UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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New Mountain Finance Corporation | |
(Name of Registrant as Specified In Its Charter) | |
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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New Mountain Finance Corporation
787 Seventh Avenue, 48th Floor
New York, New York 10019
March 14,May 7, 2018
Dear Stockholder:
You are cordially invited to attend the 2018 AnnualSpecial Meeting of Stockholders (“AnnualSpecial Meeting”) of New Mountain Finance Corporation (“NMFC” or the “Company”) to be held on April 26,June 8, 2018 at 9:1:00 a.m.p.m., Eastern Time. You will be able to participate in the AnnualSpecial Meeting, vote and submit your questions via live webcast by visiting www.virtualshareholdermeeting.com/NMFC2018NMFC2018SM. Prior to the AnnualSpecial Meeting you will be able to vote electronically at www.proxyvote.com.
The notice of the AnnualSpecial Meeting and the proxy statement accompanying this letter provide an outline of the business to be conducted at the AnnualSpecial Meeting. At the AnnualSpecial Meeting the stockholders of NMFC will be asked to (i) elect two directorsapprove of the Company becoming subject to a minimum asset coverage ratio of at least 150%, permitting the Company to double its amounts of debt incurrence, pursuant to the board of directors of NMFC to serve for a term of three years, or until their respective successors are duly electedSmall Business Credit Availability Act; and qualify; (ii) ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018 and (iii) to transact such other business that may properly come before the AnnualSpecial Meeting.
It is important that your shares be represented at the AnnualSpecial Meeting. If you are unable to participate in the AnnualSpecial Meeting during the scheduled time, I urge you to follow the instructions on the Notice of Internet Availability of Proxy Materials to vote your proxy on the Internet. I encourage you to vote via the Internet, as it saves us significant time and processing costs. However, on the Notice of Internet Availability of Proxy Materials, you will also find instructions on how to request a hard copy of the Proxy Statement and proxy card free of charge and you may vote your proxy by returning your proxy card to us after you request the hard copy materials.us. Your vote is important.
To vote or to submit your questions during the AnnualSpecial Meeting, please log on to www.virtualshareholdermeeting.com/NMFC2018NMFC2018SM. You will need to enter the 12-digit16-digit control number on your notice of the AnnualSpecial Meeting. Your vote is important to us.
Sincerely yours, | |
Robert A. Hamwee Chief Executive Officer |
Important Notice Regarding the Availability of Proxy Materials for the
Special Meeting of Stockholders to Be Held on June 8, 2018.
Our proxy statement relating to the Special Meeting is available on the Internet at www.virtualshareholdermeeting.com/NMFC2018SM.
The following information applicable to the Special Meeting may be found in the proxy statement and accompanying proxy card:
New Mountain Finance Corporation
787 Seventh Avenue, 48th Floor
New York, New York 10019
NOTICE OF ANNUALSPECIAL MEETING OF STOCKHOLDERSAND INTERNET AVAILABILITY OF PROXY MATERIALS
STOCKHOLDERS TO BE HELD ON APRIL 26,JUNE 8, 2018
To the Stockholders of New Mountain Finance Corporation:
A meeting (the “Annual“Special Meeting”) of stockholders of New Mountain Finance Corporation (“NMFC” or the “Company”) will be held on April 26,June 8, 2018 at 9:1:00 a.m.p.m., Eastern Time. We are very pleased that this year’s Annualthe Special Meeting will be a completely virtual meeting of stockholders, which will be conducted via live webcast. It is important to note that shareholders have the same rights and opportunities by participating in a virtual meeting, as they would if attending an in-person meeting. You can participate in the AnnualSpecial Meeting, vote and submit your questions during the AnnualSpecial Meeting by visiting www.virtualshareholdermeeting.com/NMFC2018NMFC2018SM. You must have your 12- Digit16-Digit Control Number in order to access the AnnualSpecial Meeting. The AnnualSpecial Meeting will be held for the following purposes:
1. | To |
2. |
To transact such other business as may properly come before the |
You have the right to receive notice of, and to vote at, the AnnualSpecial Meeting if you were a stockholder of record at the close of business on March 1,April 16, 2018. NMFC is furnishing the Proxy Statement and proxy card to its stockholders on the Internet, rather than mailing printed copies of those materials to each stockholder. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the Proxy Statement and proxy card unless you request them. Instead, the Notice of Internet Availability of Proxy Materials will instruct you as to how you may access and review the Proxy Statement, and vote your proxy, on the Internet.
Your vote is extremely important to us. IfWhether or not you are unableexpect to attend the AnnualSpecial Meeting, we encourageand whatever the number of shares you to vote your proxy on the Internet by following the instructions provided on the Notice of Internet Availability of Proxy Materials. You may also request from us, free of charge, hard copies of the Proxy Statement and proxy card for the Company by followingown, please follow the instructions on the Notice ofenclosed proxy card to vote your shares via the Internet Availability of Proxy Materials.or telephone, or by signing, dating and returning the proxy card in the postage-paid envelope provided. In the event there are not sufficient votes for a quorum or to approve NMFC’s proposals at the time of the AnnualSpecial Meeting, the AnnualSpecial Meeting may be adjourned in order to permit further solicitation of proxies by NMFC.
By Order of the Board of Directors, | |
Karrie J. Jerry Corporate Secretary |
New York, New YorkMarch 14,May 7, 2018
This is an important meeting. To ensure proper representation at the AnnualSpecial Meeting, please follow the instructions on the Notice of Internet Availability of Proxy Materials to vote your proxy via the Internet or request, complete, sign, date and return athe proxy card.card in the enclosed, self-addressed envelope, vote your shares by telephone, or vote via the Internet. Even if you vote your shares prior to the AnnualSpecial Meeting, you still may attend the AnnualSpecial Meeting and vote your shares via the Internet.shares.
New Mountain Finance Corporation
787 Seventh Avenue, 48th Floor
New York, New York 10019
PROXY STATEMENT
2018 AnnualSpecial Meeting
of Stockholders of
New Mountain Finance Corporation
This Proxy Statement is furnished in connection with the solicitation of proxies by the board of directors of New Mountain Finance Corporation (“NMFC”, the “Company”, “we”, “us” or “our”) for use at the NMFC 2018 AnnualSpecial Meeting (the “Annual“Special Meeting”) to be held on April 26,June 8, 2018, at 9:1:00 a.m.p.m., Eastern Time. You can virtually attend the AnnualSpecial Meeting online, vote your shares electronically and submit questions during the AnnualSpecial Meeting by visiting www.virtualshareholdermeeting.com/NMFC2018NMFC2018SM, and at any postponements or adjournments thereof. You will need to enter the 12-digit16-digit control number on your notice of the AnnualSpecial Meeting. It is important to note that shareholders have the same rights and opportunitesopportunities by participating in a virtual meeting, as they would if attending an in-person meeting. This Proxy Statement isand the accompanying proxy card are first being providedsent to theour stockholders of NMFC via the Internetrecord on or about March 13, 2018. In addition, a Notice of Annual Meeting and a Notice of Internet Availability of Proxy Materials are being sent to stockholders of record of NMFC on or about March 14,May 9, 2018.
We encourage you to vote your shares of NMFC’s stock either by voting via the Internet while virtually attending the AnnualSpecial Meeting, by telephone, or by granting a proxy (i.e.,authorizing someone to vote your shares). Shares represented by duly executed proxies will be voted in accordance with your instructions. If you give no instructions on the proxy card, the shares covered by the proxy card will be voted “FOR” the matters listed in this Proxy Statement.
If you are a stockholder “of record” (i.e.,you hold shares directly in your name), you may revoke a proxy at any time before it is exercised by notifying the proxy tabulator, Broadridge Shareholder Services, in writing, by submitting a properly executed, later-dated proxy, or by voting virtually at the AnnualSpecial Meeting. Please send your notification to Proxy Services, P.O. Box 9175, Farmingdale, New York 11735-9852, and submit a properly executed, later-dated proxy or vote virtually at the AnnualSpecial Meeting. Any stockholder of record attending the AnnualSpecial Meeting may vote virtually whether or not he or she has previously voted his or her shares. If your shares are held for your account by a broker, bank or other institution or nominee (“Broker Securities”), you may vote such securities at the AnnualSpecial Meeting only if you obtain proper written authority from your institution or nominee and present it at the AnnualSpecial Meeting. All of our directors are encouraged to attend the AnnualSpecial Meeting. Stockholders have no dissenters’ or appraisal rights in connection with any of the proposals described herein.
Stockholders of record may also vote either via the Internet or by telephone. Specific instructions to be followed by stockholders of record interested in voting via the Internet or the telephone are shown on the enclosed proxy card. The Internet and telephone voting procedures are designed to authenticate the voter’s identity and to allow stockholders to vote their shares and confirm that their instructions have been properly recorded.
Purpose of AnnualSpecial Meeting
At the AnnualSpecial Meeting:
1. | The stockholders of NMFC will be asked to |
2. |
Such other business as may properly come before the |
Stockholders of NMFC may vote their shares, virtually or by proxy, at the AnnualSpecial Meeting only if such stockholders were stockholders of record at the close of business on March 1,April 16, 2018 (the “Record Date”). On the Record Date, there were 75,935,093 shares of NMFC’s common stock outstanding. Each share of NMFC’s common stock is entitled to one vote.
A quorum of NMFC’s stockholders must be present at the AnnualSpecial Meeting for any business to be conducted. The presence at the AnnualSpecial Meeting, online or by proxy, of the holders of a majority of the shares of NMFC common stock outstanding on the Record Date will constitute a quorum. Abstentions will be treated as shares present for quorum purposes. Broker Securities for which the nominee has not received voting instructions from the record holder and does not have discretionary authority to vote the shares on certain proposals (which are considered “Broker Non-Votes” with respect to such proposals) will be treated as shares present for quorum purposes.
If a quorum is not present at the AnnualSpecial Meeting, the stockholders who are represented may adjourn the AnnualSpecial Meeting until a quorum is present. The persons named as proxies will vote those proxies for such adjournment, unless marked to be voted against any proposal for which an adjournment is sought, to permit the further solicitation of proxies.
ElectionApproval of Directors.the Company becoming subject to a minimum asset coverage ratio of at least 150%, permitting A nominee for director shall be electedthe Company to double its amount of debt incurrence, pursuant to the board of directors of NMFC if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. If you vote “Withhold Authority” with respect to a nominee, your shares will not be voted with respect to the person indicated. Abstentions and Broker Non-Votes will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal.
Ratification of Independent Registered Public Accounting Firm.SBCA. The affirmative vote of a majority of the votes cast at the Annual Meeting or by proxyfor this proposal is required to ratifyauthorize the appointmentCompany to be subject to a minimum asset coverage ratio of Deloitte & Touche LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2018.at least 150%. Abstentions and Broker Non-Votes will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal. Because brokers will have discretionary authority to vote for the ratification of the appointment of the Company’s independent registered public accounting firm in the event that they do not receive voting instructions from the beneficial owner of the shares, your broker will be permitted to vote your shares for this proposal. If you give no instructions on the proxy card, the shares covered by the proxy card will be voted FOR the ratification of appointment of Deloitte & Touche LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018.
Additional Solicitation.If there are not enough votes to approve any proposals at the AnnualSpecial Meeting, the stockholders who are represented may adjourn the AnnualSpecial Meeting to permit the further solicitation of proxies. The persons named as proxies will vote those proxies for such adjournment, unless marked to be voted against the proposal for which an adjournment is sought, to permit the further solicitation of proxies.
Also, a vote may be taken on one or more of the proposals in this Proxy Statement prior to any such adjournment if there are sufficient votes for approval thereof.
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Information Regarding This
Solicitation
NMFC will bear the expense of the solicitation of proxies for the AnnualSpecial Meeting, including the cost of preparing, printing and mailing this Proxy Statement, the accompanying Notice of AnnualSpecial Meeting of Stockholders and proxy card(s). We have requested that brokers, nominees, fiduciaries and other persons holding shares in their names, or in the name of their nominees, which are beneficially owned by others, forward the proxy materials to, and obtain proxies from, such beneficial owners. We will reimburse such persons for their reasonable expenses in so doing.
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In addition to the solicitation of proxies by the use of the mail, proxies may be solicited in person and by telephone or facsimile transmission by directors, officers or employees of NMFC, NMFC’s investment adviser, New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”), or NMFC’s administrator, New Mountain Finance Administration, L.L.C. (the “Administrator”), without special compensation therefor. The Company has also retained Broadridge Financial Solutions, Inc. to assist in the solicitation of proxies for the Special Meeting for a fee of approximately $4,500, plus reimbursement of certain out-of-pocket expenses.
Stockholders may also provide their voting instructions by telephone or through the Internet. These options require stockholders to input the Control Number which is located on each proxy card. After inputting this number, stockholders will be prompted to provide their voting instructions. Stockholders will have an opportunity to review their voting instructions and make any necessary changes before submitting their voting instructions and terminating their telephone call or Internet link. Stockholders who vote via the Internet, in addition to confirming their voting instructions prior to submission, will also receive an e-mail confirming their instructions upon request.
Any proxy given pursuant to this solicitation may be revoked by notice from the person giving the proxy at any time before it is exercised. Any such notice of revocation should be provided in writing and signed by the stockholders in the same manner as the proxy being revoked and delivered to NMFC’s proxy tabulator.
The principal business address of both the Investment Adviser and the Administrator is 787 Seventh Avenue, 48th Floor, New York, New York 10019.
Control Persons and Principal
Stockholders
The following table sets forth information with respect to the beneficial ownership of NMFC’s common stock as of the Record Date by:
Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and includes voting or investment power (including the power to dispose) with respect to the securities and assumes no other purchases or sales of securities since the most recently available Securities and Exchange Commission (“SEC”) filings. This assumption has been made under the rules and regulations of the SEC and does not reflect any knowledge that NMFC has with respect to the present intent of the beneficial owners of the securities listed in the table below.
Percentage of beneficial ownership below takes into account 75,935,093 shares of common stock of NMFC outstanding as of the Record Date. Unless otherwise indicated, the address for each listed holder is c/o New Mountain Finance Corporation, 787 Seventh Avenue, 48th Floor, New York, New York 10019.
Name | Type of Ownership in NMFC | NMFC Shares | ||||||||||||||
Type of Ownership in NMFC | NMFC Shares | |||||||||||||||
Name | Type of Ownership in NMFC | Number(1) | Percentage | Type of Ownership in NMFC | Number(1) | Percentage | ||||||||||
Wells Fargo & Company(2) | Beneficial | 6,701,689 | 8.84 | % | Beneficial | 6,701,689 | 8.83 | % | ||||||||
Executive Officers: | ||||||||||||||||
Karrie J. Jerry | Direct | 2,363 | * | Direct | 2,442 | * | ||||||||||
Shiraz Y. Kajee | Direct | 4,000 | * | Direct | 5,000 | * | ||||||||||
John R. Kline | Direct | 51,055 | * | Direct | 71,977 | * | ||||||||||
Interested Directors: | ||||||||||||||||
Steven B. Klinsky(3) | Direct and Beneficial | 7,114,820 | 9.37 | % | ||||||||||||
Robert A. Hamwee(4) | Direct and Beneficial | 322,039 | * | |||||||||||||
Adam B. Weinstein | Direct | 89,107 | * |
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Type of Ownership in NMFC | NMFC Shares | |||||||||||||
Name | Type of Ownership in NMFC | NMFC Shares | Number(1) | Percentage | ||||||||||
Number(1) | Percentage | |||||||||||||
Interested Directors: | ||||||||||||||
Steven B. Klinsky(3) | Direct and Beneficial | 6,524,751 | 8.59 | % | ||||||||||
Robert A. Hamwee(4) | Direct and Beneficial | 298,284 | * | |||||||||||
Adam B. Weinstein | Direct | 72,649 | * | |||||||||||
Independent Directors: | ||||||||||||||
Alfred F. Hurley, Jr. | Direct | 30,240 | * | Direct | 35,835 | * | ||||||||
Rome G. Arnold III | Direct | 11,000 | * | Direct | 11,000 | * | ||||||||
David Ogens | Direct | 53,323 | * | Direct | 54,691 | * | ||||||||
Kurt J. Wolfgruber(5) | Direct and Beneficial | 81,472 | * | Direct and Beneficial | 93,752 | * | ||||||||
All executive officers and directors as a group (10 persons)(6) | Direct and Beneficial | 7,129,137 | 9.39 | % | Direct and Beneficial | 7,800,663 | 10.27 | % |
* | Represents less than 1.0%. |
(1) | Any fractional shares owned directly or beneficially have been rounded down for purposes of this table. |
(2) | Such securities are held by certain investment vehicles controlled and/or managed by Wells Fargo & Company or its affiliates. The address for Wells Fargo & Company is 420 Montgomery Street, San Francisco, California 94163. |
(3) | Mr. Klinsky directly owns |
(4) | Mr. Hamwee directly owns |
(5) | Mr. Wolfgruber directly owns |
(6) | Total number of shares owned is reflected as of the Record Date. |
The following table sets forth the dollar range of NMFC equity securities which stockholders of NMFC have voting power that is beneficially owned by each of NMFC’s directors.
Dollar Range of Equity Securities Beneficially Owned(1)(2)(3) | |||
Interested Directors: | |||
Steven B. Klinsky | Over $100,000 | ||
Robert A. Hamwee | Over $100,000 | ||
Adam B. Weinstein | Over $100,000 | ||
Independent Directors: | |||
Alfred F. Hurley, Jr. | Over $100,000 | ||
Rome G. Arnold III(4) | Over $100,000 | ||
David Ogens(5) | Over $100,000 | ||
Kurt J. Wolfgruber | Over $100,000 |
(1) | Beneficial ownership has been determined in accordance with Exchange Act Rule 16a-1(a)(2). |
(2) | The dollar range of equity securities beneficially owned in NMFC is based on the closing price for NMFC’s common stock of |
(3) | The dollar range of equity securities beneficially owned are: None, $1 - $10,000, $10,001 - $50,000, $50,001 - $100,000 or over $100,000. |
(4) | Mr. Arnold is the beneficial owner of a limited partnership interest in New Mountain Partners II, L.P., New Mountain Partners III, L.P. and New Mountain Partners IV, L.P. that is held by Arnold Family LLC |
(5) | Mr. Ogens is the beneficial owner of a limited partnership interest in New Mountain Partners II, L.P. that is held by Ogens Family, Inc. |
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PROPOSALPROPOSALS
PROPOSAL I: PROPOSAL 1: ELECTIONAPPROVAL OF DIRECTORSTHE COMPANY BECOMING SUBJECT TO A MINIMUM ASSET COVERAGE RATIO OF AT LEAST 150%, PERMITTING THE COMPANY TO DOUBLE ITS AMOUNT OF DEBT INCURRENCE, PURSUANT TO THE SMALL BUSINESS CREDIT AVAILABILITY ACT
PursuantThe Company is a closed-end investment company that has elected to NMFC’s governing documents,be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As a BDC, we are required to meet a minimum asset coverage ratio, reflecting the value of our total assets to our total senior securities, which include all of our borrowings and any preferred stock we may issue in the future, under the 1940 Act. Prior to March 23, 2018, Section 61(a) of the 1940 Act (which incorporates the requirements of Sections 18(a)(1) and 18(a)(2) of the 1940 Act) did not permit a BDC to issue senior securities unless, at the time of issuance, such BDC had an asset coverage ratio of at least 200% taking into account such issuance of senior securities (the “Asset Coverage Ratio”). However, on March 23, 2018, the Small Business Credit Availability Act (the “SBCA”) was signed into law and permits BDCs to be subject to an Asset Coverage Ratio of at least 150% (the “150% Asset Coverage Ratio”), if certain conditions are satisfied as set forth in the SBCA.
Prior to the enactment of the SBCA, generally, for every $1.00 of debt incurred or in senior securities issued, a BDC was required to have at least $2.00 of assets immediately following such incurrence or issuance. For those BDCs that satisfy the SBCA’s disclosure and approval requirements, the minimum asset coverage ratio is reduced such that for every $1.00 of debt incurred or in senior securities issued, a BDC must now have at least $1.50 of assets. This reduction in the Asset Coverage Ratio doubles the amount of debt that BDCs may incur.
The SBCA provides that in order for a BDC whose common stock is traded on a national securities exchange to be subject to the 150% Asset Coverage Ratio, the BDC must obtain either: (i) approval of the required majority of its non-interested directors who have no financial interest in the proposal of the 150% Asset Coverage Ratio, which would become effective one (1) year after the date of such approval, or (ii) stockholder approval (of more than 50% of the votes cast for the proposal) of the 150% Asset Coverage Ratio, which would become effective on the first day after the date of such stockholder approval. BDCs must provide stockholders with timely notice of such approvals and must make periodic reports of the aggregate outstanding principal amounts of senior securities issued by BDC and the asset coverage percentage as of the most recent financial statements included in that filing, the effective date of the approval of the modified asset coverage requirements, and the principal risk factors associated with the senior securities, to the extent incurred by the BDC.
On April 12, 2018, our board of directors, of NMFC is divided into three classes. Directors are elected forincluding a staggered term of three years each, with a term of officemajority of the three classes ofnon-interested directors expiring each year. Each directorwho have no financial interest in this proposal, approved the 150% Asset Coverage Ratio, which will hold office for the term to which he or she is elected or until his or her successor is duly elected and qualifies.automatically become effective on April 12, 2019.
Messrs. David Ogens and Adam B. Weinstein have each been nominated for election for a three year term expiring in 2021 to theIn addition, on April 12, 2018, our board of directors of NMFC, have indicated their willingness to serve if elected and have consented to be named as nominees. Messrs. Ogens and Weinstein have not been proposed for election pursuant to any agreement or understanding between each of Messrs. Ogens and Weinstein and NMFC or any other person or entity.
A stockholder can vote for or withhold his or her vote fromdetermined that this proposal is in the nominees. In the absence of instructions to the contrary, it is the intentionbest interests of the persons named as proxies toCompany and its stockholders, and is recommending that the Company’s stockholders vote such proxy “FOR” the election of eachin favor of the nominees named below.proposal to reduce the Company’s Asset Coverage Ratio requirement to at least 150% for purposes of Sections 18(a)(1) and 18(a)(2) of the 1940 Act. If a nominee should decline orthis proposal is approved by stockholders at the Meeting, the Company would become subject to an Asset Coverage Ratio of at least 150% the day after the Meeting instead of on April 12, 2019. The Board of Directors values the opinions of our stockholders and will reconvene to reconsider its approval of the modified asset coverage requirements if this proposal is not approved by stockholders. There can be unable to serve as a director, it is intendedno assurance that the proxy will vote for the election of such person as is nominated by the board of directors as a replacement. The board of directors has no reason to believe that the persons named below will be unable or unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THE NOMINEES NAMED IN THIS PROXY STATEMENT.
Information about the Nominees and Directors
As described below under “Committees of the Board of Directors—NominatingDirectors would rescind its approval if this proposal is not approved by stockholders. If this proposal is not approved by stockholders and Corporate Governance Committee”, the boardBoard of directorsDirectors does not rescind its approval, we will be subject to the 150% Asset Coverage Ratio beginning April 12, 2019.
If this proposal is approved, this reduction in the required minimum Asset Coverage Ratio will increase the amount of NMFC has identified certain desired attributes for director nominees. Eachdebt that we are permitted to incur; as a result, we may incur additional indebtedness in the future, and therefore, the risk of an investment in us may increase. See “—Risks Related to the Approval of the directors and the director nominees have demonstrated high character and integrity, superior credentials and recognition in his respective field and the relevant expertise and experience upon which to be able to offer advice and guidance to our management. Each of the directors and the director nominees also have sufficient time available to devote to the affairs of NMFC, are able to work with the other members of the board of directors and contribute to the success of NMFC and can represent the long-term interests of NMFC’s stockholders, as a whole. NMFC’s directors and the director nominees have been selected such that the board of directors represents a range of backgrounds and experiences.
Certain information, as of the Record Date, with respect to the nominees for election at the Annual Meeting, as well as each of the current directors, is set forth below, including their names, ages, a brief description of their recent business experience, including present occupations and employment, certain directorships that each person holds, the year in which each person became a director of NMFC, and a discussion of their particular experience, qualifications, attributes or skills that lead us to conclude, as of the Record Date, that such individual should serve as a director of NMFC, in light of its business and structure.
The business address of the director nominees, other directors and executive officers listed below is c/o New Mountain Finance Corporation, 787 Seventh Avenue, 48th Floor, New York, New York 10019.Proposal.”
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Nominees for Directors
IllustrationsClass I Directors—Term Expiring 2021 of the Effect of Lowering the Required Asset Coverage Ratio
Mr. Ogens is not an “interested person”The following table sets forth the following additional information:
• | assuming that as of December 31, 2017 we had incurred the maximum amount of borrowings that could be incurred under the currently applicable 200% asset coverage ratio, our pro forma total assets, total debt outstanding (with the maximum amount of additional borrowings that we would be permitted to incur in dollars and |
December 31, 2017 we had incurred the maximum amount of borrowings that could be incurred under the proposed 150% asset coverage ratio, our pro forma total assets, total debt outstanding (with the maximum amount of additional borrowings that we would be permitted to incur in dollars and | ||||
Mr. Ogens brings his experience in wealth managementIn evaluating the information presented below, it is important to recognize that the maximum amount of borrowings that could be incurred by us is presented for comparative and investment banking, including experience with debt issuances, as well as industry-specific expertise ininformational purposes only and such information is not a representation of the healthcare industryamount of borrowings that we intend to NMFC’s board of directors. This background positions Mr. Ogens wellincur or that would be available to serve as a director of NMFC.
Mr. Weinstein is an “interested person” of NMFC as defined in 1940 Act dueus to his position as Executive Vice President and Chief Administrative Officer of NMFC.be incurred.
Pro Forma Amounts as of December 31, 2017 Assuming That We Had Incurred the Maximum Amount of Borrowings That Could Be Incurred by Us | |||||||||
Selected Consolidated Financial Statement Data (Unaudited) (dollar amounts in thousands) | Actual Amounts as of December 31, 2017(3) | Under the Currently Applicable 200% Minimum Asset Coverage Ratio(4) | Under the Proposed 150% Minimum Asset Coverage Ratio(5) | ||||||
Total Assets | $ | 1,928,018 | $ | 2,227,880 | $ | 3,262,855 | |||
Total Debt(1) | $ | 735,113 | $ | 1,034,975 | $ | 2,069,950 | |||
Net Assets | $ | 1,034,975 | $ | 1,034,975 | $ | 1,034,975 | |||
Asset Coverage Ratio(2) | 240.8 | % | 200.0 | % | 150.0 | % |
(1) | As of December 31, 2017, we had $150.0 million of SBA-guaranteed debentures outstanding, which have been excluded from total debt presented in the table above. |
(2) | On November 5, 2014, we received exemptive relief from the SEC allowing us to modify the asset coverage requirement to exclude our SBA-guaranteed debentures from this calculation. |
(3) | As of December 31, 2017, our total outstanding indebtedness represented 38.1% of our total assets. |
(4) | Based on our total outstanding indebtedness of $735.1 million as of December 31, 2017 and |
(5) | Assuming that we had incurred the maximum amount of borrowings that could be incurred by us under the 150% minimum asset coverage ratio of $1,035.0 million and applying the proposed 150% minimum asset coverage ratio, we could have incurred up to an additional $1,035.0 million of borrowings, bringing our total indebtedness and total assets to $2,070.0 million and $3,262.9 million, respectively. The maximum amount of additional borrowings of $1,035.0 million would have represented 31.7% of the total assets of $3,262.9 million, which are the total assets that we would have had with | ||||
Mr. Weinstein brings his industry-specific expertiseThe following tables illustrate the effect of leverage on returns from an investment in our common stock, based on (1) the actual amount of borrowings incurred by us as of December 31, 2017, (2) the maximum amount of borrowings that could be incurred by us as of December 31, 2017 under the currently applicable 200% minimum asset coverage ratio (that is, a 1:1 debt-to-equity ratio), and background(3) the maximum amount of borrowings that could be incurred by us as of December 31, 2017 if the proposed 150% minimum asset coverage ratio were applied (that is, a 2:1 debt-to-equity ratio), in accounting to NMFC’s boardeach case assuming annual returns on our portfolio (net of directors. This background positions Mr. Weinstein well to serve as a directorexpenses) of NMFC.-10%, -5%, 0%, 5% and 10%. The calculations in the tables below are hypothetical, and actual returns may be higher or lower than those appearing in the tables below.
Effects of Leverage Based on the Actual Amount of Borrowings Incurred by us as of December 31, 2017 | |||||||||||||||
Assumed Return on Our Portfolio (net of expenses)(1)(2) | (10.0 | )% | (5.0 | )% | 0.0 | % | 5.0 | % | 10.0 | % | |||||
Corresponding Net Return to Common Stockholders | (22.0 | )% | (12.7 | )% | (3.4 | )% | 6.0 | % | 15.3 | % |
(1) | In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our December 31, 2017 total portfolio assets of at least 1.9%. |
(2) | The calculation assumes (i) $1,928.0 million in total assets, (ii) a weighted average cost of borrowings of 3.9%, (iii) $885.1 million in debt outstanding, which includes our SBA-guaranteed debentures and (iv) $1,035.0 million in net assets. |
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Current DirectorsClass II Directors—Term Expiring 2019
Mr. Hamwee is an “interested person” of NMFC as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) due to his position as the Chief Executive Officer of NMFC.
Effects of Leverage Based on the Pro Forma Maximum Amount of Borrowings That Could Be Incurred by Us Under the Currently Applicable 200% Minimum Asset Coverage Ratio (i.e., A 1:1 Debt-to-Equity Ratio) | |||||||||||||||
Assumed Return on Our Portfolio (net of expenses)(1)(2) | (10.0 | )% | (5.0 | )% | 0.0 | % | 5.0 | % | 10.0 | % | |||||
Corresponding Net Return to Common Stockholders | (26.0 | )% | (15.3 | )% | (4.5 | )% | 6.3 | % | 17.0 | % |
(1) | In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our total portfolio assets of at least 2.1%. |
(2) | The calculation assumes (i) $2,227.9 million in total assets, (ii) a weighted average cost of borrowings of 3.9%, (iii) $1,185.0 million in debt outstanding, which includes our SBA-guaranteed debentures and |
Effects of Leverage Based on the Pro Forma Maximum Amount of Borrowings That Could Be Incurred by Us Under the Proposed 150% Minimum Asset Coverage Ratio (i.e., A 2:1 Debt-to-Equity Ratio) | |||||||||||||||
Assumed Return on Our Portfolio (net of expenses)(1)(2) | (10.0 | )% | (5.0 | )% | 0.0 | % | 5.0 | % | 10.0 | % | |||||
Corresponding Net Return to Common Stockholders | (39.9 | )% | (24.1 | )% | (8.4 | )% | 7.4 | % | 23.1 | % |
at least 2.7%. |
(2) | The calculation assumes (i) $3,262.9 million in total assets, (ii) a weighted average cost of borrowings of 3.9%, (iii) $2,220.0 million in debt outstanding, which includes our SBA-guaranteed debentures and | |||
Mr. Hamwee’s depth of experienceFees and Expenses Table. The following table is intended to assist you in managerial operational positionsunderstanding the costs and expenses that an investor in investment management and financial services and as a member of other corporate board of directors, as well as his intimate knowledgeour common stock will bear, directly or indirectly, based on the assumptions set forth below. We caution you that some of the business and operations of NMFC, provides the boards of directors valuable industry- and company-specific knowledge and expertise. This background positions Mr. Hamwee well to serve as a director of NMFC.
Mr. Hurley is not an “interested person” of NMFC as definedpercentages indicated in the 1940 Act.table below are estimates and may vary. Except where the context suggests otherwise, we will pay such fees and expenses out of our net assets and, consequently, stockholders will indirectly bear such fees or expenses as investors in the Company.
Annualized Expenses Based on Pro Forma Expenses for the Year Ended December 31, 2017 Assuming That We Had Incurred the Maximum Amount of Borrowings That Could Be Incurred by Us | |||||||||
Estimated Annual Expenses (As A Percentage of net Assets Attributable to Common Stock) | Annualized Expenses Based on Actual Expenses for the Year Ended December 31, 2017(1) | Under the Currently Applicable 200% Minimum Asset Coverage Ratio(2) | Under the Proposed 150% Minimum Asset Coverage Ratio(3) | ||||||
Base management fees(4) | 3.23 | % | 3.73 | % | 5.48 | % | |||
Incentive fees payable under the Investment Management Agreement(5) | 2.43 | % | 2.62 | % | 3.30 | % | |||
Interest payments on borrowed funds(6) | 3.52 | % | 4.80 | % | 9.55 | % | |||
Other expenses(7) | 0.83 | % | 0.83 | % | 0.83 | % | |||
Acquired fund fees and expenses(8) | 0.90 | % | 0.90 | % | 0.90 | % | |||
Total annual expenses(9) | 10.91 | % | 12.88 | % | 20.06 | % |
(1) | Calculated by dividing the actual expenses for the year ended December 31, 2017 by the net assets attributable to common stock as of December 31, 2017, which were $1,035.0 million. |
(2) | Calculated by dividing the pro forma expenses for the year ended December 31, 2017, assuming that we had $1,185.0 million in outstanding indebtedness, which is the maximum amount of borrowings that could be incurred by us under the currently applicable 200% minimum asset coverage ratio, by the net assets attributable to common stock as of December 31, 2017, which were $1,035.0 million. The maximum amount of borrowings that could be incurred by us is presented for comparative and | informational purposes only and | ||||
Mr. Hurley brings his experience in risk management as well as his experience in the banking and money management industries to the board of directors of NMFC. This background positions Mr. Hurley well to serve as a director of NMFC.
(3) | Calculated by dividing the pro forma expenses for the year ended December 31, 2017, assuming that we had $2,220.0 million in outstanding indebtedness, which is the maximum amount of borrowings that could be incurred by us under the proposed 150% |
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Class III Directors—Term Expiring 2020
Mr. Klinskyminimum asset coverage ratio, by the net assets attributable to common stock as of December 31, 2017, which were $1,035.0 million. The maximum amount of borrowings that could be incurred by us is an “interested person”presented for comparative and informational purposes only and such information is not a representation of NMFC as defined in the 1940 Act dueamount of borrowings that we intend to his position as the Founder and Chief Executive Officer of New Mountain Capital, L.L.C. since its inception in 1999.incur or that would be available to us to be incurred.
(4) | The base management fee under the Investment Management Agreement is based on an annual rate of 1.75% of our average gross assets for the two most recent quarters, which equals our total assets on the Consolidated Statements of Assets and | |||||
(5) | Assumes that annual incentive fees earned by the Investment Adviser remain consistent with the gross incentive fees earned by the Investment Adviser during the year ended December 31, 2017 and calculated without deducting any incentive fees waived. For the year ended December 31, 2017, the Investment Adviser waived a portion of the incentive fee which is not included in this calculation. The Investment Adviser cannot recoup incentive fees that the Investment Adviser has previously waived. As of December 31, 2017, we did not have a capital gains incentive fee accrual. As we cannot predict whether we will meet the thresholds for incentive fees under the Investment Management Agreement, the incentive fees paid in subsequent periods, if any, may be substantially different than the fees incurred during the year ended December 31, 2017. |
(6) | We may borrow funds from time to time to make investments to the |
(7) | “Other expenses” include our overhead expenses, including payments by us under the Administration Agreement based on the allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to us under the Administration Agreement. Pursuant to the Administration Agreement, the Administrator may, in its own discretion, submit to us for reimbursement some or all of the expenses that the Administrator has incurred on our behalf during any quarterly period. As a result, the amount of expenses for which we will have to reimburse the Administrator may fluctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to us for reimbursement in the future. However, it is expected that the Administrator will continue to support part of our expense burden in the near future and may decide to not calculate and charge through certain overhead related amounts as well as continue to cover some of the |
(8) | The holders of shares of our common stock indirectly bear the expenses of our investment in NMFC Senior Loan Program I, LLC (“SLP I”) and NMFC Senior Loan Program II, LLC (“SLP II”). No management fee is charged on our investment in SLP I in connection with the administrative services provided to |
(9) | The holders of shares of our common stock indirectly bear the cost associated with our annual expenses. |
From his experienceExample. The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment of $1,000 in our common stock, assuming (1) a 240.8% asset coverage ratio, which is our actual asset coverage ratio as an executive or director of publicDecember 31, 2017, and private companies andtotal net annual expenses, excluding incentive fees, of financial advisory and private equity companies, Mr. Klinsky brings broad financial advisory and investment management expertise2.43% of net assets attributable to the board of directors. Mr. Klinsky’s intimate knowledge of the business and operations of NMFC,common stock as the Founder and Chief Executive Officer of New Mountain Capital, L.L.C. and his experience as a board member or chairman of other publicly-held companies, positions him well to serve as the chairman of NMFC’s board of directors.
Mr. Wolfgruber is not an “interested person” of NMFC as definedset forth in the 1940 Act.
Mr. Wolfgruber brings experience in portfolio managementtable above; (2) a 200% asset coverage ratio requirement and his abilities as a chartered financial analyst to the board of directors of NMFC. This background positions Mr. Wolfgruber well to serve as a director of NMFC.total net annual expenses,
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Mr. Arnold is not an “interested person”excluding incentive fees, of NMFC2.62% of net assets attributable to common stock as defined in the 1940 Act.
Mr. Arnold brings his vast experience in investment banking and energy focus to the board of directors of NMFC. This background positions Mr. Arnold well to serve as a director of NMFC.
Information about Executive Officers Who Are Not Directors
The following information, as of the Record Date, pertains to the executive officers who are not directors or nominees for election as directors of NMFC.
In accordance with rules of the NYSE, NMFC’s board of directors annually determines each director’s independence. We do not consider a director independent unless the board of directors has determined that he has no material relationship with us. We monitor the relationships of our directors and officers through a questionnaire each director and officer completes no less frequently than annually and updates periodically as information provided in the most recent questionnaire changes.
Our governance guidelines, which are available on NMFC’s website at www.newmountainfinance.com, require any director who has previously been determined to be independent to inform the chairman of the board of directors, the chairman of the nominating and corporate governance committee and the corporate secretary of any change in circumstance that may cause his status as an independent director to change. The board of directors limits membership on the audit committee, the valuation committee, the nominating and corporate governance committee and the compensation committee to independent directors. In order to evaluate the materiality of any such relationship, the board of directors uses the definition of director independence set forth in the corporate governance listing standards promulgatedtable above; and (3) a 150% asset coverage ratio requirement and total net annual expenses, excluding incentive fees, of 3.30% of net assets attributable to common stock as set forth in the table above. In calculating the following expense amounts, we have assumed that our borrowings and annual operating expenses would remain at the levels set forth in the table above. See Note 6 above for additional information regarding certain assumptions regarding our level of leverage.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||
You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return (assuming actual asset coverage ratio of 240.8% as of December 31, 2017) | $ | 85 | $ | 245 | $ | 392 | $ | 713 | ||||
You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return (assuming the currently applicable 200% minimum asset coverage ratio) | $ | 103 | $ | 290 | $ | 457 | $ | 797 | ||||
You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return (assuming the proposed 150% minimum asset coverage ratio) | $ | 168 | $ | 442 | $ | 652 | $ | 984 |
While the example assumes, as required by the NYSE.applicable rules of the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. The incentive fee under the Investment Management Agreement, which, assuming a 5.0% annual return, would either not be payable or would have an insignificant impact on the expense amounts shown above, is not included in the above example. The above illustration assumes that we will not realize any capital gains (computed net of all realized capital losses and unrealized capital depreciation) in any of the indicated time periods. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our expenses and returns to our investors would be higher. The example assumes no sales load. In addition, while the examples assume reinvestment of all distributions at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date. The market price per share of our common stock may be at, above or below net asset value.
The example should not be considered a representation of future expenses, and actual expenses maybe greater or less than those shown.
Rationale for the Proposal
Although the Company may not significantly increase its leverage immediately after it becomes subject to the reduced Asset Coverage Ratio, the Company’s board of directors believes that having the flexibility for the Company to incur additional leverage in certain instances is in the best interests of stockholders. We believe that having the flexibility to incur additional leverage would provide benefits which would augment the returns to our stockholders. We believe having the flexibility to incur additional leverage is in the best interests of our stockholders because it would permit us to:
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The boardWe believe that if we are unable to incur additional leverage at a time when presented with attractive investment opportunities, and issuing equity capital is unavailable to us or disadvantageous, the Company’s ability to grow could be adversely affected when compared to business development companies that have received stockholder approval to be subject to the 150% Asset Coverage Ratio.
Considerations by the Board of directors has determined that eachDirectors
In reaching its recommendation to the stockholders of the directors and the director nominees are independent and has no relationship with us, except as a director and stockholder of NMFC, with the exception of Steven B. Klinsky, as a result of his positions as founder and chief executive officer of New Mountain Capital, L.L.C., Robert A. Hamwee, as a result of his position as chief executive officer of NMFC and Adam B. Weinstein, as a result of his positions as executive vice president and chief administrative officer of NMFC.
NMFC’s board of directors monitors and performs an oversight role with respectCompany to NMFC’s business and affairs, compliance with regulatory requirements and the services, expenses and performance of service providers to NMFC. Among other things, NMFC’s board of directors approves the appointment of the Administrator and officers, reviews and monitors the services and activities performed by the Administrator and officers and approves the engagement, and reviews the performance of, NMFC’s independent public accounting firm.
Under NMFC’s bylaws, NMFC’s board of directors may designate a chairman to preside over the meetings ofapprove this proposal, the board of directors and meetingsconsidered possible sources of the stockholders and to perform such other duties as may be assignedconflicts of interest due to the chairman byfollowing factors:
Risks Related to Approval of the Proposal Permitting the Company to Double Its Amount of Debt Incurrence
In addition to the risks identified in our annual report for the year ended December 31, 2017, stockholders should consider the following risks related to the approval of this proposal:
Because we have received board of directors’ approval, we may be subject to 150% Asset Coverage Ratio beginning on April 12, 2019 if this proposal is not approved.
As described above, the SBCA provides that in order for a BDC whose common stock is traded on a national securities exchange to be subject to 150% Asset Coverage Ratio, the BDC must obtain either: (i) approval of the required majority of its non-interested directors who have no financial interest in the best interestsproposal of NMFCthe 150% Asset Coverage Ratio, which would become effective one (1) year after the date of such approval, or (ii) stockholder approval (of more than 50% of the votes cast for the proposal) of the 150% Asset Coverage Ratio, which would become effective on the first day after the date of such stockholder approval. The Board of Directors values the opinions of our stockholders and will reconvene to reconsider its approval of the modified asset coverage requirements if this proposal is not approved by stockholders. There can be no assurance that the Board of Directors would rescind its approval if this proposal is not approved by stockholders. If this proposal is not approved by stockholders at such times.and the Board of Directors does not rescind its approval, we will be subject to the 150% Asset Coverage Ratio beginning April 12, 2019.
Mr. Klinsky currently serves asIncurring additional leverage could increase the chairmanrisk of NMFC’s boardinvesting in the Company.
Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, you will experience increased risks of directors. Mr. Klinskyinvesting in our securities. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or other payments related to our securities. If this proposal is an “interested person”approved, we will be permitted to increase our use of NMFC as defined in Section 2(a)(19) ofleverage beyond levels that were previously permitted by the 1940 Act because he iseffective the founder and chief executive officer of New Mountain Capital, L.L.C., serves onday after the investment committee of the Investment Adviser and is the managing member of the sole member of the Investment Adviser. NMFC believes that Mr. Klinsky’s history with New Mountain Capital, L.L.C., familiarity with our investment objectives and investment strategy, and extensive knowledge of the financial services industry and the investment valuation process in particular qualify him to serve as the chairman of NMFC’sMeeting. Because we have received board of directors. NMFC believes that,directors’ approval, if the proposal is not approved at present, they are best served through this leadership structure, as Mr. Klinsky’s relationship with the Investment Adviser and New Mountain Capital, L.L.C., provides an effective bridge and encourages an open dialogue between NMFC’s management and its boardMeeting, we will be subject to the 150% Asset Coverage Ratio beginning on April 4, 2019. If we incur such additional leverage, you will experience increased risks of directors, ensuring that all groups act with ainvesting in our common purpose.stock.
NMFC’s board of directors does not currently have a designated lead independent director. NMFC is aware ofWe borrow money, which could magnify the potential conflicts thatfor gain or loss on amounts invested in us and increase the risk of investing in us.
We borrow money as part of our business plan. Borrowings, also known as leverage, magnify the potential for gain or loss on invested equity capital and may, arise when a non-independent director is chairmanconsequently, increase the risk of the board of directors, but believes these potential conflicts are offset by its strong corporate governance policies. NMFC’s corporate governance policies include regular meetings of the independent directorsinvesting in executive session without the presence of interested directors and management over which the chairman of the audit committee presides, the establishment of audit, valuation, nominating and corporate governance and compensation committees comprised solely of independent directors and the appointment of a chief compliance officer, with whom the independent directors meet regularly without the presence of interested directors and other members of management, for administering NMFC’s compliance policies and procedures.
NMFC recognizes that different board leadership structures are appropriate for companies in different situations. NMFC intendsus. We expect to continue to re-examine its corporate governance policies on an ongoing basisuse leverage to ensure that they continue to meet NMFC’s needs.
Board of Directors’ Role In Risk Oversight
NMFC’s board of directors performs its risk oversight function primarilyfinance our investments, through (1) its four standing committees which report to the board of directors, each of which is comprised solely of independent directorssenior securities issued by banks and (2) active monitoring by NMFC’s chief compliance officer and its compliance policies and procedures.
NMFC’s audit committee, valuation committee, nominating and corporate governance committee and compensation committee assist NMFC’s board of directors in fulfilling its risk oversight responsibilities. The audit committee’s risk oversight responsibilities include overseeing NMFC’s accounting and financial reporting processes, NMFC’s systems of internal controls regarding finance and accounting, and audits of NMFC’s financial statements, including the independence of NMFC’s independent auditors. The valuation committee is responsible for making recommendations in accordance with the valuation policies and procedures adopted by NMFC’s board of directors, reviewing valuations and any reports of independent valuation firms, confirming thatother
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valuationslenders. Lenders of these senior securities have fixed dollar claims on our assets that are madesuperior to claims of our common stockholders, and we would expect such lenders to seek recovery against our assets in accordance with the valuation policiesevent of NMFC’s boarda default. If the value of directors and reportingour assets decreases, leveraging would cause our net asset value to decline more sharply than it otherwise would have had it not leveraged. Similarly, any deficiencies or violations of such valuation policiesdecrease in our income would cause our net income to NMFC’s board of directors on at leastdecline more sharply than it would have had it not borrowed. Such a quarterly basis, and reviewing other matters that NMFC’s board of directors or the valuation committee deems appropriate. The nominating and corporate governance committee’s risk oversight responsibilities include selecting, researching and nominating directors for election by NMFC’s stockholders, developing and recommendingdecline could adversely affect our ability to the board of directors a set of corporate governance principles and overseeing the evaluation of the board of directors and NMFC’s management. The compensation committee is responsible for periodically reviewing director compensation and recommending any appropriate changes to NMFC’s board of directors. The compensation committee is also responsible for annually reviewing and recommending for approval to NMFC’s board of directors an investment advisory and management agreement and an administration agreement.make common stock distribution payments. In addition, although NMFC does not directly compensate its executive officers currently,because our investments may be illiquid, we may be unable to the extent that NMFC doesdispose of them or to do so at a favorable price in the future, the compensation committee would also be responsible for reviewingevent we need to do so if we are unable to refinance any indebtedness upon maturity and, evaluating their compensation and making recommendations to the board of directors regarding their compensation.
NMFC’s board of directors performs its risk oversight responsibilities with the assistance of the chief compliance officer. The board of directors quarterly reviews a written report from the chief compliance officer discussing the adequacy and effectiveness of NMFC’s compliance policies and procedures and its service providers. The chief compliance officer’s quarterly report addresses at a minimum:
In addition, the chief compliance officer meets separatelyrisks associated with investing in executive session with the independent directors at least once each year.our securities.
NMFC believes that its board of director’s role in risk oversight is effective, and appropriate given the extensive regulation to which it is subject as a business development company. NMFC is required to comply with certain regulatory requirements that control the levels of risk in NMFC’s business and operations. For example, NMFC’sOur ability to service any debt that we incur indebtedness is limited because its asset coverage must equal at least 200.0% immediately after it incurs indebtedness. On November 5, 2014, the Company received exemptive relief from the SEC to permit the Company to exclude the SBA-guaranteed debentures of New Mountain Finance SBIC, L.P. and any other future SBIC subsidiaries, including New Mountain Finance SBIC II, L.P., from the Company’s 200.0% asset coverage test under the 1940 Act. As such, the Company’s ratio of total consolidated assets to outstanding indebtedness may be less than 200.0%. This provides the Company with increased investment flexibility but also increases the Company’s risks related to leverage. NMFC generally cannot invest in assets that are not “qualifying assets” unless at least 70.0% of its gross assets consist of “qualifying assets” immediately prior to such investment, and NMFC is not generally permitted to invest, subject to certain exceptions, in any portfolio company in which one of its affiliates currently has an investment.
NMFC recognizes that different board of director roles in risk oversight are appropriate for companies in different situations. NMFC intends to re-examine the manner in which the board of directors administers its oversight functiondepends largely on an ongoing basis to ensure that it continues to meet NMFC’s needs.
Committees of the Board of Directors
NMFC’s board of directors has established an audit committee, a nominating and corporate governance committee, a compensation committee and a valuation committee. The members of each committee have been appointed by the board of directors of NMFC and serve until their respective successor is duly elected and qualifies, unless they are removed or resign. During 2017, the board of directors of NMFC held eleven board of directors meetings, four audit committee meetings, two nominating and corporate governance committee meetings, one compensation committee meeting and eight valuation committee meetings. All directors attended at least 75.0% of the aggregate number of meetings of the board of directors and of the respective committees on
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which they serve. We require each director to make a diligent effort to attend all board and committee meetings as well as each annual meeting of NMFC’s stockholders. All of NMFC’s directors attended the 2017 Annual Meeting of Stockholders.
Audit Committee
The audit committee operates pursuant to a charter approved by NMFC’s board of directors, a copy of which is available on NMFC’s website at www.newmountainfinance.com. The charter sets forth the responsibilities of the audit committee. The audit committee is responsible for recommending the selection of, engagement of and discharge of NMFC’s independent auditors, reviewing the plans, scope and results of the audit engagement with the independent auditors, approving professional services provided by the independent auditors (including compensation therefore), reviewing the independence of the independent auditors and reviewing the adequacy of NMFC’s internal controls overour financial reporting. The members of the audit committee are Alfred F. Hurley, Jr., David Ogens, Rome G. Arnold III and Kurt J. Wolfgruber, each of whom is not an interested person of NMFC for purposes of the 1940 Act and is independent for purposes of the NYSE’s corporate governance listing standards. Kurt J. Wolfgruber serves as the chairman of the audit committee, and NMFC’s board of directors has determined that Alfred F. Hurley, Jr., David Ogens and Kurt J. Wolfgruber are “audit committee financial experts” as that term is defined under Item 407 of Regulation S-K, as promulgated under the Exchange Act, and that each of them meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee operates pursuant to a charter approved by NMFC’s board of directors, copies of which are available on NMFC’s website at www.newmountainfinance.com. The charter sets forth the responsibilities of the nominating and corporate governance committee. The nominating and corporate governance committee is responsible for determining criteria for service on the board of directors, identifying, researching and nominating directors for election by NMFC’s stockholders, selecting nominees to fill vacancies on NMFC’s board of directors or committees of the board of directors, developing and recommending to the board of directors a set of corporate governance principles and overseeing the self-evaluation of the board of directors and its committees and evaluation of NMFC’s management. The nominating and corporate governance committee considers nominees properly recommended by NMFC’s stockholders. The members of the nominating and corporate governance committee are Alfred F. Hurley, Jr., David Ogens, Rome G. Arnold III and Kurt J. Wolfgruber, each of whom is not an interested person of NMFC for purposes of the 1940 Act and is independent for purposes of the NYSE’s corporate governance listing standards. Alfred F. Hurley, Jr. serves as the chairman of the nominating and corporate governance committee.
The nominating and corporate governance committee seeks candidates who possess the background, skills and expertise to make a significant contribution to the board of directors, NMFC and its stockholders. In considering possible candidates for election as a director, the nominating and corporate governance committee take into account, in addition to such other factors as they deem relevant, the desirability of selecting directors who:
The nominating and corporate governance committee has not adopted formal policies with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director
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nominee, the nominating and corporate governance committee considers and discusses diversity, among other factors, with a view toward the needs of the board of directors as a whole. The nominating and corporate governance committee generally conceptualizes diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities that contribute to the board of directors, when identifying and recommending director nominees. The nominating and corporate governance committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the nominating and corporate governance committee’s goal of creating a board of directors that best serves the needs of NMFC and the interest of its stockholders.
Compensation Committee
The compensation committee operates pursuant to a charter approved by NMFC’s board of directors, a copy of which is available on NMFC’s website at www.newmountainfinance.com. The charter sets forth the responsibilities of the compensation committee. The compensation committee is responsible for periodically reviewing director compensation and recommending any appropriate changes to the board of directors. In addition, although NMFC does not directly compensate its executive officers currently, to the extent that it does so in the future, the compensation committee would also be responsible for reviewing and evaluating their compensation and making recommendations to the board of directors regarding their compensation. The compensation committee is also responsible for annually reviewing and recommending for approval to NMFC’s board of directors an investment advisory and management agreement and an administration agreement. Lastly, the compensation committee would produce a report on NMFC’s executive compensation practices and policies for inclusion in our proxy statement if required by applicable proxy rules and regulations and, if applicable, make recommendations to the board of directors on NMFC’s executive compensation practices and policies. The compensation committee has the authority to engage compensation consultants, although it does not currently do so, and to delegate its duties and responsibilities to a member or to a subcommittee of the compensation committee. The compensation committee is composed of Alfred F. Hurley, Jr., David Ogens, Rome G. Arnold III and Kurt J. Wolfgruber, each of whom is not an interested person of NMFC for purposes of the 1940 Act and is independent for purposes of the NYSE’s corporate governance listing standards. Alfred F. Hurley, Jr. serves as chairman of the compensation committee.
Valuation Committee
The valuation committee operates pursuant to a charter approved by NMFC’s board of directors, a copy of which is available on NMFC’s website at www.newmountainfinance.com. The charter sets forth the responsibilities of the valuation committee. The valuation committee is responsible for making recommendations in accordance with the valuation policies and procedures adopted by the board of directors of NMFC, reviewing valuations and any reports of independent valuation firms, confirming that valuations are made in accordance with the valuation policies of the board of directors of NMFC and reporting any deficiencies or violations of such valuation policies to the board of directors on at least a quarterly basis, and reviewing other matters that the board of directors or the valuation committee deem appropriate. The valuation committee is composed of Rome G. Arnold III, Alfred F. Hurley, Jr., David Ogens and Kurt J. Wolfgruber, each of whom is not an interested person of NMFC for purposes of the 1940 Act and is independent for purposes of the NYSE’s corporate governance listing standards. David Ogens serves as chairman of the valuation committee.
Executive Sessions and Communication with the Board of Directors
The independent directors serving on NMFC’s board of directors intend to meet in executive sessions at the conclusion of each regularly scheduled in-person meeting of the board of directors, and additionally as needed, without the presence of any directors or other persons who are part of the Company’s management. These executive sessions of NMFC’s board of directors will be presided over by the chairman of the audit committee.
Stockholders and all other interested parties with questions about NMFC are encouraged to contact NMFC via the “Contact Us” page on NMFC’s website at www.newmountainfinance.com or by emailing NMFCIR@newmountaincapital.com. However, if stockholders or other interested parties believe that their questions have not been addressed, they may communicate with NMFC’s board of directors by sending their communications to New Mountain Finance Corporation, c/o Karrie J. Jerry, Corporate Secretary, 787 Seventh Avenue, 48th Floor, New York, New York 10019. All stockholder communications received in this manner will be delivered to one or more members of the board of directors.
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NMFC has adopted a code of ethics which applies to, among others, its senior officers, including its chief executive officer and its chief financial officer, as well as every other officer, director and employee of NMFC. NMFC’s code of ethics can be accessed via its website at www.newmountainfinance.com. NMFC intends to disclose amendments to or waivers from a required provision of the code of ethics on Form 8-K.
The following table sets forth the compensation received by NMFC’s directors for the year ended December 31, 2017.
Name | Fees Paid in Cash(1) | All Other Compensation(2) | Total | ||||||
Interested Directors | |||||||||
Steven B. Klinsky | — | — | — | ||||||
Robert A. Hamwee | — | — | — | ||||||
Adam B. Weinstein | — | — | — | ||||||
Independent Directors | |||||||||
David Ogens | $ | 126,060 | — | $ | 126,060 | ||||
Alfred F. Hurley, Jr. | $ | 117,455 | — | $ | 117,455 | ||||
Kurt J. Wolfgruber | $ | 122,109 | — | $ | 122,109 | ||||
Rome G. Arnold III(3) | $ | 123,992 | — | $ | 123,992 | ||||
David R. Malpass(4) | $ | — | — | $ | — |
Effective October 1, 2017, the independent directors of NMFC receive an annual retainer fee of $100,000 (which was increased from $95,000) and further receive a fee of $2,500 for each regularly scheduled board of directors meeting and a fee of $1,000 for each special board of directors meeting as well as reimbursement of reasonable and documented out-of-pocket expenses incurred in connection with attending each board of directors meeting. In addition, the chairman of the audit committee receives an annual retainer of $7,500, while the chairman of the valuation committee, the chairman of the compensation committee and the chairman of the nominating and corporate governance committee receive annual retainers of $5,000, $1,000 and $1,000, respectively. No compensation is paid to directors who are interested persons of NMFC as defined in the 1940 Act.
Compensation of Executive Officers
None of NMFC’s executive officers receive direct compensation from NMFC. NMFC does not engage any compensation consultants. The compensation of the principals and other investment professionals of the Investment Adviser is paid by the Investment Adviser. Compensation paid to NMFC’s chief financial officer and chief compliance officer is set by the Administratorperformance and is subject to reimbursement by NMFC of the allocable portion of such compensation for services rendered to NMFC.
NMFC entered into indemnification agreements with its directors. The indemnification agreements are intended to provide the directors the maximum indemnification permitted under Delaware lawprevailing economic conditions and the 1940 Act. Each indemnification agreement provides that NMFC shall indemnify the director who is a party to the agreement, or an Indemnitee, including the advancement of legal expenses, if, by reason of his corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Delaware law and the 1940 Act. Any amounts owing by NMFC to any Indemnitee pursuant to the indemnification agreements will be payable by NMFC.
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Certain Relationships and Transactions
NMFC has entered into an investment advisory and management agreement (the “Investment Management Agreement”) withcompetitive pressures. Moreover, as the Investment Adviser. Pursuant to the Investment Management Agreement, NMFC has agreed to pay the Investment Adviser a fee for investment advisory and management services consisting of two components—a baseAdviser's management fee (described below) and an incentive fee (based on NMFC’s performance). The base management fee is calculated at an annual rate of 1.75% of NMFC’s gross assets, which equals the Company’s total assets on the Consolidated Statements of Assets and Liabilities, less (i) the borrowings under New Mountain Finance SPV Funding, L.L.C. Loan and Security Agreement, as amended and restated, dated October 27, 2010, (the “SLF Credit Facility”), and (ii) cash and cash equivalents. Since the initial public offering (“IPO”), the base management fee calculation has deducted the borrowings under the SLF Credit Facility. The SLF Credit Facility had historically consisted of primarily lower yielding assets at higher advance rates. As part of an amendment to the existing credit facilities with Wells Fargo Bank, National Association, the SLF Credit Facility merged with the New Mountain Finance Holdings L.L.C.’s credit facility on December 18, 2014. Post credit facility merger and to be consistent with the methodology since the IPO, the Investment Adviser will continue to waive management fees on the leverage associated with those assets that share the same underlying yield characteristics with investments leveraged under the legacy SLF Credit Facility. The Investment Adviser cannot recoup management fees that the Investment Adviser has previously waived.
The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of the Company's “Pre-Incentive Fee Adjusted Net Investment Income” for the immediately preceding quarter, subject to a “preferred return”, or “hurdle”, and a “catch-up” feature. Pre-Incentive Fee Net Investment Income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, upfront, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company's operating expenses for the quarter (including the base management fee, expenses payable under an administration agreement, as amended and restated (the “Administration Agreement”), with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Steven B. Klinsky, through his financial interest in the Investment Adviser, is entitled to a portion of any profits earned by the Investment Adviser, which includes any fees payable to the Investment Adviser underbased on gross assets, including those assets acquired through the termsuse of the Investment Management Agreement, less expenses incurred byleverage, the Investment Adviser may have a financial incentive to incur leverage which may not be consistent with our interests and the interests of our common stockholders. In addition, holders of our common stock will, indirectly, bear the burden of any increase in performing its services underour expenses as a result of leverage, including any increase in the management fee payable to the Investment Management Agreement. In addition, NMFC’s executive officersAdviser.
Changes in interest rates may affect our cost of capital and directors, as well asnet investment income.
To the current or future members ofextent we borrow money to make investments, our net investment income depends, in part, upon the Investment Adviser, serve ordifference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, a significant change in market interest rates may serve as officers, directors or principals of entities that operatehave a material adverse effect on our net investment income in the same or a related lineevent we use debt to finance our investments. In periods of business as NMFC orrising interest rates, our cost of funds would increase, which could reduce our net investment funds managed by NMFC’s affiliates. Accordingly, theyincome. We may have obligationsuse interest rate risk management techniques in an effort to investors in those entities, the fulfillment of which might not be in NMFC and NMFC’s stockholders’ best interests.
The Investment Adviser and its affiliateslimit our exposure to interest rate fluctuations. These techniques may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, to our investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made onlyinclude various interest rate hedging activities to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Investment Adviser’s allocation procedures. On December 18, 2017, the SEC issued an exemptive order (the “Exemptive Order”), which superseded a prior order issued on June 5, 2017, which permits us to co-invest in portfolio companies with certain funds or entities managed by the Investment Adviser or its affiliates in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act,Act.
The terms of our credit facilities may contractually limit our ability to incur additional indebtedness.
We will need additional capital to fund new investments and grow our portfolio of investments. We intend to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital. As described above, we believe that having the flexibility to incur additional leverage could augment the returns to our stockholders and would be in the best interests of our stockholders. Even though our board of directors has approved a resolution permitting the Company to be subject to the conditions of the Exemptive Order. Pursuant to the Exemptive Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including, but not limited to, that (1) the terms of the potential co-investment transaction, including the consideration150% Asset Coverage Ratio to be paid, are reasonableeffective on April 12, 2019, and fair to us and our stockholders and do not involve overreaching
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in respect of us or our stockholders on the part of any person concerned, and (2) the potential co-investment transaction is consistent with the interestsif we receive approval of our stockholders and is consistent withto be effective the day after this Meeting, contractual leverage limitations under our then-current investment objective and strategies.
existing credit facilities or future borrowings may limit our ability to incur additional indebtedness. Currently, our NMFC has entered into Administration Agreement with the Administrator. The Administrator arranges office space for NMFC and provides office equipment and administrative services necessaryCredit Facility restricts our ability to conduct NMFC’s day-to-day operations pursuantincur additional indebtedness if after incurring such additional debt, our Asset Coverage Ratio would be below 200%. We cannot assure you that we will be able to the Administration Agreement. NMFC reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligationsnegotiate a change to our credit facilities to allow us under the Administration Agreement, which includes the fees and expenses associated with performing administrative, finance, and compliance functions, and the compensation of NMFC’s chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement, as amended and restated, and further restricted by NMFC, the Administrator may, in its own discretion, submit to NMFC for reimbursement someincur additional leverage or all of the expenses that the Administrator has incurred on NMFC’s behalf during any quarterly period. As a result, the amount of expenses for which NMFC will have to reimburse the Administrator may fluctuate in future quarterly periods and there can be no assurance given as to when, or if, the Administrator may determine to limit the expenses that the Administrator submits to NMFC for reimbursement in the future. However, it is expected that the Administrator will continue to support part of NMFC’s expense burden in the near future and may decide to not calculate and charge through certain overhead related amounts as well as continue to cover some of the indirect costs. The Administrator cannot recoup any expenses that the Administrator has previously waived.
NMFC, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with New Mountain Capital, L.L.C., pursuant to which New Mountain Capital, L.L.C. has agreed to grant NMFC, the Investment Adviser and the Administrator a non-exclusive, royalty-free license to use the names “New Mountain” and “New Mountain Finance”. Under this Trademark License Agreement, as amended, subject to certain conditions, NMFC, the Investment Adviser and the Administrator have a right to use the “New Mountain” and the “New Mountain Finance” names for so long as the Investment Adviser or one of its affiliates remains NMFC’s investment adviser. Other than with respect to this limited license, NMFC, the Investment Adviser and the Administrator have no legal right to the “New Mountain” and the “New Mountain Finance” names.
NMFC, as an investment adviser registered under the Investment Advisers Act of 1940, as amended, acts as the collateral manager to NMFC Senior Loan Program I LLC (“SLP I”) and is entitled to receive a management fee for its investment management services provided to SLP I. As a result, SLP I is classified as an affiliate of NMFC. SLP I is structured as a private investment fund and is a portfolio company of NMFC in which NMFC owns a less than 25.0% ownership stake.
NMFC Senior Loan Program II LLC (“SLP II”) was formed as a Delaware limited liability company on March 9, 2016 and commenced operations on April 12, 2016. SLP II is structured as a private joint venture investment fund between NMFC and SkyKnight Income, LLC (“SkyKnight”) and operates under a limited liability company agreement. All investment decisions must be unanimously approved by the board of managers of SLP II, which has equal representation from the Company and SkyKnight. SLP II is a portfolio company of NMFC.
New Mountain Net Lease Corporation (“NMNLC”) was formed as a Maryland corporation on April 18, 2016 and commenced operations on August 12, 2016. NMNLC was formed to acquire commercial real properties that are subject to “triple net” leases and to qualify as a real estate investment trust, or REIT, within the meaning of Section 856(a) of the Internal Revenue Code of 1986, as amended. NMFC acts as the investment adviser to NMNLC and owns all of the outstanding common stock of NMNLC. NMFC is not entitled to receive any compensation for its services pursuant to its investment advisory and management agreement with NMNLC.
In the ordinary course of business, NMFC may enter into transactions with portfolio companies that may be considered related party transactions. In order to ensure that NMFC does not engage in any prohibited transactions with any persons affiliated with NMFC, NMFC has implemented certain policies and procedures whereby NMFC’s executive officers screen each of NMFC’s transactions for any possible affiliations between the proposed portfolio investment, NMFC, companies controlled by us and our employees and directors. NMFC will
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not enter into any agreements unless and until NMFC is satisfied that doing so will not raise concerns under the 1940 Act or, if such concerns exist, NMFC has taken appropriate actions to seek board review and approval or exemptive relief for such transaction. NMFC’s board of directors reviews these procedures on a quarterly basis.
NMFC has adopted a code of ethics which applies to, among others, NMFC’s senior officers, including NMFC’s chief executive officer and chief financial officer, as well as all of NMFC’s officers, directors and employees. NMFC’s code of ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and NMFC’s interests. Pursuant to such code of ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to NMFC’s chief compliance officer.
Board Consideration of the Investment Advisory and Management Agreement
NMFC’s board of directors determined at an in-person meeting held on February 7, 2018, to re-approve the Investment Management Agreement between NMFC and the Investment Adviser. In its consideration of the re-approval of the Investment Management Agreement, the board of directors of NMFC focused on information it had received relating to, among other things:
Based on the information reviewed and the discussions detailed above, the board of directors, including a majority of the directors who are not “interested persons” as defined in the 1940 Act, concluded that the fees payable to the Investment Adviser pursuant to the Investment Management Agreement were reasonable, and
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comparable to the fees paid by other management investment companies with similar investment objectives, in relation to the services to be provided. The board of directors did not assign relative weights to the above factors or the other factors considered by it. Individual members of the board of directors may have given different weights to different factors.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act, NMFC’s directors and executive officers, and any persons holding more than 10.0% of its common stock, are required to report their beneficial ownership and any changes therein to the SEC and NMFC. Specific due dates for those reports have been established, and NMFC is required to report herein any failure to file such reports by those due dates. Based solely upon review of Forms 3, 4 and 5 (and amendments thereto) furnished to NMFC during or in respect of the year ended December 31, 2017 and written representations from certain reporting persons, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers, and 10.0% or greater stockholders were satisfied in a timely manner during the year ended December 31, 2017.
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PROPOSAL II: RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP AS NMFC’SINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDEDDECEMBER 31, 2018
The Audit Committee and the independent directors of the board of directors of NMFC have selected Deloitte & Touche LLP to serve as the independent registered public accounting firm for NMFC for the fiscal year ending December 31, 2018. This selection is subject to ratification or rejection by the stockholders of the Company.
Deloitte & Touche LLP has advised us that neither the firm nor any present member or associate of it has any material financial interest, direct or indirect, in NMFC or its affiliates. It is expected that a representative of Deloitte & Touche LLP will be present at the Annual Meeting and will have an opportunity to make a statement if he or she chooses andamendment will be available to answer questions.
Table below in thousands
Year Ended December 31, 2017 | Year Ended December 31, 2016 | |||||
Audit Fees | $ | 692.1 | $ | 671.8 | ||
Audit-Related Fees | 80.0 | 157.0 | ||||
Tax Fees | 210.1 | 190.2 | ||||
All Other Fees | 118.4 | — | ||||
Total Fees: | $ | 1,100.6 | $ | 1,019.0 |
Audit Fees: Audit fees consistus on favorable terms. An inability on our part to amend the contractual asset coverage limitation and access additional leverage could limit our ability to take advantage of fees billed for professional services rendered for the auditbenefits described above related to our ability to incur additional leverage and could decrease our earnings, if any, which would have an adverse effect on our results of operations and the value of our year-end consolidated financial statements and reviewsshares of the condensed consolidated financial statements filed with the SEC on Forms 10-K and 10-Q. Audit fees also include fees for the audit opinion rendered regarding the effectiveness of internal control over financial reporting.common stock.
Audit-Related Fees: Audit-related services consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees”. These services include, among other things, providing comfort letters, consents and review of documents filed with the SEC, as well as attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.
Tax Services Fees: Tax services fees consist of fees billed for professional tax services. These services also include assistance regarding federal, state, and local tax compliance.
All Other Fees: Other fees would include fees for products and services other than the services reported above.
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The audit committee of the board of directors operates under a written charter adopted by the board of directors. The audit committee is currently composed of Messrs. Hurley, Arnold, Ogens and Wolfgruber.
Management is responsible for NMFC’s internal controls and the financial reporting process. NMFC’s independent registered public accounting firm is responsible for performing an independent audit of NMFC’s financial statements in accordance with auditing standards generally accepted in the United States and expressing an opinion on the conformity of those audited financial statements in accordance with accounting principles generally accepted in the United States. The audit committee’s responsibility is to monitor and oversee these processes. The audit committee is also directly responsible for the appointment, compensation, retention, oversight and termination of NMFC’s independent registered public accounting firm.
Audit Firm Selection/Ratification
At least annually, the audit committee reviews the Company’s independent registered public accounting firm to decide whether to retain such firm on behalf of the Company. Deloitte & Touche LLP has been the Company’s independent registered public accounting firm since 2008.
When conducting its latest review of Deloitte & Touche LLP, the audit committee actively engaged with Deloitte & Touche LLP’s engagement partners and considered, among other factors:
As a result of this evaluation, the audit committee approved the appointment Deloitte & Touche LLP for 2018 subject to stockholder ratification.
Audit Engagement Partner Selection
Under SEC rules and Deloitte & Touche LLP’s practice, the lead engagement audit partner is required to change every five years, and the current lead audit partner has held such position since 2016.
Pre-Approval Policy
The audit committee has established a pre-approval policy that describes the permitted audit, audit-related, consulting services and other services to be provided by Deloitte & Touche LLP, NMFC’s independent registered public accounting firm. The policy requires that the audit committee pre-approve the audit, non-audit and consulting services performed by the independent auditors in order to assure that the provision of such services does not impair the auditors’ independence.
Any requests for audit, audit-related, tax and other services that have not received general pre-approval must be submitted to the audit committee for specific pre-approval, irrespective of the amount, and cannot commence
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until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings of the audit committee. However, the audit committee may delegate pre-approval authority to one or more of its members. The member or members to whom such authority is delegated shall report any pre-approval decisions to the audit committee at its next scheduled meeting. The audit committee does not delegate its responsibilities to pre-approve services performed by the independent registered public accounting firm to management. The Audit Committee pre-approved 100% of services described in this policy.
Review with Management
The audit committee has reviewed the audited financial statements and met and held discussions with management regarding the audited financial statements. Management has represented to the audit committee that NMFC’s financial statements were prepared in accordance with accounting principles generally accepted in the United States.
Review and Discussion with Independent Registered Public Accounting Firm
The audit committee has discussed with Deloitte & Touche LLP, NMFC’s independent registered public accounting firm, matters required to be discussed by Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard 16 (Communication with Audit Committees). The audit committee receives and reviews the written disclosures and the letter from the independent registered public accounting firm required by PCAOB Rule 3520 (Auditor Independence), and has discussed with the auditors the auditors’ independence. The audit committee has also considered the compatibility of non-audit services with the auditors’ independence.
Conclusion
Based on the audit committee’s discussions with management and the independent registered public accounting firm, the audit committee’s review of the audited financial statements, the representations of management and the reports of the independent registered public accounting firm to the audit committee, the audit committee recommends that the board of directors include the audited financial statements in NMFC’s Annual Report on Form 10-K for the year ended December 31, 2017 for filing with the SEC.
The material contained in the foregoing Audit committee Report is not “soliciting material”, is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of NMFC under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Required Vote
TheAs required by the SBCA, approval of this proposal requires the affirmative vote of a majoritymore than fifty percent (50%) of the votes cast at the Annual Meeting or by proxy is required to approvefor this proposal. Unless marked toAbstentions and Broker Non-Votes will not be included in determining the contrary, the shares represented by the enclosed proxy card will be voted for ratificationnumber of the appointment of Deloitte & Touche LLPvotes cast and, as the independent registered public accounting firm of the Company for the year ending December 31, 2018. Because brokersa result, will have discretionary authority to vote for the ratification of the appointment of the Company’s registered independent public accounting firm in the event that they do not receive voting instructions from the beneficial owner of the shares, your broker will be permitted to vote your shares forno effect on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATIONPROPOSAL TO OF THE SELECTION OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FORAUTHORIZE THE COMPANY FORTO BE SUBJECT TO AN ASSET COVERAGE RATIO OF AT LEAST 150%, PERMITTING THE YEAR ENDING DECEMBER 31,COMPANY TO DOUBLE ITS AMOUNT OF DEBT INCURRENCE, 2018.PURSUANT TO THE SBCA.
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Submission of Stockholder
Proposals
NMFC currently expects that the 2019 Annual Meeting of Stockholders will be held in April 2019, but the exact date, time, and location of such meeting have yet to be determined. A stockholder who intends to present a proposal at that annual meeting pursuant to the SEC’s Rule 14a-8 must submit the proposal in writing to NMFC at its address of 787 Seventh Avenue, 48th Floor, New York, New York 10019, and NMFC must receive the proposal no later than November 14, 2018, in order for the proposal to be considered for inclusion in NMFC’s proxy statement for that meeting. The submission of a proposal does not guarantee its inclusion in NMFC’s proxy statement or presentation at the meeting.
Stockholder proposals or director nominations to be presented at the 2019 Annual Meeting of Stockholders, other than stockholder proposals submitted pursuant to the SEC’s Rule 14a-8, must be delivered to, or mailed and received at, the principal executive offices of NMFC not less than 90 days or more than 120 days in advance of the one year anniversary of the date of the Annual Meeting. For the 2019 Annual Meeting of Stockholders, NMFC must receive such proposals and nominations between December 27, 2018 and January 25, 2019. If the date of the 2019 Annual Meeting of Stockholders is set to be more than 30 days prior to, or more than 60 days after, the one year anniversary of the Annual Meeting, stockholder proposals or director nominations to be timely must be so received by NMFC not less than 90 days or more than 120 days prior to the 2019 Annual Meeting of Stockholders, or prior to the tenth day following the day on which notice of the date of the 2019 Annual Meeting of Stockholders was first mailed to stockholders or publicly disclosed by NMFC. Proposals must also comply with the other requirements contained in NMFC’s Bylaws, including supporting documentation and other information. Proxies solicited by NMFC will confer discretionary voting authority with respect to these proposals, subject to SEC rules governing the exercise of this authority.
Notices of intention to present proposals at the 2019 Annual Meeting of Stockholders should be addressed to Karrie J. Jerry, Corporate Secretary, 787 Seventh Avenue, 48th Floor, New York, New York 10019. NMFC reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
NMFC’s audit committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters (collectively, “Accounting Matters”). Persons with complaints or concerns regarding Accounting Matters may submit their complaints to NMFC’s chief compliance officer. Persons who are uncomfortable submitting complaints to the chief compliance officer, including complaints involving the chief compliance officer, may submit complaints directly to NMFC’s audit committee chair. Complaints may also be submitted on an anonymous basis via an anonymous online reporting system.
The Chief Compliance Officer may be contacted at:
Karrie J. Jerry
Chief Compliance Officer
New Mountain Finance Corporation
787 Seventh Avenue
48th Floor
New York, New York 10019
The Audit Committee Chair may be contacted at:
Kurt J. Wolfgruber
Audit Committee Chair
New Mountain Finance Corporation
787 Seventh Avenue
48th Floor
New York, New York 10019
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The board of directors of NMFC does not presently intend to bring any other business before the AnnualSpecial Meeting, and, so far as is known to the board of directors of NMFC, no matters may properly be brought before the AnnualSpecial Meeting except as specified in the Notice of the AnnualSpecial Meeting. As to any other business that may properly come before the AnnualSpecial Meeting, however, the proxies will be voted in respect thereof in accordance with the discretion of the proxyholders. Whether or not you expect to attend the AnnualSpecial Meeting, please vote your proxy via the Internet or request, complete, sign, date and a proxy card so that you may be represented at the AnnualSpecial Meeting.
When available, NMFC will furnish, without charge, copies of NMFC’s annual report on Form 10-K, quarterly reports on Form 10-Q and Current Reports on Form 8-K, to an investor upon request directed to New Mountain Finance Corporation, 787 Seventh Avenue, 48th Floor, New York, New York 10019, Attention: Investor Relations or by telephone at (212) 720-0300. ThereThe reports are also available at no cost through NMFC’s website at www.newmountainfinance.com or through the SEC’s EDGAR database at www.sec.gov.
Please note that only one copy of the 2018this Proxy Statement and the 2017 Annual Report or Notice of AnnualSpecial Meeting of Stockholders may be delivered to two or more stockholders of record of the Company who share an address unless we have received contrary instructions from one or more of such stockholders. We will deliver promptly, upon request, a separate copy of any of these documents to stockholders of record of the Company at a shared address to which a single copy of such documents was delivered. Stockholders who wish to receive a separate copy of any of these documents, or to receive a single copy of such documents if multiple copies were delivered, now or in the future, should submit their request by calling us at (212) 720-0300 or by writing to New Mountain Finance Corporation, c/o Karrie J. Jerry, Corporate Secretary, 787 Seventh Avenue, 48th Floor, New York, New York 10019.
You are cordially invited to participate inattend the Annual Meeting.Special Meeting of stockholders. Whether or not you planexpect to attend the AnnualSpecial Meeting virtually, you are requestedplease follow the instructions on your proxy card or the enclosed voting instruction form to vote in accordance withvia the voting instructionsInternet or telephone, or sign, date and return a proxy card in the Notice of Internet Availability of Proxy Materials, or by requesting hard copy proxy materials from us and returning a proxy card.postage-paid envelope provided so that you may be represented at the Special Meeting.
By Order of the board of directors | |
Karrie J. Jerry | |
Corporate Secretary | |
New York, New York | |
May 7, 2018 |
New York, New YorkMarch 14, 2018
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Your privacy is very important to us. This Privacy Notice sets forth our policies with respect to non-public personal information about our stockholders and prospective and former stockholders. These policies apply to stockholders of New Mountain Finance Corporation and may be changed at any time, provided a notice of such change is given to you. This notice supersedes any other privacy notice you may have received from us.
We will safeguard, according to strict standards of security and confidentiality, all information we receive about you. The only information we collect from you is your name, address, number of shares you hold and your social security number. This information is used only so that we can send you annual reports and other information about us, and send you proxy statements or other information required by law.
We do not share this information with any non-affiliated third party except as described below.
• | Authorized Employees of our Investment Adviser. It is our policy that only authorized employees of our investment adviser who need to know your personal information will have access to it. |
• | Service Providers. We may disclose your personal information to companies that provide services on our behalf, such as recordkeeping, processing your trades, and mailing you information. These companies are required to protect your information and use it solely for the purpose for which they received it. |
• | Courts and Government Officials. If required by law, we may disclose your personal information in accordance with a court order or at the request of government regulators. Only that information required by law, subpoena, or court order will be disclosed. |
We seek to carefully safeguard your private information and, to that end, restrict access to non-public personal information about you to those employees and other persons who need to know the information to enable us to provide services to you. We maintain physical, electronic and procedural safeguards to protect your non-public personal information.
If you have any questions regarding this policy or the treatment of your non-public personal information, please contact our chief compliance officer at (212) 655-0083.
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Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY E47620-Z72584 For Against Abstain ! ! ! NEW MOUNTAIN FINANCE CORPORATION 1. To approve of the Company becoming subject to a minimum asset coverage ratio of at least 150%, permitting the Company to double its amount of debt incurrence, pursuant to the Small Business Credit Availability Act. 2. To vote upon such other business as may properly come before the Special Meeting or any postponement or adjournment thereof. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1. NEW MOUNTAIN FINANCE CORPORATION 787 SEVENTH AVENUE 48TH FLOOR NEW YORK, NY 10019 VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go to www.virtualshareholdermeeting.com/NMFC2018SM Record | Stockholders may attend the Special Meeting via the Internet and vote during the Special Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE IMPORTANT: Please sign your name(s) exactly as shown hereon and date your proxy in the box provided. For joint accounts, each joint owner should sign. When signing as attorney, executor, administrator, trustee or guardian, please give your full title as such. If the signer is a corporation or partnership, please sign in full corporate or partnership name by a duly authorized officer or partner. |
E47621-Z72584 Important Notice Regarding the Availability of Proxy Materials for the Special Meeting: The Notice and Proxy Statement is available at www.proxyvote.com. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NEW MOUNTAIN FINANCE CORPORATION FOR THE SPECIAL MEETING OF STOCKHOLDERS JUNE 8, 2018 The undersigned stockholder of New Mountain Finance Corporation (the "Company") acknowledges receipt of the Notice of Special Meeting of Stockholders of the Company and hereby appoints Robert Hamwee, Adam Weinstein, John Kline, Shiraz Kajee and Karrie Jerry, and each of them, and each with full power of substitution, to act as attorneys and proxies for the undersigned to vote all the shares of common stock of the Company which the undersigned is entitled to vote at the Special Meeting of Stockholders of the Company to be held on June 8, 2018, at 1:00 p.m., Eastern Time, and at all postponements or adjournments thereof, as indicated on this proxy. THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED ON THE REVERSE SIDE; where no choice is specified, it will be voted FOR Proposal 1 and in the discretion of the proxies with respect to any other matters that may properly come before the meeting. Please vote, sign and date this proxy on the reverse side and return it promptly in the enclosed envelope. (CONTINUED ON | REVERSE SIDE) |