not managing this to increase the dividend over time. I just would like to try to be clear about that. Our goal is to take as little risk as possible and support this dividend. Again we think it's a pretty attractive yield in this and any medium term interest rate environment. Look if LIBOR went to 8%, if it went back to very, very different interest rate regime and the tenure was at seven or eight or nine and LIBOR was at six or seven I think then we had to think about -- then it becomes a different value proposition. But as long as rates are anywhere near where they've been, where we are very -- if you think it is a good value proposition for the shareholders of this dividend. And again our goal is to deliver that dividend with as little credit risk as possible. On the second question, the buyback we typically said in the 90's we're not in the question [ph] of buyback, doesn't make sense as we get into the 80's as a percent of book value. I think we would seriously consider and certainly in the 70's where we're buying as much as we can. So that's what I would think about the buyback. And we will continue to be guided by that.

Thanks for the results and really the excellent answers to these questions.

Great, now thank you for your support as a shareholder.

[Operator Instructions]. Our next question comes from Jeff Greenblatt with Monarch Capital. Please go ahead.

Hey Jeff.

Good morning Rob, congratulations on another good quarter. Most of my questions have been answered but just focus on just one comment. As a long-term shareholder this is more of a big picture comment, from my point of view and I'm sure hopefully from your guys as well, your portfolio looks to me as good as it has in a while. And as you focused your only -- You have got 100% in one or two. In terms of your ratings you termed data to attractive is a good portion of your debt and you're well positioned for the environment. I believe we're in terms of rising rates, I think most others. Yet, lease from the last few years other than small incisions Your stocks trading at a larger discount to NAV which you said puzzles you. So I just want to circle back to your last comment, as you sit there today and get repayments and cash comes in your stock in the market is trading at or above at a yield where you're putting money out, you could buy a diversified portfolio of loans both first and second liens that you know well. I'm a little curious why sort of you need to be below 90% of NAV to get interested here. You've got a 50 million authorization which you've only used 2.9. Could you just -- I mean to me just, I know I am on the outside obviously why wouldn't purchases right in the market where it is right now if that's at 90 or 92 or whatever be a better use from the owner's point of view where you know what you're buying, you're buying a diversified portfolio then putting out money into new paper. Can you just comment a little more on that?

Yeah, absolutely. So I guess sitting here today, right that's roughly thirteen, books at 13.62 so I think we are about 95. And it maybe a different thought process at 95 than at 90. But I think that frictional cost and look Jeff, I mean we have always been honest about this. We are here number one to deliver good value prop for the shareholder but are also looking to create value from a management perspective. So we think that we can align ourselves around that and people need to be cognitive about that. So, over time we do want to grow, we think there's value in growth. Bigger platform allows us to address the needs of our clients, our sponsor clients in a more meaningful way. So we do believe there is value of scale. And the frictional costs we pay roughly 5% every time we issue stock so it would issue pay the 5 and then buy back and just get 95. We don't think it is the right approach and also we want to make sure we have capacity if the stock gets to 85 or 80 or 75. So, we can debate it but that is our approach and that's kind of how we do it.

So I assume then as a follow up to what you guys have always said, you're not going to issue stock below NAV to grow capital?

That's for sure. We've been 100% transparent about that and we have always said we will never ever issue stock that doesn’t get the company book value.

Okay, well going back to my first comment, I think you guys have done a great job of positioning the portfolio for the current environment, so congratulations and keep it up, thanks.

Great, thank you Jeff, we appreciate that.

[Operator Instructions]. Our next question comes from Casey Alexander with Compass Point Research and Trading. Please go ahead.

Hi, good morning and I apologize for my earlier technological challenges. I appreciate your thoughtful approach to underwriting new investments and in that vein I find the additional investment in Edmentum interesting. Can you explain sort of what your thought process was there, what the impact is to the existing Edmentum securities that you already have been and sort of where this sits in the capital structure? And finally was there any additional equity that came into the company at the same time that you made this additional investment?

Okay, sure. We will try to address that little concurrent. So, our view on Edmentum and I need to step back a second in Edmentum. It is a private company so I need to be a little circumspect but Edmentum is one of the leading players in the case through twelve digital curriculum digital assessment tool market. That is a market, that is a very attractive place to be. Edmentum's following has not been a market challenge, it's been an execution challenge. So last summer we brought in a new leader for the business who is rebuilding that execution capability and she is in our judgment and again this is incorporating our private equity expertise and our number one core competency in private equity is a value added manager. So that's what we do all day. She's extraordinary. And our view is that she's going to fix the execution challenges the company has had. We are in a market where comparable companies traded at incredibly high multiples for good reason. These are -- they are comps traded in the mid to high teens from an EBITDA multiple. And we think with we've got a plan and not five years from now but in the relatively near to medium term to fix a lot of the issues the company has had and take advantage of a very strong market. And execute and do well and ultimately get an exit at a multiple that's compelling. So, we think there is tremendous value to be created at Edmentum. Execution risk writeback but we think the preponderance of outcomes are quite favorable here. And so we want to support the company with the appropriate amount of growth capital to allow it to achieve its goals and to take advantage of the opportunities that lie before it. And we're just generally the firm well versed in this sector. So again not without some risk but we think the reward is much higher than the risk. Our capital and one other investor who's the current shareholder is putting capitals well along side of that came in the form of junior capital not true common equity but it's junior capital and had significant equity in the form of warrants attached to it. So it's caused by equity you mentioned to your other question. Did I address that.

Well yes, I think you addressed pretty much everything other than what you would judge the impact to be to the existing Edmentum securities that you own. I mean I can see where they're marked in the book at the end of the quarter but how would you judge the impact as this money did come in after the end of the quarter?

Yeah, I am sorry, good question. No material impact but is not something that cannot change that given the scale of the business. So, no material impact on the securities.

Great, okay, thank you very much. I appreciate your time.

Yes, no thank you.

[Operator Instructions]. Our next question comes from Charlie Sloan with Oak Family Advisors. Please go ahead.

Good morning and I just want to say as a shareholder from the Midwest, thank you so much for your transparency and in the unison of alignment with shareholders. We don't see that very often and it's great to see. We appreciate it very much. The question that I have is how many names can you actually own as you say and I agree with the philosophy obviously, how many names can you actually own that you know incredibly well and how big can the portfolio get and still meet that very, very high test?

Yeah, I know it's a fair question. I think it's scored if not 100s. But I think it is scores and I do think we've also -- that answer changes over time as the scale of our platform from a human capital perspective grows and what I mean by that is if our model is leveraging our private equity team members and their sector expertise as we grow the private equity team and certainly it's more than doubled since we started the credit. And so we aired verticals or sub verticals within our core verticals our addressable capacity goes up if you will. And we've seen that why because there are things that we can do today where we have great underlying sectoral expertise that three to five years ago we just didn’t have. And so we're obviously trying to make sure we are lining up the growth of our capital with the growth of our human capital and specifically our addressable subsectors. So it is something we actively manage again and I do think relative to the size of the portfolio today we have capacity. But we will manage that but we have to -- we always have to ask ourselves when we are looking at a new opportunity is do we know this space, do we know this company. And if the answer is no, we kind of have to figure it out from the first inning, we're probably just in the past and wait for the next one.

Great, well thank you for that and keep up the great work. We really appreciate it.

No, thank you.

[Operator Instructions]. Our next question comes from Kurt Bieler, private investor. Please go ahead.

Good morning recently I read or heard that in the next few years LIBOR will not be a published benchmark, have you heard anything about that and how would it impact your business?

Yeah, it is a good question. We're following that yes we're well aware of that and we are following that very closely and we do think that there is -- and this is the 2021 is I believe the years that they're talking about. But there is working group, it is obviously very tiny piece of that and there is a working group that either is going to figure out a winner or just some news recently that there may be a plan to continue with LIBOR. But there is a working group that LIBOR fund that at some point that there will be a relevant similar benchmark that would be utilized in the same way. And the transition plan would look to clear obviously this as it goes well beyond our business into the multi-trillion dollar market for loans. That reference LIBOR as a benchmark so definitely something we like to keep on our radar screen but we feel pretty good that the industry as a whole has a couple of different ways to deal with this. But we will keep everyone informed as that evolves.

Alright, thank you very much.

You are welcome.

[Operator Instructions]. I'm seeing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Rob Hamwee for any closing remarks.

Thank you and again thanks everybody. We as always appreciate the support and interest and look forward to speaking in a couple of months with the Q1 numbers. Have a great day, bye-bye now.

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