NMFC 10-Q Quarterly Report Sept. 30, 2013

NEW MOUNTAIN FINANCE CORP

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10-Q 1 a13-19727_110q.htm 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended September 30, 2013

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number	Exact name of registrants as specified in their charters, addresses of principal executive offices, telephone numbers and states or other jurisdictions of incorporation or organization	I.R.S. Employer Identification Number
814-00839	New Mountain Finance Holdings, L.L.C. 787 Seventh Avenue, 48 th Floor New York, New York 10019 Telephone: (212) 720-0300 State of Incorporation: Delaware	26-3633318

814-00832	New Mountain Finance Corporation 787 Seventh Avenue, 48 th Floor New York, New York 10019 Telephone: (212) 720-0300 State of Incorporation: Delaware	27-2978010

814-00902	New Mountain Finance AIV Holdings Corporation 787 Seventh Avenue, 48 th Floor New York, New York 10019 Telephone: (212) 720-0300 State of Incorporation: Delaware	80-0721242

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

New Mountain Finance Holdings, L.L.C.	Yes x No o
New Mountain Finance Corporation	Yes x No o
New Mountain Finance AIV Holdings Corporation	Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

New Mountain Finance Holdings, L.L.C.	Yes o No o
New Mountain Finance Corporation	Yes o No o
New Mountain Finance AIV Holdings Corporation	Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

New Mountain Finance Holdings, L.L.C.	Large accelerated filer o	Accelerated filer x
	Non-accelerated filer o	Smaller reporting company o
New Mountain Finance Corporation	Large accelerated filer o	Accelerated filer x
	Non-accelerated filer o	Smaller reporting company o
New Mountain Finance AIV Holdings Corporation	Large accelerated filer o	Accelerated filer x
	Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

New Mountain Finance Holdings, L.L.C.	Yes o No x
New Mountain Finance Corporation	Yes o No x
New Mountain Finance AIV Holdings Corporation	Yes o No x

Registrants	Description	Shares / Units as of November 12, 2013
New Mountain Finance Holdings, L.L.C.	Common membership units	47,831,859
New Mountain Finance Corporation	Common stock, $0.01 par value	45,159,921
New Mountain Finance AIV Holdings Corporation	Common stock, $0.01 par value	100

This combined Form 10-Q is filed separately by three registrants: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation (collectively, the “New Mountain Finance Registrant(s)” or the “Registrant(s)”). Information contained herein relating to any New Mountain Finance Registrant is filed by such registrant solely on its own behalf. Each New Mountain Finance Registrant makes no representation as to information relating exclusively to the other registrants.

Table of Contents

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2013

TABLE OF CONTENTS

		PAGE

PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	New Mountain Finance Holdings, L.L.C .
	Consolidated Statements of Assets, Liabilities and Members’ Capital as of September 30, 2013 (unaudited) and December 31, 2012	3
	Consolidated Statements of Operations for the three months and nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)	4
	Consolidated Statements of Changes in Members’ Capital for the nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)	6
	Consolidated Schedule of Investments as of September 30, 2013 (unaudited)	7
	Consolidated Schedule of Investments as of December 31, 2012	13
	New Mountain Finance Corporation
	Statements of Assets and Liabilities as of September 30, 2013 (unaudited) and December 31, 2012	19
	Statements of Operations for the three months and nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)	20
	Statements of Changes in Net Assets for the nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)	21
	Statements of Cash Flows for the nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)	22
	New Mountain Finance AIV Holdings Corporation
	Statements of Assets and Liabilities as of September 30, 2013 (unaudited) and December 31, 2012	23
	Statements of Operations for the three months and nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)	24
	Statements of Changes in Net Assets for the nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)	25
	Statements of Cash Flows for the nine months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)	26

	Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C., the Financial Statements of New Mountain Finance Corporation and the Financial Statements of New Mountain Finance AIV Holdings Corporation	27

	Report of Independent Registered Public Accounting Firm	51

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71
Item 4.	Controls and Procedures	72

PART II. OTHER INFORMATION		73

Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	73
	Signatures	78

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Assets, Liabilities and Members’ Capital

(in thousands, except units and per unit data)

	September 30, 2013		December 31, 2012
	(unaudited)
Assets
Investments at fair value (cost of $1,025,337 and $976,243, respectively)	$	1,041,432	$	989,820
Cash and cash equivalents	17,629		12,752
Interest and dividend receivable	11,097		6,340
Deferred credit facility costs (net of accumulated amortization of $3,147 and $2,016, respectively)	4,838		5,490
Receivable from affiliate	317		534
Receivable from unsettled securities sold	—		9,962
Other assets	1,981		666
Total assets	$	1,077,294	$	1,025,564
Liabilities
SLF Credit Facility	215,000		214,262
Holdings Credit Facility	159,091		206,938
Payable for unsettled securities purchased	43,400		9,700
Capital gains incentive fee payable	6,974		4,407
Incentive fee payable	3,534		3,390
Management fee payable	3,754		3,222
Interest payable	755		712
Payable to affiliate	3		—
Dividends payable	—		11,192
Other liabilities	2,978		1,802
Total liabilities	435,489		455,625
Members’ Capital	641,805		569,939
Total liabilities and members’ capital	$	1,077,294	$	1,025,564
Outstanding common membership units	44,831,859		40,548,189
Capital per unit	$	14.32	$	14.06

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Operations

(in thousands)

(unaudited)

	Three months ended						Nine months ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Investment income

Interest income	$	27,175		$	21,362		$	79,539		$	60,087
Dividend income	(1,631		)	215			4,802			215
Other income	249			175			1,926			771
Total investment income	25,793			21,752			86,267			61,073

Expenses

Incentive fee	3,533			2,978			12,398			8,147
Capital gains incentive fee	1,587			2,583			2,568			3,547
Total incentive fee	5,120			5,561			14,966			11,694
Management fee	3,754			2,768			11,049			7,887
Interest and other credit facility expenses	3,190			2,402			9,379			7,286
Administrative expenses	743			544			2,441			1,604
Professional fees	549			405			1,684			1,279
Other general and administrative expenses	378			375			1,184			1,015
Total expenses	13,734			12,055			40,703			30,765
Less: expenses waived and reimbursed (See Note 5)	(600		)	(439		)	(2,265		)	(1,387		)
Net expenses	13,134			11,616			38,438			29,378
Net investment income	12,659			10,136			47,829			31,695

Net realized gains on investments	5,160			1,615			9,516			14,591
Net change in unrealized appreciation (depreciation) of investments	2,659			10,494			2,518			10,710
Net increase in members’ capital resulting from operations	$	20,478		$	22,245		$	59,863		$	56,996

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Changes in Members’ Capital

(in thousands)

(unaudited)

	Nine months ended
	September 30, 2013			September 30, 2012
Increase in members’ capital resulting from operations:
Net investment income	$	47,829		$	31,695
Net realized gains on investments	9,516			14,591
Net change in unrealized appreciation (depreciation) of investments	2,518			10,710
Net increase in members’ capital resulting from operations	59,863			56,996
Net contributions	57,020			82,300
Dividends declared	(48,877		)	(40,046		)
Offering costs	(249		)	(377		)
Reinvestment of dividends	4,109			980
Net increase in members’ capital	71,866			99,853
Members’ capital at beginning of period	569,939			420,502
Members’ capital at end of period	$	641,805		$	520,355

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine months ended
	September 30, 2013			September 30, 2012
Cash flows from operating activities
Net increase in members’ capital resulting from operations	$	59,863		$	56,996
Adjustments to reconcile net (increase) decrease in capital resulting from operations to net cash (used in) provided by operating activities:
Net realized gains on investments	(9,516		)	(14,591		)
Net change in unrealized (appreciation) depreciation of investments	(2,518		)	(10,710		)
Amortization of purchase discount	(2,671		)	(4,549		)
Amortization of deferred credit facility costs	1,131			825
Non-cash interest income	(2,697		)	(888		)
(Increase) decrease in operating assets:
Purchase of investments	(349,349		)	(392,162		)
Proceeds from sales and paydowns of investments	315,139			268,369
Cash paid for drawn revolvers	—			(10,710		)
Cash repayments on drawn revolvers	—			9,870
Interest and dividend receivable	(4,757		)	(1,272		)
Receivable from affiliate	217			198
Receivable from unsettled securities sold	9,962			—
Other assets	(302		)	(642		)
Increase (decrease) in operating liabilities:
Payable for unsettled securities purchased	33,700			12,195
Capital gains incentive fee payable	2,567			3,547
Incentive fee payable	144			661
Management fee payable	532			567
Interest payable	43			(1,166		)
Payable to affiliate	3			23
Other liabilities	590			(322		)
Net cash flows provided by (used in) operating activities	52,081			(83,761		)
Cash flows from financing activities
Net contributions	57,020			82,300
Dividends paid	(55,961		)	(39,066		)
Offering costs paid	(656		)	(259		)
Proceeds from Holdings Credit Facility	246,923			311,326
Repayment of Holdings Credit Facility	(294,770		)	(304,699		)
Proceeds from SLF Credit Facility	11,138			89,031
Repayment of SLF Credit Facility	(10,400		)	(54,959		)
Deferred credit facility costs paid	(498		)	(2,561		)
Net cash flows (used in) provided by financing activities	(47,204		)	81,113
Net increase (decrease) in cash and cash equivalents	4,877			(2,648		)
Cash and cash equivalents at the beginning of the period	12,752			15,319
Cash and cash equivalents at the end of the period	$	17,629		$	12,671
Supplemental disclosure of cash flow information
Interest paid	$	7,938		$	7,185
Non-cash operating activities:
Non-cash activity on investments	$	1,986		$	—
Non-cash financing activities:
Value of members’ capital issued in connection with dividend reinvestment plan	$	4,109		$	980
Accrual for offering costs	1,162			326
Accrual for deferred credit facility costs	25			59

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments

September 30, 2013
(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)	Type of Investment	Interest Rate	Maturity Date	Principal Amount, Par Value or Shares		Cost		Fair Value		Percent of Members’ Capital

Funded Debt Investments - Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Stratus Technologies Bermuda Ltd. / Stratus Technologies, Inc.
Information Technology	First lien (2)(7)	12.00%	3/29/2015	$	6,497	$	6,305	$	6,513	1.01	%
Total Funded Debt Investments - Bermuda				$	6,497	$	6,305	$	6,513	1.01	%
Funded Debt Investments - Cayman Islands
Pinnacle Holdco S.à r.l. / Pinnacle (US) Acquisition Co Limited**
Software	Second lien (2)	10.50% (Base Rate + 9.25%)	7/30/2020	$	30,000	$	29,458	$	30,394	4.74	%
Total Funded Debt Investments - Cayman Islands				$	30,000	$	29,458	$	30,394	4.74	%
Funded Debt Investments - United States
McGraw-Hill Global Education Holdings, LLC
Education	First lien (2)	9.75%	4/1/2021	$	24,500	$	24,345	$	26,093
	First lien (3)	9.00% (Base Rate + 7.75%)	3/22/2019	19,900		19,342		20,174
				44,400		43,687		46,267		7.21	%
UniTek Global Services, Inc.
Business Services	First lien (2)	15.00% (Base Rate + 9.50% + 4.00% PIK)*	4/15/2018	26,176		25,265		25,543
	First lien (2)	15.00% (Base Rate + 9.50% + 4.00% PIK)*	4/15/2018	6,337		6,117		6,184
	First lien (2)	15.00% (Base Rate + 9.50% + 4.00% PIK)*	4/15/2018	5,268		5,084		5,140
				37,781		36,466		36,867		5.74	%
Edmentum, Inc.(fka Plato, Inc.)
Education	First lien (3)	6.00% (Base Rate + 4.75%)	5/17/2018	6,449		6,291		6,486
	Second lien (2)	11.25% (Base Rate + 9.75%)	5/17/2019	29,150		28,649		29,405
				35,599		34,940		35,891		5.59	%
SRA International, Inc.
Federal Services	First lien (2)	6.50% (Base Rate + 5.25%)	7/20/2018	34,750		33,739		34,533		5.38	%
Rocket Software, Inc.
Software	Second lien (2)	10.25% (Base Rate + 8.75%)	2/8/2019	30,875		30,726		30,921		4.82	%
Global Knowledge Training LLC
Education	First lien (3)	6.51% (Base Rate + 4.99%)	4/21/2017	4,624		4,575		4,624
	First lien (3)	6.51% (Base Rate + 4.99%)	4/21/2017	1,159		1,147		1,159
	Second lien (2)	11.50% (Base Rate + 9.75%)	10/21/2018	24,250		23,855		24,643
				30,033		29,577		30,426		4.74	%
Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)
Software	First lien (3)	7.25% (Base Rate + 5.75%)	11/22/2017	7,158		7,044		7,195
	Second lien (2)	11.00% (Base Rate + 9.50%)	11/22/2018	23,353		22,758		23,090
				30,511		29,802		30,285		4.72	%
Deltek, Inc.
Software	Second lien (2)	10.00% (Base Rate + 8.75%)	10/10/2019	30,000		29,709		30,275		4.72	%
JHCI Acquisition, Inc.
Distribution & Logistics	First lien (3)	7.00% (Base Rate + 5.75%)	7/11/2019	19,950		19,658		20,000
	Second lien (2)	11.00% (Base Rate + 9.75%)	7/11/2020	10,000		9,707		9,700
				29,950		29,365		29,700		4.63	%
Transtar Holding Company
Distribution & Logistics	Second lien (2)	9.75% (Base Rate + 8.50%)	10/9/2019	28,300		27,828		28,866		4.50	%
KeyPoint Government Solutions, Inc.
Federal Services	First lien (3)	7.25% (Base Rate + 6.00%)	11/13/2017	17,392		17,023		17,218
	First lien (2)	7.25% ( Base Rate + 6.00%)	11/13/2017	10,483		10,303		10,378
				27,875		27,326		27,596		4.30	%
YP Holdings LLC (8)
YP LLC
Media	First lien (2)	8.06% (Base Rate + 6.69%)	6/4/2018	27,120		26,476		26,984		4.20	%
Meritas Schools Holdings, LLC
Education	First lien (3)	7.00% (Base Rate + 5.75%)	6/25/2019	18,953		18,769		18,988
	First lien (2)	7.00% ( Base Rate + 5.75%)	6/25/2019	6,983		6,915		6,996
				25,936		25,684		25,984		4.05	%
Kronos Incorporated
Software	Second lien (2)	9.75% (Base Rate + 8.50%)	4/30/2020	25,000		24,771		25,953		4.04	%
Permian Tank & Manufacturing, Inc.
Energy	First lien (2)	10.50%	1/15/2018	24,500		24,770		24,010		3.74	%

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

September 30, 2013

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)	Type of Investment	Interest Rate	Maturity Date	Principal Amount, Par Value or Shares		Cost		Fair Value		Percent of Members’ Capital
Aderant North America, Inc.
Software	Second lien (2)	10.00% (Base Rate + 8.75%)	6/20/2019	$	22,500	$	22,191	$	23,119	3.60	%
LM U.S. Member LLC (and LM U.S. Corp Acquisition Inc.)
Business Services	Second lien (3)	9.50% (Base Rate + 8.25%)	10/26/2020	20,000		19,724		20,333		3.17	%
Merrill Communications LLC
Business Services	First lien (3)	7.31% (Base Rate + 6.20%)	3/8/2018	19,900		19,708		20,033		3.12	%
First American Payment Systems, L.P.
Business Services	Second lien (3)	10.75% (Base Rate + 9.50%)	4/12/2019	20,000		19,642		19,988		3.11	%
Six3 Systems, Inc.
Federal Services	First lien (3)	7.00% (Base Rate + 5.75%)	10/4/2019	19,850		19,674		19,974		3.11	%
eResearchTechnology, Inc.
Healthcare Services	First lien (3)	6.00% (Base Rate + 4.75%)	5/2/2018	19,800		19,061		19,899		3.10	%
Distribution International, Inc.
Distribution & Logistics	First lien (2)	7.50% (Base Rate + 6.50%)	7/16/2019	19,950		19,562		19,862		3.09	%
ARSloane Acquisition, LLC
Business Services	First lien (2)	7.50% (Base Rate + 6.25%)	10/1/2019	20,000		19,800		19,800		3.09	%
Envision Acquisition Company, LLC
Healthcare Services	Second lien (2)	9.75% (Base Rate + 8.75%)	11/4/2021	20,000		19,600		19,600		3.05	%
Insight Pharmaceuticals LLC
Healthcare Products	Second lien (3)	13.25% (Base Rate + 11.75%)	8/25/2017	19,310		18,738		19,214		2.99	%
St. George’s University Scholastic Services LLC
Education	First lien (3)	8.50% (Base Rate + 7.00%)	12/20/2017	11,947		11,733		12,052
	First lien (2)	8.50% (Base Rate + 7.00%)	12/20/2017	6,391		6,280		6,447
				18,338		18,013		18,499		2.88	%
PODS, Inc. (6)
Consumer Services
PODS Funding Corp. II	First lien (3)	7.25% (Base Rate + 6.00%)	11/29/2016	12,575		12,323		12,606
Storapod Holding Company, Inc.	Subordinated (2)	21.00% PIK*	11/29/2017	5,460		5,334		5,460
				18,035		17,657		18,066		2.82	%
Ascensus, Inc.
Business Services	First lien (3)	8.00% (Base Rate + 6.75%)	12/21/2018	16,873		16,568		17,125		2.67	%
Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
Federal Services	First lien (3)	7.50% (Base Rate + 6.00%)	4/21/2017	18,527		18,323		16,674		2.60	%
IG Investments Holdings, LLC
Business Services	Second lien (3)	10.25% (Base Rate + 9.00%)	10/31/2020	15,000		14,861		15,075		2.35	%
Confie Seguros Holding II Co.
Consumer Services	Second lien (3)	10.25% (Base Rate + 9.00%)	5/8/2019	8,906		8,769		8,970
	Second lien (2)	10.25% (Base Rate + 9.00%)	5/8/2019	5,979		5,988		6,021
				14,885		14,757		14,991		2.34	%
OpenLink International, Inc.
Software	First lien (3)	7.75% (Base Rate + 6.25%)	10/30/2017	14,738		14,522		14,793		2.31	%
KPLT Holdings, Inc. (Centerplate, Inc., et al.)
Consumer Services	Subordinated (2)	11.75% (10.25% + 1.50% PIK)*	4/16/2019	14,802		14,539		14,576		2.27	%
Smile Brands Group Inc.
Healthcare Services	First lien (2)	7.50% (Base Rate + 6.25%)	8/16/2019	14,500		14,297		14,337		2.23	%
Aspen Dental Management, Inc.
Healthcare Services	First lien (3)	7.00% (Base Rate + 5.50%)	10/6/2016	14,757		14,500		14,241		2.22	%
Brock Holdings III, Inc.
Industrial Services	Second lien (2)	10.00% (Base Rate + 8.25%)	3/16/2018	14,000		13,850		14,222		2.22	%
Packaging Coordinators, Inc. (10)
Healthcare Products	Second lien (2)	9.50% (Base Rate + 8.25%)	11/10/2020	14,000		13,865		14,000		2.18	%
Lonestar Intermediate Super Holdings, LLC
Business Services	Subordinated (2)	11.00% (Base Rate + 9.50%)	9/2/2019	12,000		11,692		12,570		1.96	%
Van Wagner Communications, LLC
Media	First lien (2)	6.25% (Base Rate + 5.00%)	8/3/2018	11,821		11,633		12,087		1.88	%
Vision Solutions, Inc.
Software	Second lien (2)	9.50% (Base Rate + 8.00%)	7/23/2017	12,000		11,927		11,850		1.85	%
Vertafore, Inc.
Software	Second lien (2)	9.75% (Base Rate + 8.25%)	10/29/2017	10,000		9,933		10,215		1.59	%
TransFirst Holdings, Inc.
Business Services	Second lien (3)	11.00% (Base Rate + 9.75%)	6/27/2018	10,000		9,731		10,163		1.58	%

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

September 30, 2013

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)	Type of Investment	Interest Rate	Maturity Date	Principal Amount, Par Value or Shares		Cost		Fair Value		Percent of Members’ Capital
Mailsouth, Inc.
Media	First lien (3)	6.75% (Base Rate + 5.00%)	12/14/2016	$	9,792	$	9,705	$	9,450	1.47	%
Virtual Radiologic Corporation
Healthcare Information Technology	First lien (3)	7.25% (Base Rate + 5.50%)	12/22/2016	13,598		13,481		8,838		1.38	%
Consona Holdings, Inc.
Software	First lien (3)	7.25% (Base Rate + 6.00%)	8/6/2018	8,415		8,345		8,436		1.32	%
Physio-Control International, Inc.
Healthcare Products	First lien (2)	9.88%	1/15/2019	6,651		6,651		7,482		1.17	%
Alion Science and Technology Corporation
Federal Services	First lien (2)(7)	12.00% (10.00% + 2.00% PIK)*	11/1/2014	6,383		6,271		6,426		1.00	%
Immucor, Inc.
Healthcare Services	Subordinated (2)(7)	11.13%	8/15/2019	5,000		4,948		5,525		0.86	%
GCA Services Group, Inc.
Business Services	Second lien (2)	9.25% (Base Rate + 8.00%)	11/1/2020	5,000		4,954		5,096		0.79	%
Education Management LLC**
Education	First lien (3)	8.25% (Base Rate + 7.00%)	3/30/2018	5,017		4,896		4,930		0.77	%
Learning Care Group (US), Inc.
Education	Subordinated (2)	15.00% PIK*	5/8/2020	4,066		3,944		4,066
	Subordinated (2)	15.00% PIK*	5/8/2020	744		689		744
				4,810		4,633		4,810		0.75	%
Brickman Group Holdings, Inc.
Business Services	Subordinated (2)	9.13%	11/1/2018	3,650		3,371		3,924		0.61	%
ATI Acquisition Company (fka Ability Acquisition, Inc.) (11)
Education	First lien (2)	12.25% (Base Rate + 5.00% + 4.00% PIK) (5)*	12/30/2014	4,432		4,306		—
	First lien (2)	17.25% (Base Rate + 10.00% + 4.00% PIK) (5)*	6/30/2012 - Past Due	1,665		1,434		233
	First lien (2)	17.25% (Base Rate + 10.00% + 4.00% PIK) (5)*	6/30/2012 - Past Due	103		94		103
				6,200		5,834		336		0.05	%
Total Funded Debt Investments - United States				$	982,732	$	966,323	$	975,117	151.93	%
Total Funded Debt Investments				$	1,019,229	$	1,002,086	$	1,012,024	157.68	%
Equity - Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Information Technology	Ordinary shares (2)	—	—	156,247		$	65	$	25
	Preferred shares (2)	—	—	35,558		15		6
						80		31		0.01	%
Total Shares - Bermuda						$	80	$	31	0.01	%
Equity - United States
Black Elk Energy Offshore Operations, LLC
Energy	Preferred shares (2)	17.00%	—	20,000,000		$	20,000	$	20,000	3.11	%
Global Knowledge Training LLC
Education	Ordinary shares (2)	—	—	2		2		3
	Preferred shares (2)	—	—	2,423		1,193		3,039
						1,195		3,042		0.48	%
Packaging Coordinators, Inc. (10)
Packaging Coordinators Holdings, LLC
Healthcare Products	Ordinary shares (2)	—	—	19,427		1,000		1,000		0.16	%
Ancora Acquisition LLC (11)
Education	Preferred shares (2)	—	—	372		83		83		0.01	%
Total Shares - United States						$	22,278	$	24,125	3.76	%
Total Shares						$	22,358	$	24,156	3.77	%

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

September 30, 2013

(in thousands, except shares)

(unaudited)

Portfolio Company, Location and Industry(1)	Type of Investment	Interest Rate	Maturity Date	Principal Amount, Par Value or Shares		Cost			Fair Value			Percent of Members’ Capital
Warrants - United States
Learning Care Group (US), Inc.
Education	Warrants (2)	—	—	844		$	194		$	522
	Warrants (2)	—	—	3,589		61			2,218
						255			2,740			0.43		%
YP Holdings LLC (8)
YP Equity Investors LLC
Media	Warrants (2)	—	—	5		—			1,634			0.25		%
Unitek Global Services, Inc.
Business Services	Warrants (2)	—	—	1,014,451		1,449			1,009			0.16		%
PODS, Inc. (6)
Storapod Holding Company, Inc.
Consumer Services	Warrants (2)	—	—	360,129		156			467			0.07		%
Alion Science and Technology Corporation
Federal Services	Warrants (2)	—	—	6,000		293			189			0.03		%
Ancora Acquisition LLC (11)
Education	Warrants (2)	—	—	20		—			—			—		%
Total Warrants - United States						$	2,153		$	6,039		0.94		%
Total Funded Investments						$	1,026,597		$	1,042,219		162.39		%
Unfunded Debt Investments - United States
Advantage Sales & Marketing Inc.
Business Services	First lien (2)(9) - Undrawn	—	12/17/2015	$	10,500	$	(1,260	)	$	(787	)	(0.12		)%
Total Unfunded Debt Investments				$	10,500	$	(1,260	)	$	(787	)	(0.12		)%
Total Investments						$	1,025,337		$	1,041,432		$	162.27	%

(1) New Mountain Finance Holdings, L.L.C. (the “Operating Company”) generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.

(2) Investment is pledged as collateral for the Holdings Credit Facility, a revolving credit facility among the Operating Company as the Borrower and Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7, Borrowing Facilities , for details.

(3) Investment is pledged as collateral for the SLF Credit Facility, a revolving credit facility among New Mountain Finance SPV Funding, L.L.C. as the Borrower, the Operating Company as the Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian. See Note 7, Borrowing Facilities , for details.

(4) The Operating Company holds investments in two related entities of Stratus Technologies Bermuda Holdings, Ltd. (“Stratus Holdings”). The Operating Company directly holds ordinary and preferred equity in Stratus Holdings and has a credit investment in the joint issuers of Stratus Technologies Bermuda Ltd. (“Stratus Bermuda”) and Stratus Technologies, Inc. (“Stratus U.S.”), collectively, the “Stratus Notes”. Stratus U.S. is a wholly-owned subsidiary of Stratus Bermuda, which in turn is a wholly-owned subsidiary of Stratus Holdings. Stratus Holdings is the parent guarantor of the credit investment of the Stratus Notes.

(5) Investment is on non-accrual status.

(6) The Operating Company holds investments in two related entities of PODS, Inc. The Operating Company directly holds warrants in Storapod Holding Company, Inc. (“Storapod”) and has a credit investment in Storapod through Storapod WCF II Limited (“Storapod WCF II”). Storapod WCF II is a special purpose entity used to enter into a Shari’ah-compliant financing arrangement with Storapod. Additionally, the Operating Company has a credit investment in PODS Funding Corp. II (“PODS II”). PODS, Inc. is a wholly-owned subsidiary of PODS Holding, Inc., which in turn is a majority-owned subsidiary of Storapod. PODS II is a special purpose entity used to enter into a Shari’ah-compliant financing arrangement with PODS, Inc. and its subsidiary, PODS Enterprises, Inc.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

September 30, 2013

(unaudited)

(7) Securities are registered under the Securities Act.

(8) The Operating Company holds investments in two related entities of YP Holdings LLC. The Operating Company directly holds warrants to purchase a 4.96% membership interest of YP Equity Investors, LLC (which at closing represented an indirect 1.0% equity interest in YP Holdings LLC) and holds an investment in the Term Loan B loans issued by YP LLC, a subsidiary of YP Holdings LLC.

(9) Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers.

(10) The Operating Company holds investments in Packaging Coordinators, Inc. and one related entity of Packaging Coordinators, Inc. The Operating Company has a credit investment in Packaging Coordinators, Inc. and holds ordinary equity in Packaging Coordinators Holdings, LLC, a wholly-owned subsidiary of Packaging Coordinators, Inc.

(11) The Operating Company holds investments in ATI Acquisition Company and Ancora Acquisition LLC. The Operating Company has credit investments in ATI Acquisition Company and preferred equity and warrants to purchase units of common membership interests of Ancora Acquisition LLC. The Operating Company received its investments in Ancora Acquisition LLC as a result of its investments in ATI Acquisition Company.

* All or a portion of interest contains payments-in-kind (“PIK”).

** Indicates assets that the Operating Company deems to be “non-qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70.00% of the Operating Company’s total assets at the time of acquisition of any additional non-qualifying assets.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

September 30, 2013
(unaudited)

	September 30, 2013
Investment Type	Percent of Total Investments at Fair Value
First lien	51.20	%
Second lien	41.40	%
Subordinated	4.50	%
Equity and other	2.90	%
Total investments	100.00	%

	September 30, 2013
Industry Type	Percent of Total Investments at Fair Value
Software	20.76	%
Business Services	17.40	%
Education	16.61	%
Federal Services	10.12	%
Distribution & Logistics	7.53	%
Healthcare Services	7.07	%
Media	4.82	%
Consumer Services	4.62	%
Energy	4.22	%
Healthcare Products	4.00	%
Industrial Services	1.37	%
Healthcare Information Technology	0.85	%
Information Technology	0.63	%
Total investments	100.00	%

	September 30, 2013
Interest Rate Type	Percent of Total Investments at Fair Value
Floating rates	88.01	%
Fixed rates	11.99	%
Total investments	100.00	%

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments

December 31, 2012

(in thousands, except shares)

Portfolio Company, Location and Industry(1)	Type of Investment	Interest Rate	Maturity Date	Principal Amount, Par Value or Shares		Cost		Fair Value		Percent of Members’ Capital
Funded Debt Investments—Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Stratus Technologies Bermuda Ltd. / Stratus Technologies, Inc.
Information Technology	First lien(2)(7)	12.00%	3/29/2015	$	6,664	$	6,396	$	6,631	1.16	%
Total Funded Debt Investments—Bermuda				$	6,664	$	6,396	$	6,631	1.16	%
Funded Debt Investments—Cayman Islands
Pinnacle Holdco S.à r.l. / Pinnacle (US) Acquisition Co Limited**
Software	First lien(3)	6.50% (Base Rate + 5.25%)	7/30/2019	$	2,992	$	2,971	$	2,999
	Second lien(2)	10.50% (Base Rate + 9.25%)	7/30/2020	30,000		29,420		30,488
				32,992		32,391		33,487		5.88	%
Total Funded Debt Investments—Cayman Islands				$	32,992	$	32,391	$	33,487	5.88	%
Funded Debt Investments—United Kingdom
Magic Newco, LLC**
Software	First lien(3)	7.25% (Base Rate + 6.00%)	12/12/2018	$	14,963	$	14,543	$	15,105	2.65	%
Total Funded Debt Investments—United Kingdom				$	14,963	$	14,543	$	15,105	2.65	%
Funded Debt Investments—United States
Edmentum, Inc.(fka Plato, Inc.)
Education	First lien(3)	7.50% (Base Rate + 6.00%)	5/17/2018	$	11,700	$	11,378	$	11,744
	Second lien(2)	11.25% (Base Rate + 9.75%)	5/17/2019	29,150		28,604		28,567
				40,850		39,982		40,311		7.07	%
Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)
Software	First lien(3)	7.25% (Base Rate + 5.75%)	11/22/2017	7,700		7,560		7,785
	Second lien(2)	11.00% (Base Rate + 9.50%)	11/22/2018	24,000		23,326		23,560
				31,700		30,886		31,345		5.50	%
Rocket Software, Inc.
Software	Second lien(2)	10.25% (Base Rate + 8.75%)	2/8/2019	30,875		30,711		30,933		5.43	%
Pharmaceutical Research Associates, Inc.
Healthcare Services	Second lien(2)	10.50% (Base Rate + 9.25%)	6/10/2019	30,000		29,402		30,319		5.32	%
UniTek Global Services, Inc.
Business Services	First lien(2)	9.00% (Base Rate + 7.50%)	4/16/2018	19,650		19,202		19,331
	First lien(2)	9.00% (Base Rate + 7.50%)	4/16/2018	5,970		5,798		5,873
	First lien(2)	9.00% (Base Rate + 7.50%)	4/16/2018	4,963		4,781		4,882
				30,583		29,781		30,086		5.28	%
KeyPoint Government Solutions, Inc.
Federal Services	First lien(3)	7.25% (Base Rate + 6.00%)	11/13/2017	20,000		19,608		19,900
	First lien(2)	7.25% (Base Rate + 6.00%)	11/13/2017	10,000		9,703		9,950
				30,000		29,311		29,850		5.24	%
Global Knowledge Training LLC
Education	First lien(3)	6.50% (Base Rate + 4.99%)	4/21/2017	4,776		4,718		4,705
	First lien(3)	7.25% (Base Rate + 4.00%)	4/21/2017	1,174		1,159		1,156
	Second lien(2)	11.50% (Base Rate + 9.75%)	10/21/2018	24,250		23,814		23,755
				30,200		29,691		29,616		5.20	%
Managed Health Care Associates, Inc.
Healthcare Services	First lien(2)	3.47% (Base Rate + 3.25%)	8/1/2014	14,756		13,240		14,276
	Second lien(2)	6.72% (Base Rate + 6.50%)	2/1/2015	15,000		12,790		14,475
				29,756		26,030		28,751		5.05	%
Transtar Holding Company
Distribution & Logistics (10)	Second lien(2)	9.75% (Base Rate + 8.50%)	10/9/2019	28,300		27,787		28,654		5.03	%
Meritas Schools Holdings, LLC
Education	First lien(3)	7.50% (Base Rate + 6.00%)	7/29/2017	8,150		8,084		8,171
	Second lien(2)	11.50% (Base Rate + 10.00%)	1/29/2018	20,000		19,747		20,000
				28,150		27,831		28,171		4.94	%
Kronos Incorporated
Software	Second lien(2)	9.75% (Base Rate + 8.50%)	4/30/2020	25,000		24,753		25,125		4.41	%

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012

(in thousands, except shares)

Portfolio Company, Location and Industry(1)	Type of Investment	Interest Rate	Maturity Date	Principal Amount, Par Value or Shares		Cost		Fair Value		Percent of Members’ Capital
St. George’s University Scholastic Services LLC
Education	First lien(2)	8.50% (Base Rate + 7.00%)	12/20/2017	$	25,000	$	24,501	$	24,500	4.30	%
SRA International, Inc.
Federal Services	First lien(3)	6.50% (Base Rate + 5.25%)	7/20/2018	20,436		19,741		19,542
	First lien(2)	6.50% (Base Rate + 5.25%)	7/20/2018	4,315		4,225		4,126
				24,751		23,966		23,668		4.15	%
Aderant North America, Inc.
Software	Second lien(2)	11.00% (Base Rate + 7.75%)	6/20/2019	22,500		22,163		23,062		4.05	%
LM U.S. Member LLC (and LM U.S. Corp Acquisition Inc.)
Business Services	Second lien(2)	9.50% (Base Rate + 8.25%)	10/26/2020	20,000		19,704		20,150		3.54	%
Learning Care Group (US), Inc.
Education	First lien(2)	12.00%	4/27/2016	17,369		17,174		16,696
	Subordinated(2)	15.00% PIK*	6/30/2016	3,782		3,639		3,434
				21,151		20,813		20,130		3.53	%
Six3 Systems, Inc.
Federal Services	First lien(2)	7.00% (Base Rate + 5.75%)	10/4/2019	20,000		19,805		20,025		3.51	%
First American Payment Systems, L.P.
Business Services	Second lien(2)	10.75% (Base Rate + 9.50%)	4/12/2019	20,000		19,609		19,900		3.49	%
eResearchTechnology, Inc.
Healthcare Services	First lien(3)	8.00% (Base Rate + 6.50%)	5/2/2018	19,950		19,202		19,850		3.48	%
Insight Pharmaceuticals LLC
Healthcare Products	Second lien(2)	13.25% (Base Rate + 11.75%)	8/25/2017	19,310		18,659		19,503		3.42	%
Transplace Texas, L.P.
Distribution & Logistics (10)	Second lien(2)	11.00% (Base Rate + 9.00%)	4/12/2017	20,000		19,586		19,500		3.42	%
PODS, Inc.(6)
Consumer Services
PODS Funding Corp. II	First lien(3)	7.25% (Base Rate + 6.00%)	11/29/2016	14,007		13,668		13,972
Storapod Holding Company, Inc.	Subordinated(2)	21.00% PIK*	11/29/2017	5,296		5,156		5,113
				19,303		18,824		19,085		3.35	%
Smile Brands Group Inc.
Healthcare Services	First lien(3)	7.00% (Base Rate + 5.25%)	12/21/2017	19,859		19,598		18,767		3.29	%
Ascensus, Inc.
Business Services	First lien(2)	8.00% (Base Rate + 6.75%)	12/21/2018	8,500		8,330		8,330
	First lien(3)	8.00% (Base Rate + 6.75%)	12/21/2018	8,500		8,330		8,330
				17,000		16,660		16,660		2.92	%
Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
Federal Services	First lien(3)	7.50% (Base Rate + 6.00%)	4/21/2017	15,758		15,644		15,600		2.74	%
IG Investments Holdings, LLC
Business Services	Second lien(2)	10.25% (Base Rate + 9.00%)	10/31/2020	15,000		14,852		14,925		2.62	%
OpenLink International, Inc.
Software	First lien(3)	7.75% (Base Rate + 6.25%)	10/30/2017	14,850		14,600		14,850		2.61	%
Landslide Holdings, Inc. (Crimson Acquisition Corp.)
Software	First lien(3)	7.00% (Base Rate + 5.75%)	6/19/2018	14,625		14,353		14,671		2.57	%
KPLT Holdings, Inc. (Centerplate, Inc., et al.)
Consumer Services	Subordinated(2)	11.75% (10.25% + 1.50% PIK)*	4/16/2019	14,637		14,351		14,344		2.52	%
Sabre Inc.
Software	First lien(3)	7.25% (Base Rate + 6.00%)	12/29/2017	13,965		13,918		14,186		2.49	%
Brock Holdings III, Inc.
Industrial Services	Second lien(2)	10.00% (Base Rate + 8.25%)	3/16/2018	14,000		13,825		14,105		2.48	%
Triple Point Technology, Inc.
Software	First lien(3)	6.25% (Base Rate + 5.00%)	10/27/2017	12,968		12,549		13,021		2.28	%
Lonestar Intermediate Super Holdings, LLC
Business Services	Subordinated(2)	11.00% (Base Rate + 9.50%)	9/2/2019	12,000		11,666		12,765		2.24	%
Aspen Dental Management, Inc.
Healthcare Services	First lien(3)	7.00% (Base Rate + 5.50%)	10/6/2016	12,870		12,652		12,210		2.14	%

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012

(in thousands, except shares)

Portfolio Company, Location and Industry(1)	Type of Investment	Interest Rate	Maturity Date	Principal Amount, Par Value or Shares		Cost		Fair Value		Percent of Members’ Capital
Van Wagner Communications, LLC
Media	First lien(2)	8.25% (Base Rate + 7.00%)	8/3/2018	$	12,000	$	11,772	$	12,160	2.13	%
Supervalu Inc.**
Retail	First lien(2)	8.00% (Base Rate + 6.75%)	8/30/2018	11,940		11,597		12,146		2.13	%
Vision Solutions, Inc.
Software	Second lien(2)	9.50% (Base Rate + 8.00%)	7/23/2017	12,000		11,913		11,700		2.05	%
Merrill Communications LLC
Business Services	First lien(2)	10.75% (Base Rate + 7.50%)	3/10/2013	11,422		11,421		11,279		1.98	%
Mailsouth, Inc.
Media	First lien(3)	6.75% (Base Rate + 5.00%)	12/14/2016	11,136		11,018		11,025		1.94	%
Immucor, Inc.
Healthcare Services	First lien(3)	5.75% (Base Rate + 4.50%)	8/19/2018	4,938		4,772		5,006
	Subordinated(2)(7)	11.13%	8/15/2019	5,000		4,943		5,650
				9,938		9,715		10,656		1.87	%
Virtual Radiologic Corporation
Healthcare Information Technology	First lien(3)	7.75% (Base Rate + 4.50%)	12/22/2016	14,702		14,550		10,291		1.81	%
Permian Tank & Manufacturing, Inc.
Energy	First lien(3)	9.00% (Base Rate + 7.25%)	3/15/2017	10,072		9,852		10,072		1.77	%
Vertafore, Inc.
Software	Second lien(2)	9.75% (Base Rate + 8.25%)	10/29/2017	10,000		9,924		10,050		1.76	%
Merge Healthcare Inc.**
Healthcare Services	First lien(2)(7)	11.75%	5/1/2015	9,000		8,916		9,709		1.70	%
TransFirst Holdings, Inc.
Business Services	Second lien(2)	11.00% (Base Rate + 9.75%)	6/27/2018	10,000		9,700		9,700		1.70	%
Consona Holdings, Inc.
Software	First lien(3)	7.25% (Base Rate + 6.00%)	8/6/2018	8,479		8,398		8,511		1.49	%
Confie Seguros Holding II Co.
Consumer Services	Second lien(2)	10.25% (Base Rate + 9.00%)	5/8/2019	8,000		7,842		8,040		1.41	%
Physio-Control International, Inc.
Healthcare Products	First lien(2)	9.88%	1/15/2019	7,000		7,000		7,717		1.35	%
Surgery Center Holdings, Inc.
Healthcare Services	First lien(3)	6.50% (Base Rate + 5.00%)	2/6/2017	6,834		6,809		6,800		1.19	%
Research Pharmaceutical Services, Inc.
Healthcare Services	First lien(3)	6.75% (Base Rate + 5.25%)	2/18/2017	7,125		7,046		6,662		1.17	%
Alion Science and Technology Corporation
Federal Services	First lien(2)(7)	12.00% (10.00% + 2.00% PIK)*	11/1/2014	6,320		6,131		6,093		1.07	%
GCA Services Group, Inc.
Business Services	Second lien(2)	9.25% (Base Rate + 8.00%)	11/1/2020	5,000		4,951		4,900		0.86	%
Education Management LLC**
Education	First lien(3)	8.25% (Base Rate + 7.00%)	3/30/2018	5,058		4,921		4,232		0.74	%
Brickman Group Holdings, Inc.
Business Services	Subordinated(2)	9.13%	11/1/2018	3,650		3,342		3,842		0.68	%
Ozburn-Hessey Holding Company LLC
Distribution & Logistics (10)	Second lien(2)	11.50% (Base Rate + 9.50%)	10/10/2016	4,000		3,947		3,680		0.65	%
YP Holdings LLC(8)
YP Intermediate Holdings Corp. / YP Intermediate Holdings II LLC
Media	Second lien(2)	15.00% (12.00% + 3.00% PIK)*	5/18/2017	3,559		3,326		3,586		0.63	%
Mach Gen, LLC
Power Generation	Second lien(2)	7.82% PIK (Base Rate + 7.50%)*	2/22/2015	3,676		3,474		2,396		0.42	%
ATI Acquisition Company (fka Ability Acquisition, Inc.)
Education	First lien(2)	12.25% (Base Rate + 5.00% + 4.00% PIK)(5)*	12/30/2014	4,432		4,306		—
	First lien(2)	17.25% (Base Rate + 10.00% + 4.00% PIK)(5)*	6/30/2012— Past Due	1,665		1,517		649
	First lien(2)	17.25% (Base Rate + 10.00% + 4.00% PIK)(5)*	6/30/2012— Past Due	103		94		103
				6,200		5,917		752		0.13	%
Airvana Network Solutions Inc.
Software	First lien(2)	10.00% (Base Rate + 8.00%)	3/25/2015	648		640		650		0.11	%
Total Funded Debt Investments—United States				$	942,670	$	921,787	$	925,287	162.35	%
Total Funded Debt Investments				$	997,289	$	975,117	$	980,510	172.04	%

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012

(in thousands, except shares)

Portfolio Company, Location and Industry(1)	Type of Investment	Interest Rate	Maturity Date	Principal Amount, Par Value or Shares		Cost			Fair Value			Percent of Members’ Capital
Equity—Bermuda
Stratus Technologies Bermuda Holdings Ltd.(4)**
Information Technology	Ordinary shares(2)	—	—	144,270		$	65		$	65
	Preferred shares(2)	—	—	32,830		15			15
						80			80			0.01	%
Total Shares—Bermuda						$80			$80			0.01	%
Equity—United States
Global Knowledge Training LLC
Education	Ordinary shares(2)	—	—	2		$	2		$	2
	Preferred shares(2)	—	—	2,423		1,195			2,423
						1,197			2,425			0.43	%
Total Shares—United States						$	1,197		$	2,425		0.43	%
Total Shares						$	1,277		$	2,505		0.44	%
Warrants—United States
YP Holdings LLC(8)
YP Equity Investors LLC
Media	Warrants(2)	—	—	5		$	466		$	7,230		1.27	%
Alion Science and Technology Corporation
Federal Services	Warrants(2)	—	—	6,000		293			192			0.03	%
PODS, Inc.(6)
Storapod Holding Company, Inc.
Consumer Services	Warrants(2)	—	—	360,129		156			156			0.03	%
Learning Care Group (US), Inc.
Education	Warrants(2)	—	—	844		194			14			0.00	%
Total Warrants—United States						$	1,109		$	7,592		1.33	%
Total Funded Investments						$	977,503		$	990,607		173.81	%
Unfunded Debt Investments—United States
Advantage Sales & Marketing Inc.
Business Services	First lien(2)(9)—Undrawn	—	12/17/2015	$	10,500	$	(1,260	)	$	(787	)	(0.14	)%
Total Unfunded Debt Investments				$	10,500	$	(1,260	)	$	(787	)	(0.14	)%
Total Investments						$	976,243		$	989,820		173.67	%

(2) The Holdings Credit Facility is collateralized by the indicated investments.

(3) The SLF Credit Facility is collateralized by the indicated investments.

(5) Investment is on non-accrual status.

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012

(7) Securities are registered under the Securities Act.

(10) Industries were disclosed separately in previously issued financial statements.

* All or a portion of interest contains payments-in-kind (“PIK”).

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (Continued)

December 31, 2012

	December 31, 2012
Investment Type	Percent of Total Investments at Fair Value
First lien	49.86	%
Second lien	44.56	%
Subordinated	4.56	%
Equity and other	1.02	%
Total investments	100.00	%

	December 31, 2012
Industry Type	Percent of Total Investments at Fair Value
Software	24.92	%
Education	15.17	%
Healthcare Services	14.52	%
Business Services	14.49	%
Federal Services	9.64	%
Distribution & Logistics (1)	5.23	%
Consumer Services	4.21	%
Media	3.44	%
Healthcare Products	2.75	%
Industrial Services	1.42	%
Retail	1.23	%
Healthcare Information Technology	1.04	%
Energy	1.02	%
Information Technology	0.68	%
Power Generation	0.24	%
Total investments	100.00	%

(1) Industries were disclosed separately in previously issued financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Corporation

Statements of Assets and Liabilities

(in thousands, except shares and per share data)

	September 30, 2013		December 31, 2012
	(unaudited)
Assets
Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost of $534,040 and $335,730, respectively)	$	547,722	$	341,926
Distribution receivable from New Mountain Finance Holdings, L.L.C.	—		3,405
Total assets	$	547,722	$	345,331
Liabilities
Dividends payable	—		3,405
Total liabilities	—		3,405
Net assets
Preferred stock, par value $0.01 per share, 2,000,000 authorized, none issued	—		—
Common stock, par value $0.01 per share, 100,000,000 shares authorized, and 38,259,921 and 24,326,251 shares issued and outstanding, respectively	383		243
Paid in capital in excess of par	533,657		335,487
Accumulated undistributed net realized gains	7,725		952
Net unrealized appreciation (depreciation)	5,957		5,244
Total net assets	$	547,722	$	341,926
Total liabilities and net assets	$	547,722	$	345,331
Number of shares outstanding	38,259,921		24,326,251
Net asset value per share	$	14.32	$	14.06

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance Corporation

Statements of Operations

(in thousands, except shares and per share data)

(unaudited)

	Three months ended						Nine months ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
Interest income	$	23,190		$	9,563		$	59,220		$	22,961
Dividend income	(1,391		)	96			3,334			96
Other income	213			83			1,539			289
Total expenses	(11,209		)	(5,169		)	(28,398		)	(11,314		)
Net investment income allocated from New Mountain Finance Holdings, L.L.C .	10,803			4,573			35,695			12,032
Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.
Net realized gains on investments	4,403			700			7,567			5,189
Net change in unrealized appreciation (depreciation) of investments	2,269			4,725			753			4,800
Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C .	6,672			5,425			8,320			9,989
Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C .	17,475			9,998			44,015			22,021
Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.	(8		)	(43		)	(40		)	(43		)
Net increase in net assets resulting from operations	$	17,467		$	9,955		$	43,975		$	21,978
Basic earnings per share	$	0.46		$	0.62		$	1.38		$	1.75
Weighted average shares of common stock outstanding—basic (See Note 11)	38,159,320			16,177,442			31,952,623			12,537,607
Diluted earnings per share	$	0.46		$	0.62		$	1.40		$	1.74
Weighted average shares of common stock outstanding—diluted (See Note 11)	44,731,258			36,138,511			42,847,638			32,671,954

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance Corporation

Statements of Changes in Net Assets

(in thousands)

(unaudited)

	Nine months ended
	September 30, 2013			September 30, 2012
Increase (decrease) in net assets resulting from operations:
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	$	35,695		$	12,032
Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.	7,567			5,189
Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.	753			4,800
Net change in unrealized (depreciation) appreciation of investment in New Mountain Finance Holdings, L.L.C.	(40		)	(43		)
Total net increase in net assets resulting from operations	43,975			21,978
Capital transactions
Net proceeds from shares sold	57,020			82,300
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.	(203		)	(211		)
Value of shares issued for exchanged units	137,384			56,314
Dividends declared	(36,489		)	(15,173		)
Reinvestment of dividends	4,109			980
Total net increase in net assets resulting from capital transactions	161,821			124,210
Net increase in net assets	205,796			146,188
Net assets at beginning of period	341,926			145,487
Net assets at end of period	$	547,722		$	291,675

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance Corporation

Statements of Cash Flows

(in thousands)

(unaudited)

	Nine months ended
	September 30, 2013			September 30, 2012
Cash flows from operating activities
Net increase in net assets resulting from operations	$	43,975		$	21,978
Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash (used in) provided by operating activities:
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	(35,695		)	(12,032		)
Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.	(8,320		)	(9,989		)
Net change in unrealized depreciation (appreciation) of investment in New Mountain Finance Holdings, L.L.C.	40			43
(Increase) decrease in operating assets:
Purchase of investment	(57,020		)	(82,300		)
Distributions from New Mountain Finance Holdings, L.L.C.	35,785			15,173
Net cash flows used in operating activities	(21,235		)	(67,127		)
Cash flows from financing activities
Net proceeds from shares sold	57,020			82,300
Dividends paid	(35,785		)	(15,173		)
Net cash flows provided by financing activities	21,235			67,127
Net increase (decrease) in cash and cash equivalents	—			—
Cash and cash equivalents at the beginning of the period	—			—
Cash and cash equivalents at the end of the period	$	—		$	—
Non-cash financing activities:
New Mountain Finance AIV Holdings Corporation exchange of New Mountain Finance Holdings, L.L.C. units for shares	$	137,384		$	56,314
Value of shares issued in connection with dividend reinvestment plan	4,109			980
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.	(203		)	(211		)

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance AIV Holdings Corporation

Statements of Assets and Liabilities

(in thousands, except shares)

	September 30, 2013			December 31, 2012
	(unaudited)
Assets
Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost of $98,820 and $244,015, respectively)	$	94,083		$	228,013
Distributions receivable from New Mountain Finance Holdings, L.L.C.	—			7,786
Total assets	$	94,083		$	235,799
Liabilities
Dividends payable	—			7,786
Total liabilities	—			7,786
Net assets
Common stock, par value $0.01 per share 100 shares issued and outstanding	—		(1)	—		(1)
Paid in capital in excess of par	98,820			244,015
Distributions in excess of net realized gains	(4,982		)	(6,676		)
Net unrealized appreciation (depreciation)	245			(9,326		)
Total net assets	94,083			228,013
Total liabilities and net assets	$	94,083		$	235,799

(1) As of September 30, 2013 and December 31, 2012, the par value of the total common stock was $1.

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance AIV Holdings Corporation

Statements of Operations

(in thousands)

(unaudited)

	Three months ended						Nine months ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
Interest income	$	3,983		$	11,799		$	20,318		$	37,126
Dividend income	(239		)	119			1,468			119
Other income	36			91			387			480
Total expenses	(1,925		)	(6,448		)	(10,040		)	(18,064		)
Net investment income allocated from New Mountain Finance Holdings, L.L.C .	1,855			5,561			12,133			19,661
Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.
Net realized gains on investments	757			916			1,949			9,402
Net change in unrealized appreciation (depreciation) of investments	390			5,769			1,765			5,911
Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C .	1,147			6,685			3,714			15,313
Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C .	3,002			12,246			15,847			34,974
Net realized gains (losses) on investment in New Mountain Finance Holdings, L.L.C.	—			382			(10,451		)	382
Net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C.	9			1,564			7,806			1,564
Net increase in net assets resulting from operations	$	3,011		$	14,192		$	13,202		$	36,920

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance AIV Holdings Corporation

Statements of Changes in Net Assets

(in thousands)

(unaudited)

	Nine months ended
	September 30, 2013			September 30, 2012
Increase (decrease) in net assets resulting from operations:
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	$	12,133		$	19,661
Net realized gains on investments allocated from New Mountain Finance Holdings, L.L.C.	1,949			9,402
Net change in unrealized appreciation (depreciation) of investments allocated from New Mountain Finance Holdings, L.L.C.	1,765			5,911
Net realized (losses) gains on investment in New Mountain Finance Holdings, L.L.C.	(10,451		)	382
Net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C.	7,806			1,564
Total net increase in net assets resulting from operations	13,202			36,920
Capital transactions
Distribution to New Mountain Guardian AIV, L.P.	(134,699		)	(58,216		)
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.	(45		)	(166		)
Dividends declared	(12,388		)	(24,873		)
Total net decrease in net assets resulting from capital transactions	(147,132		)	(83,255		)
Net decrease in net assets	(133,930		)	(46,335		)
Net assets at beginning of period	228,013			275,015
Net assets at end of period	$	94,083		$	228,680

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance AIV Holdings Corporation

Statements of Cash Flows

(in thousands)

(unaudited)

	Nine months ended
	September 30, 2013			September 30, 2012
Cash flows from operating activities
Net increase in net assets resulting from operations	$	13,202		$	36,920
Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash (used in) provided by operating activities:
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	(12,133		)	(19,661		)
Net realized and unrealized gains allocated from New Mountain Finance Holdings, L.L.C.	(3,714		)	(15,313		)
Net realized losses (gains) on investment in New Mountain Finance Holdings, L.L.C.	10,451			(382		)
Net change in unrealized (appreciation) depreciation in New Mountain Finance Holdings, L.L.C.	(7,806		)	(1,564		)
(Increase) decrease in operating activities
Distributions from New Mountain Finance Holdings, L.L.C.	20,174			24,873
Net cash flows provided by operating activities	20,174			24,873
Cash flows from financing activities
Proceeds from shares sold	134,699			58,216
Distribution to New Mountain Guardian AIV, L.P.	(134,699		)	(58,216		)
Dividends paid	(20,174		)	(24,873		)
Net cash flows used in financing activities	(20,174		)	(24,873		)
Net increase (decrease) in cash and cash equivalents	—			—
Cash and cash equivalents at the beginning of the period	—			—
Cash and cash equivalents at the end of the period	$	—		$	—
Non-cash financing activities:
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.	$	(45	)	$	(166	)

The accompanying notes are an integral part of these financial statements.

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Combined Notes to the Consolidated Financial Statements of New Mountain Finance Holdings, L.L.C.,
the Financial Statements of New Mountain Finance Corporation and the Financial Statements
of New Mountain Finance AIV Holdings Corporation

September 30, 2013

(in thousands, except units/shares and per unit/share data)

(unaudited)

The information in these combined notes to the financial statements relates to each of the three separate registrants: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation (collectively, the “Companies”). Information that relates to an individual registrant will be specifically referenced by the respective company. None of the Companies makes any representation as to the information related solely to the other registrants other than itself.

Note 1. Formation and Business Purpose

New Mountain Finance Holdings, L.L.C. (the “Operating Company” or the “Master Fund”) is a Delaware limited liability company. The Operating Company is externally managed and has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As such, the Operating Company is obligated to comply with certain regulatory requirements. The Operating Company intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members.

The Operating Company is externally managed by New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”). New Mountain Finance Administration, L.L.C. (the “Administrator”) provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates). New Mountain Capital is a firm with a track record of investing in the middle market and with assets under management (which includes amounts committed, not all of which have been drawn down and invested to date) totaling more than $9.0 billion as of September 30, 2013. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity, and credit investment vehicles. The Operating Company, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. (“Guardian AIV”) by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the “Predecessor Entities”.

New Mountain Finance Corporation (“NMFC”) is a Delaware corporation that was originally incorporated on June 29, 2010. NMFC is a closed-end, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. As such, NMFC is obligated to comply with certain regulatory requirements. NMFC has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”).

New Mountain Finance AIV Holdings Corporation (“AIV Holdings”) is a Delaware corporation that was originally incorporated on March 11, 2011. Guardian AIV, a Delaware limited partnership, is AIV Holdings’ sole stockholder. AIV Holdings is a closed-end, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. As such, AIV Holdings is obligated to comply with certain regulatory requirements. AIV Holdings has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a RIC under the Code.

On May 19, 2011, NMFC priced its initial public offering (the “IPO”) of 7,272,727 shares of common stock at a public offering price of $13.75 per share. Concurrently with the closing of the IPO and at the public offering price of $13.75 per share, NMFC sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in a concurrent private placement (the “Concurrent Private Placement”). Additionally, 1,252,964 shares were issued to the partners of New Mountain Guardian Partners, L.P. at that time for their ownership interest in the Predecessor Entities. In connection with NMFC’s IPO and through a series of transactions, the Operating Company owns all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

NMFC and AIV Holdings are holding companies with no direct operations of their own, and their sole asset is their ownership in the Operating Company. NMFC and AIV Holdings each entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company, pursuant to which NMFC and AIV Holdings were admitted as members of the Operating Company. NMFC acquired from the Operating Company, with the gross proceeds of the IPO and the Concurrent Private Placement, common membership units (“units”) of the Operating Company (the number of units are equal to the number of shares of NMFC’s common stock sold in the IPO and the Concurrent Private Placement). Additionally, NMFC received units of the Operating Company equal to the number of shares of common stock of NMFC issued to the partners of New Mountain Guardian Partners, L.P. Guardian AIV was the parent of the Operating Company prior to the IPO and, as a result of the transactions completed in connection with the IPO, obtained units in the Operating Company. Guardian AIV contributed its units in

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the Operating Company to its newly formed subsidiary, AIV Holdings, in exchange for common stock of AIV Holdings. AIV Holdings has the right to exchange all or any portion of its units in the Operating Company for shares of NMFC’s common stock on a one-for-one basis at any time.

During the quarter ended September 30, 2013, NMFC issued an additional 111,373 shares in conjunction with its dividend reinvestment plan at a weighted average price of $14.48. Since NMFC’s IPO, and through September 30, 2013, NMFC raised approximately $190,448 in net proceeds from additional offerings of common stock and issued shares of its common stock valued at approximately $193,698 on behalf of AIV Holdings for exchanged units. NMFC acquired from the Operating Company units of the Operating Company equal to the number of shares of NMFC’s common stock sold in the additional offerings. As of September 30, 2013, NMFC and AIV Holdings owned approximately 85.3% and 14.7%, respectively, of the units of the Operating Company.

The current structure was designed to generally prevent NMFC from being allocated taxable income with respect to unrecognized gains that existed at the time of the IPO in the Predecessor Entities’ assets, and rather such amounts would be allocated generally to AIV Holdings. The result is that any distributions made to NMFC’s stockholders that are attributable to such gains generally will not be treated as taxable dividends but rather as return of capital.

The diagram below depicts the Companies’ organizational structure as of September 30, 2013.

* Includes partners of New Mountain Guardian Partners, L.P.

** These common membership units are exchangeable into shares of NMFC common stock on a one-for-one basis.

*** New Mountain Finance SPV Funding, L.L.C. (“NMF SLF”).

The Operating Company’s investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. In some cases, the Operating Company’s investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance.

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Note 2. Summary of Significant Accounting Policies

Basis of accounting —The Companies’ financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Operating Company consolidates its wholly-owned subsidiary, NMF SLF. NMFC and AIV Holdings do not consolidate the Operating Company. NMFC and AIV Holdings apply investment company master-feeder financial statement presentation, as described in Accounting Standards Codification 946, Financial Services—Investment Companies , (“ASC 946”) to their interest in the Operating Company. NMFC and AIV Holdings observe that it is industry practice to follow the presentation prescribed for a master fund-feeder fund structure in ASC 946 in instances in which a master fund is owned by more than one feeder fund and that such presentation provides stockholders of NMFC and AIV Holdings with a clearer depiction of their investment in the master fund.

The Companies’ financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of operations and financial condition for all periods presented. All intercompany transactions have been eliminated. Revenues are recognized when earned and expenses when incurred. The financial results of the Operating Company’s portfolio investments are not consolidated in the financial statements. Prior to the IPO, an affiliate of the Predecessor Entities paid a majority of the management and incentive fees. Historical operating expenses do not reflect the allocation of certain professional fees, administrative and other expenses that have been incurred following the completion of the IPO. Accordingly, the Operating Company’s historical operating expenses are not comparable to its operating expenses after the completion of the IPO.

The Companies’ interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. Accordingly, the Companies’ interim financial statements do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2013.

Investments —The Operating Company applies fair value accounting in accordance with GAAP. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Investments are reflected on the Operating Company’s Consolidated Statements of Assets, Liabilities and Members’ Capital at fair value, with changes in unrealized gains and losses resulting from changes in fair value reflected in the Operating Company’s Consolidated Statements of Operations as “Net change in unrealized appreciation (depreciation) of investments” and realizations on portfolio investments reflected in the Operating Company’s Consolidated Statements of Operations as “Net realized gains (losses) on investments”.

The Operating Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Operating Company’s board of directors is ultimately and solely responsible for determining the fair value of the portfolio investments on a quarterly basis in good faith, including investments that are not publicly traded, those whose market prices are not readily available and any other situation where its portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. The Operating Company’s quarterly valuation procedures are set forth in more detail below:

(1) Investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services.

(2) Investments for which indicative prices are obtained from various pricing services and/or brokers or dealers are valued through a multi-step valuation process, as described below, to determine whether the quote(s) obtained is representative of fair value in accordance with GAAP.

a. Bond quotes are obtained through independent pricing services. Internal reviews are performed by the investment professionals of the Investment Adviser to ensure that the quote obtained is representative of fair value in accordance with GAAP and if so, the quote is used. If the Investment Adviser is unable to sufficiently validate the quote(s) internally and if the investment’s par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below); and

b. For investments other than bonds, the Operating Company looks at the number of quotes readily available and performs the following:

i. Investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained.

ii. Investments for which one quote is received from a pricing service are validated internally. The investment professionals of the Investment Adviser analyze the market quotes obtained using an

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array of valuation methods (further described below) to validate the fair value. If the Investment Adviser is unable to sufficiently validate the quote internally and if the investment’s par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below).

(3) Investments for which quotations are not readily available through exchanges, pricing services, brokers, or dealers are valued through a multi-step valuation process:

a. Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser responsible for the credit monitoring;

b. Preliminary valuation conclusions will then be documented and discussed with the Operating Company’s senior management;

c. If an investment falls into (3) above for four consecutive quarters and if the investment’s par value or its fair value exceeds the materiality threshold, then at least once each fiscal year, the valuation for each portfolio investment for which the Operating Company does not have a readily available market quotation will be reviewed by an independent valuation firm engaged by the Companies’ board of directors; and

d. When deemed appropriate by the Operating Company’s management, an independent valuation firm may be engaged to review and value investment(s) of a portfolio company, without any preliminary valuation being performed by the Investment Adviser. The investment professionals of the Investment Adviser will review and validate the value provided.

The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Operating Company’s investments may fluctuate from period to period and the fluctuations could be material.

NMFC and AIV Holdings are holding companies with no direct operations of their own, and their sole asset is their ownership in the Operating Company. NMFC’s and AIV Holdings’ investments in the Operating Company are carried at fair value and represent the respective pro-rata interest in the net assets of the Operating Company as of the applicable reporting date. NMFC and AIV Holdings value their ownership interest on a quarterly basis, or more frequently if required under the 1940 Act.

See Note 3, Investments , for further discussion relating to investments.

Cash and cash equivalents —Cash and cash equivalents include cash and short-term, highly liquid investments. The Companies define cash equivalents as securities that are readily convertible into known amounts of cash and so near maturity that there is insignificant risk of changes in value. Generally, these securities have original maturities of three months or less.

Revenue recognition

The Operating Company’s revenue recognition policies are as follows:

Sales and paydowns of investments: Realized gains and losses on investments are determined on the specific identification method.

Interest income: Interest income, including amortization of premium and discount using the effective interest method, is recorded on the accrual basis and periodically assessed for collectability. Interest income also includes interest earned from cash on hand. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as part of interest income. The Operating Company has loans in the portfolio that contain a payment-in-kind (“PIK”) provision. PIK represents interest that is accrued and recorded as interest income at the contractual rates, added to the loan principal on the respective capitalization dates, and generally due at maturity.

Non-accrual income: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when a loan is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment of the ultimate outcome. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

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Dividend income: Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Other income: Other income represents delayed compensation, consent or amendment fees, revolver fees and other miscellaneous fees received. Delayed compensation is income earned from counterparties on trades that do not settle within a set number of business days after trade date. Other income may also include fees from bridge loans. The Operating Company may from time to time enter into bridge financing commitments, an obligation to provide interim financing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. A fee is received by the Operating Company for providing such commitments.

NMFC’s and AIV Holdings’ revenue recognition policies are as follows:

Revenue, expenses, and capital gains (losses): At each quarterly valuation date, the Operating Company’s investment income, expenses, net realized gains (losses), and net increase (decrease) in unrealized appreciation (depreciation) are allocated to NMFC and AIV Holdings based on their pro-rata interest in the net assets of the Operating Company. This is recorded on NMFC’s and AIV Holdings’ Statements of Operations. Realized gains and losses are recorded upon sales of NMFC’s and AIV Holdings’ investments in the Operating Company. Net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. is the difference between the net asset value per share and the closing price per share for shares issued as part of the dividend reinvestment plan on the dividend payment date. This net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. includes the unrealized appreciation (depreciation) from the IPO. NMFC used the proceeds from its IPO and Concurrent Private Placement to purchase units in the Operating Company at $13.75 per unit (its IPO price per share). At the IPO date, $13.75 per unit represented a discount to the actual net asset value per unit of the Operating Company. As a result, NMFC experienced immediate unrealized appreciation on its investment. Concurrently, AIV Holdings experienced immediate unrealized depreciation on its investment in the Operating Company equal to the difference between NMFC’s IPO price of $13.75 per unit and the actual net asset value per unit.

All expenses, including those of NMFC and AIV Holdings, are paid and recorded by the Operating Company. Expenses are allocated to NMFC and AIV Holdings based on pro-rata ownership interest. In addition, the Operating Company paid all of the offering costs related to the IPO and subsequent offerings. NMFC and AIV Holdings have recorded their portion of the offering costs as a direct reduction to net assets and the cost of their investment in the Operating Company.

With respect to the expenses incident to any registration of shares of NMFC’s common stock issued in exchange for AIV Holdings’ units of the Operating Company, AIV Holdings is directly responsible for the expenses of any demand registration (including underwriters’ discounts or commissions) and their pro-rata share of any “piggyback” registration expenses.

Interest and other credit facility expenses —Interest and other credit facility fees are recorded on an accrual basis by the Operating Company. See Note 7, Borrowing Facilities , for details.

Deferred credit facility costs —The deferred credit facility costs of the Operating Company consist of capitalized expenses related to the origination and amending of the Operating Company’s existing credit facilities. The Operating Company amortizes these costs into expense using the straight-line method over the stated life of the related credit facility. See Note 7, Borrowing Facilities , for details.

Income taxes —The Operating Company is treated as a partnership for federal income tax purposes and as such is generally not subject to federal or state and local income taxes except with respect to state source income received from underlying flow-through investments. The partners are individually responsible for reporting income or loss based on their respective share of the revenues and expenses. The Operating Company files United States (“U.S.”) federal, state, and local income tax returns.

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NMFC and AIV Holdings have elected to be treated, and intend to comply with the requirements to qualify annually, as RICs under subchapter M of the Code. As RICs, NMFC and AIV Holdings are not subject to federal income tax on the portion of taxable income and gains timely distributed to stockholders; therefore, no provision for income taxes has been recorded.

To continue to qualify as RICs, NMFC and AIV Holdings are required to meet certain income and asset diversification tests in addition to distributing at least 90.0% of their respective investment company taxable income, as defined by the Code. Since federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.

Differences between taxable income and the results of operations for financial reporting purposes may be permanent or temporary in nature. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

For federal income tax purposes, distributions paid to stockholders of NMFC and AIV Holdings are reported as ordinary income, return of capital, long term capital gains or a combination thereof.

NMFC and AIV Holdings will be subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless NMFC and AIV Holdings distribute, in a timely manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of their respective net ordinary income earned for the calendar year and (2) 98.2% of their respective capital gain net income for the one-year period ending October 31 in the calendar year.

The Companies have adopted the Income Taxes topic of the Codification (“ASC 740”). ASC 740 provides guidance for how uncertain income tax positions should be recognized, measured, and disclosed in the financial statements. Based on their analyses, the Companies have determined that there were no material uncertain income tax positions through December 31, 2012. The 2011 and 2012 tax years remain subject to examination by U.S. federal, state, and local tax authorities.

Dividends —Distributions to common unit holders of the Operating Company and common stockholders of NMFC and AIV Holdings are recorded on the record date as set by the respective board of directors. In order for NMFC and AIV Holdings to pay a dividend or other distribution to holders of their common stock, it must be accompanied by a prior distribution by the Operating Company to all of its unit holders. The Operating Company intends to make distributions to its unit holders that will be sufficient to enable NMFC and AIV Holdings to pay quarterly distributions to their stockholders and to maintain their status as RICs. NMFC and AIV Holdings intend to distribute approximately all of their portion of the Operating Company’s adjusted net investment income (see Note 5, Agreements ) on a quarterly basis and substantially all of their portion of the Operating Company’s taxable income on an annual basis, except that NMFC may retain certain net capital gains for reinvestment.

Under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to continue to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as a dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV. AIV Holdings intends to make quarterly distributions to Guardian AIV, its sole stockholder, out of assets legally available for distribution each quarter.

The Operating Company and NMFC are required to take certain actions in order to maintain, at all times, a one-to-one ratio between the number of units held by NMFC and the number of shares of NMFC’s common stock outstanding. NMFC has adopted a dividend reinvestment plan that provides on behalf of its stockholders for reinvestment of any distributions declared, unless a stockholder elects to receive cash. Cash distributions reinvested in additional shares of NMFC’s common stock will be automatically reinvested by NMFC into additional units of the Operating Company. In addition, AIV Holdings does not intend to reinvest any distributions received from the Operating Company in additional units of the Operating Company.

NMFC applies the following in implementing the dividend reinvestment plan. If the price at which newly issued shares are to be credited to stockholders’ accounts is greater than 110.0% of the last determined net asset value of the shares, NMFC will use only newly issued shares to implement its dividend reinvestment plan. Under such circumstances, the number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of NMFC’s common stock on the New York Stock Exchange (“NYSE”) on the distribution payment date. Market price per share on that date will be the closing price for such shares on the NYSE or, if no sale is reported for such day, the average of their electronically reported bid and asked prices. If NMFC uses newly issued shares to implement the plan, NMFC will receive, on a one-for-one basis, additional units of the Operating Company in exchange for cash distributions that are reinvested in shares of NMFC’s common stock under the dividend reinvestment plan.

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If the price at which newly issued shares are to be credited to stockholders’ accounts is less than 110.0% of the last determined net asset value of the shares, NMFC will either issue new shares or instruct the plan administrator to purchase shares in the open market to satisfy the additional shares required. Shares purchased in open market transactions by the plan administrator will be allocated to a stockholder based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market. The number of shares of NMFC’s common stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of NMFC’s stockholders have been tabulated.

Foreign securities —The accounting records of the Operating Company are maintained in U.S. dollars. Investment securities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies on the respective dates of the transactions. The Operating Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with “Net change in unrealized appreciation (depreciation) of investments” and “Net realized gains (losses) on investments” in the Operating Company’s Consolidated Statements of Operations.

Investments denominated in foreign currencies may be negatively affected by movements in the rate of exchange between the U.S. dollar and such foreign currencies. This movement is beyond the control of the Operating Company and cannot be predicted.

Use of estimates —The preparation of the Companies’ financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Companies’ financial statements and the reported amounts of revenues and expenses during the reporting periods. Changes in the economic environment, financial markets, and other metrics used in determining these estimates could cause actual results to differ from the estimates used, and the differences could be material.

Dividend income recorded related to distributions received from flow-through investments is an accounting estimate based on the most recent estimate of the tax treatment of the distribution. During the three months ended September 30, 2013, the Operating Company changed an accounting estimate related to the classification of dividend income for a distribution recorded in the prior quarter from one of the Operating Company’s warrant investments. Based on tax projections received during the three months ended September 30, 2013, the Operating Company reduced the warrant cost basis by $466 and corresponding dividend income previously recorded by $1,799, and recorded a realized gain of $1,333 to agree to the tax treatment on the investment. This resulted in a reclass of $360 from incentive fee to capital gains incentive fee.

Note 3. Investments

At September 30, 2013 the Operating Company’s investments consisted of the following:

Investment Cost and Fair Value by Type

	Cost		Fair Value
First lien	$	535,075	$	533,259
Second lien	421,234		431,113
Subordinated	44,517		46,865
Equity and other	24,511		30,195
Total investments	$	1,025,337	$	1,041,432

Investment Cost and Fair Value by Industry

	Cost		Fair Value
Software	$	211,384	$	216,241
Business Services	176,706		181,196
Education	168,797		173,008
Federal Services	105,626		105,392
Distribution & Logistics	76,755		78,428
Healthcare Services	72,406		73,602
Media	47,814		50,155
Consumer Services	47,109		48,100
Energy	44,770		44,010
Healthcare Products	40,254		41,696
Industrial Services	13,850		14,222
Healthcare Information Technology	13,481		8,838
Information Technology	6,385		6,544
Total investments	$	1,025,337	$	1,041,432

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At December 31, 2012 the Operating Company’s investments consisted of the following:

Investment Cost and Fair Value by Type

	Cost		Fair Value
First lien	$	496,931	$	493,502
Second lien	433,829		441,073
Subordinated	43,097		45,148
Equity and other	2,386		10,097
Total investments	$	976,243	$	989,820

Investment Cost and Fair Value by Industry

	Cost		Fair Value
Software	$	241,742	$	246,696
Education	155,047		150,151
Healthcare Services	139,370		143,724
Business Services	140,426		143,420
Federal Services	95,150		95,428
Distribution & Logistics (1)	51,320		51,834
Consumer Services	41,173		41,625
Media	26,582		34,001
Healthcare Products	25,659		27,220
Industrial Services	13,825		14,105
Retail	11,597		12,146
Healthcare Information Technology	14,550		10,291
Energy	9,852		10,072
Information Technology	6,476		6,711
Power Generation	3,474		2,396
Total investments	$	976,243	$	989,820

(1) Industries were disclosed separately in previously issued financial statements.

As of September 30, 2013, the Operating Company’s first lien positions in ATI Acquisition Company remained on non-accrual status due to the inability of the portfolio company to service its interest payment for the quarter then ended and uncertainty about its ability to pay such amounts in the future. During the three months ended September 30, 2013, the Operating Company received preferred shares and warrants in Ancora Acquisition LLC, in relation to the two super priority first lien positions in ATI Acquisition Company. As of September 30, 2013, the Operating Company’s investment had an aggregate cost basis of $5,917, an aggregate fair value of $419 and total unearned interest income of $241 and $709, respectively, for the three and nine months then ended. As of December 31, 2012, the Operating Company’s original first lien position in ATI Acquisition Company was put on non-accrual status, with a cost basis of $4,306, a fair value of zero and total unearned interest income of $653 for the year then ended. The Operating Company’s two super priority first lien debt investments in ATI Acquisition Company had a combined cost basis of $1,611 and a combined fair value of $752 as of December 31, 2012. During the third quarter of 2012, the Operating Company placed the super priority first lien positions on non-accrual status as well, resulting in total unearned interest income of $310 for the year ended December 31, 2012. As of December 31, 2012, the Operating Company’s total investment in ATI Acquisition Company had an aggregate cost basis of $5,917 and an aggregate fair value of $752, putting the entire ATI Acquisition Company’s investment on non-accrual status. As of September 30, 2013 and December 31, 2012, unrealized gains include a fee that the Operating Company would receive upon maturity of the two super priority first lien debt investments.

As of September 30, 2013, the Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $10,500 and $52,500, respectively. The Operating Company did not have any unfunded commitments in the form of a delayed draw or other future funding commitments as of September 30, 2013. The unfunded commitments on revolving credit facilities are disclosed on the Operating Company’s Consolidated Schedule of Investments as of September 30, 2013.

As of December 31, 2012, the Operating Company had unfunded commitments on revolving credit facilities and bridge facilities of $10,500 and $0, respectively. The Operating Company did not have any unfunded commitments in the form of a delayed draw or other future funding commitments as of December 31, 2012. The unfunded commitments on revolving credit facilities are disclosed on the Operating Company’s Consolidated Schedule of Investments as of December 31, 2012.

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Investment Risk Factors —First and second lien debt that the Operating Company invests in is entirely, or almost entirely, rated below investment grade or may be unrated. These loans are considered speculative because of the credit risk of the issuers. Such issuers are considered more likely than investment grade issuers to default on their payments of interest and principal and such defaults could reduce the net asset value and income distributions of the Operating Company. First and second lien debt may also lose significant market value before a default occurs. Furthermore, an active trading market may not exist for these first and second lien loans. This illiquidity may make it more difficult to value the debt.

Subordinated debt is generally subject to similar risks as those associated with first and second lien debt, except that such debt is subordinated in payment and /or lower in lien priority. Subordinated debt is subject to the additional risk that the cash flow of the borrower and the property securing the debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured and unsecured obligations of the borrower.

Note 4. Fair Value

Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a fair value hierarchy that prioritizes and ranks the inputs to valuation techniques used in measuring investments at fair value. The hierarchy classifies the inputs used in measuring fair value into three levels as follows:

Level I —Quoted prices (unadjusted) are available in active markets for identical investments and the Operating Company has the ability to access such quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity securities and exchange-traded derivatives. As required by ASC 820, the Operating Company, to the extent that it holds such investments, does not adjust the quoted price for these investments, even in situations where the Operating Company holds a large position and a sale could reasonably impact the quoted price.

Level II —Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level I. Level II inputs include the following:

· Quoted prices for similar assets or liabilities in active markets;

· Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);

· Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and

· Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level III —Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment.

The inputs used to measure fair value may fall into different levels. In all instances when the inputs fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level of input that is significant to the fair value measurement in its entirety. As such, a Level III fair value measurement may include inputs that are both observable (Levels I and II) and unobservable (Level III). Gains and losses for such assets categorized within the Level III table below may include changes in fair value that are attributable to both observable inputs (Levels II and III) and unobservable inputs (Level III).

The inputs into the determination of fair value require significant judgment or estimation by management and consideration of factors specific to each investment. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in the transfer of certain investments within the fair value hierarchy from period to period. Reclassifications impacting the fair value hierarchy are reported as transfers in/out of the respective leveling categories as of the beginning of the quarter in which the reclassifications occur.

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The following table summarizes the levels in the fair value hierarchy that the Operating Company’s portfolio investments fall into as of September 30, 2013:

	Total		Level I		Level II		Level III
First lien	$	533,259	$	—	$	519,089	$	14,170
Second lien	431,113		—		392,470		38,643
Subordinated	46,865		—		22,019		24,846
Equity and other	30,195		—		—		30,195
Total investments	$	1,041,432	$	—	$	933,578	$	107,854

The following table summarizes the levels in the fair value hierarchy that the Operating Company’s portfolio investments fall into as of December 31, 2012:

	Total		Level I		Level II		Level III
First lien	$	493,502	$	—	$	450,617	$	42,885
Second lien	441,073		—		397,818		43,255
Subordinated	45,148		—		22,257		22,891
Equity and other	10,097		—		—		10,097
Total investments	$	989,820	$	—	$	870,692	$	119,128

The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended September 30, 2013, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Operating Company at September 30, 2013:

	Total			First Lien			Second Lien		Subordinated		Equity and other
Fair value, June 30, 2013	$	113,201		$	21,312		$	38,527	$	24,681	$	28,681
Total gains or losses included in earnings:
Net realized gains (losses) on investments	1,398			66			—		—		1,332
Net change in unrealized appreciation (depreciation)	633			(41		)	116		110		448
Purchases, including capitalized PIK and revolver fundings	1,503			(84		)	—		55		1,532
Proceeds from sales and paydowns of investments	(8,881		)	(7,083		)	—		—		(1,798		)
Fair value, September 30, 2013	$	107,854		$	14,170		$	38,643	$	24,846	$	30,195
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:	$	697		$	23		$	116	$	110	$	448

The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended September 30, 2012, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Operating Company at September 30, 2012:

	Total			First Lien			Second Lien			Subordinated		Equity and other
Fair value, June 30, 2012	$	106,374		$	42,748		$	53,275		$	7,539	$	2,812
Total gains or losses included in earnings:
Net realized gains (losses) on investments	106			106			—			—		—
Net change in unrealized appreciation (depreciation)	3,161			51			—			—		3,110
Purchases, including capitalized PIK and revolver fundings	11,460			11,460			—			—		—
Proceeds from sales and paydowns of investments	(10,385		)	(10,385		)	—			—		—
Transfers into Level III (1)	7,047			6,581			—			—		466		(2)
Transfers out of Level III (1)	(10,020		)	—			(10,020		)	—		—
Fair value, September 30, 2012	$	107,743		$	50,561		$	43,255		$	7,539	$	6,388
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:	$	3,161		$	51		$	—		$	—	$	3,110

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(1) As of September 30, 2012, the portfolio investments were transferred into Level III from Level II and out of Level III into Level II at fair value as of the beginning of the quarter in which the reclassifications occurred.

(2) This Level III transfer relates to the Operating Company’s investment in warrants of YP Equity Investors LLC, which was valued with YP Holdings LLC’s second lien debt as of June 30, 2012.

The following table summarizes the changes in fair value of Level III portfolio investments for the nine months ended September 30, 2013, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Operating Company at September 30, 2013:

	Total			First Lien			Second Lien			Subordinated		Equity and other (2)
Fair value, December 31, 2012	$	119,128		$	42,885		$	43,255		$	22,891	$	10,097
Total gains or losses included in earnings:
Net realized gains (losses) on investments	1,975			263			380			—		1,332
Net change in unrealized (depreciation) appreciation	(150		)	70			1,148			658		(2,026		)
Purchases, including capitalized PIK and revolver fundings	37,761			11			13,860			1,297		22,593
Proceeds from sales and paydowns of investments	(57,434		)	(35,633		)	(20,000		)	—		(1,801		)
Transfers into Level III (1)	6,574			6,574			—			—		—
Fair value, September 30, 2013	$	107,854		$	14,170		$	38,643		$	24,846	$	30,195
Unrealized (depreciation) appreciation for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:	$	(945	)	$	(605	)	$	1,027		$	658	$	(2,025	)

(1) As of September 30, 2013, the portfolio investments were transferred into Level III from Level II at fair value as of the beginning of the quarter in which the reclassifications occurred.

(2) During the nine months ended September 30, 2013, the Operating Company received dividends of $4,802 from its equity and other investments, which were recorded as dividend income. An estimate related to the tax characterization of this distribution was provided as of September 30, 2013.

The following table summarizes the changes in fair value of Level III portfolio investments for the nine months ended September 30, 2012, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held by the Operating Company at September 30, 2012:

	Total			First Lien			Second Lien			Subordinated			Equity and other
Fair value, December 31, 2011	$	90,967		$	33,141		$	48,405		$	6,571		$	2,850
Total gains or losses included in earnings:
Net realized gains (losses) on investments	4,275			4,252			23			—			—
Net change in unrealized (depreciation) appreciation	(1,001		)	(3,851		)	(173		)	(22		)	3,045
Purchases, including capitalized PIK and revolver fundings	57,089			46,052			10,020			990			27
Proceeds from sales and paydowns of investments	(29,502		)	(24,502		)	(5,000		)	—			—
Transfers into Level III (1)	7,047			6,581			—			—			466		(2)
Transfers out of Level III(1)	(21,132		)	(11,112		)	(10,020		)	—			—
Fair value, September 30, 2012	$	107,743		$	50,561		$	43,255		$	7,539		$	6,388
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Operating Company at the end of the period:	$	2,612		$	(410	)	$	(1	)	$	(22	)	$	3,045

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(2) This Level III transfer relates to the Operating Company’s investment in warrants of YP Equity Investors LLC, which was valued with YP Holdings LLC’s second lien debt as of June 30, 2012.

Except as noted in the tables above, there were no other transfers in or out of Level I, II, or III during the three and nine months ended September 30, 2013 and September 30, 2012. Transfers into Level III occurred as quotations obtained through pricing services were not deemed representative of fair value as of the balance sheet date and such assets were internally valued. As quotations obtained through pricing services were substantiated through additional market sources, investments were transferred out of Level III. The Operating Company invests in revolving credit facilities. These investments are categorized as Level III investments as these assets are not actively traded and their fair values are often implied by the term loans of the respective portfolio companies.

The Operating Company generally uses the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs.

Company Performance, Financial Review, and Analysis : Prior to investment, as part of its due diligence process, the Operating Company evaluates the overall performance and financial stability of the portfolio company. Post investment, the Operating Company analyzes each portfolio company’s current operating performance and relevant financial trends versus prior year and budgeted results, including, but not limited to, factors affecting its revenue and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) growth, margin trends, liquidity position, covenant compliance and changes to its capital structure. The Operating Company also attempts to identify and subsequently track any developments at the portfolio company, within its customer or vendor base or within the industry or the macroeconomic environment, generally, that may alter any material element of its original investment thesis. This analysis is specific to each portfolio company. The Operating Company leverages the knowledge gained from its original due diligence process, augmented by this subsequent monitoring, to continually refine its outlook for each of its portfolio companies and ultimately form the valuation of its investment in each portfolio company. When an external event such as a purchase transaction, public offering or subsequent sale occurs, the Operating Company will consider the pricing indicated by the external event to corroborate the private valuation.

Market Based Approach: The Operating Company typically estimates the total enterprise value of each portfolio company by utilizing market value cash flow (EBITDA) multiples of publicly traded comparable companies. The Operating Company considers numerous factors when selecting the appropriate companies whose trading multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The Operating Company generally applies an average of various relevant comparable company EBITDA multiples to the portfolio company’s latest twelve month (“LTM”) EBITDA or projected EBITDA to calculate portfolio company enterprise value. In applying the market based approach as of September 30, 2013, the Operating Company used the relevant EBITDA ranges set forth in the table below to determine the enterprise value of investments in six of its portfolio companies. The Operating Company believes this was a reasonable range in light of current comparable company trading levels and the specific companies involved.

Income Based Approach: The Operating Company also typically uses a discounted cash flow analysis to estimate the fair value of the investment. Projected cash flows represent the relevant security’s contractual interest, fee and principal payments plus the assumption of full principal recovery at the investment’s expected maturity date. These cash flows are discounted at a rate established utilizing a yield calibration approach, which incorporates changes in the credit quality (as measured by relevant statistics) of the portfolio company, as compared to changes in the yield associated with comparable credit quality market indices, between the date of origination and the valuation date. In applying the income based approach as of September 30, 2013, the Operating Company used the discount ranges set forth in the table below to value investments in eight of its portfolio companies.

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				EBITDA Range						Discount Range
Type	Fair Value		Approach	Low		High		Weighted Average		Low		High		Weighted Average
First lien	$	14,170	Market and Income	4.0	x	6.5	x	5.3	x	5.5	%	22.8	%	16.0	%
Second lien	38,643		Market and Income	4.0	x	7.5	x	5.8	x	10.1	%	11.7	%	11.0	%
Subordinated	24,846		Market and Income	6.0	x	9.5	x	7.9	x	12.2	%	21.8	%	15.1	%
Equity	24,156		Market and Income	4.0	x	8.0	x	5.6	x	8.0	%	20.0	%	16.3	%

The Operating Company typically uses a Black Scholes analysis to fair value warrant investments. Input variables used in these analyses include, but are not limited to, stock price, exercise price, expiration date, valuation date, volatility, and discount rate. As of September 30, 2013, warrants had a fair value of $6,039, which have been excluded from the table above.

Based on a comparison to similar BDC credit facilities, the terms and conditions of the Holdings Credit Facility and the SLF Credit Facility (as defined in Note 7, Borrowing Facilities ) are representative of market. The carrying values of the Holdings Credit Facility and SLF Credit Facility approximate fair value as of September 30, 2013, as both facilities are continually monitored and examined by both the borrower and the lender. Both facilities were amended and restated during the year ended December 31, 2012 to lower the applicable interest rate spread by 0.25% and to increase the maximum amount of revolving borrowings available under the respective facilities. Additionally for the nine months ended September 30, 2013, the Holdings Credit Facility was amended and restated to further increase the maximum amount of revolving borrowings available. See Note 7, Borrowing Facilities , for details. The fair value of other financial assets and liabilities approximates their carrying value based on the short term nature of these items. The fair value disclosures discussed in this paragraph are considered Level III.

Fair value risk factors —The Operating Company seeks investment opportunities that offer the possibility of attaining substantial capital appreciation. Certain events particular to each industry in which the Operating Company’s portfolio companies conduct their operations, as well as general economic and political conditions, may have a significant negative impact on the operations and profitability of the Operating Company’s investments and/or on the fair value of the Operating Company’s investments. The Operating Company’s investments are subject to the risk of non-payment of scheduled interest or principal, resulting in a reduction in income to the Operating Company and thus the income of NMFC and AIV Holdings, and their corresponding fair valuations. Also, there may be risk associated with the concentration of investments in one geographic region or in certain industries. These events are beyond the control of the Operating Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to uncertainties.

Note 5. Agreements

On May 19, 2011, NMFC entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company pursuant to which NMFC was admitted as a member of the Operating Company and agreed to acquire from the Operating Company a number of units of the Operating Company equal to the number of shares of common stock outstanding of NMFC. Additionally on May 19, 2011, in connection with the contribution by Guardian AIV of its units to AIV Holdings, AIV Holdings entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company pursuant to which AIV Holdings was also admitted as a member of the Operating Company.

The Operating Company entered into an investment advisory and management agreement, as amended and restated (the “Investment Management Agreement”) with the Investment Adviser. Under the Investment Management Agreement, the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, the Operating Company. For providing these services, the Investment Adviser receives a fee from the Operating Company, consisting of two components—a base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.75% of the Operating Company’s gross assets less (i) the borrowings under the SLF Credit Facility (as defined in Note 7, Borrowing Facilities ) and (ii) cash and cash equivalents. The base management fee is payable quarterly in arrears, and is calculated based on the average value of the Operating Company’s gross assets, borrowings under the SLF Credit Facility, and cash and cash equivalents at the end of each of the two most recently completed calendar quarters, and appropriately adjusted on a pro rata basis for any equity capital raises or repurchases during the current calendar quarter.

The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20.0% of the Operating 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, diligence and consulting fees or other fees that the Operating Company receives from portfolio companies) accrued during the calendar quarter, minus the Operating Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, as amended and restated, with the Administrator, and any

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interest expense and distributions paid on any issued and outstanding preferred membership units (of which there are none as of September 30, 2013), 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 Operating 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.

Under GAAP, NMFC’s IPO did not step-up the cost basis of the Operating Company’s existing investments to fair market value at the IPO date. Since the total value of the Operating Company’s investments at the time of the IPO was greater than the investments’ cost basis, a larger amount of amortization of purchase or original issue discount, as well as different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments are sold or mature in the future. The Operating Company tracks the transferred (or fair market) value of each of its investments as of the time of the IPO and, for purposes of the incentive fee calculation, adjusts Pre-Incentive Fee Net Investment Income to reflect the amortization of purchase or original issue discount on the Operating Company’s investments as if each investment was purchased at the date of the IPO, or stepped up to fair market value. This is defined as “Pre-Incentive Fee Adjusted Net Investment Income”. The Operating Company also uses the transferred (or fair market) value of each of its investments as of the time of the IPO to adjust capital gains (“Adjusted Realized Capital Gains”) or losses (“Adjusted Realized Capital Losses”) and unrealized capital appreciation (“Adjusted Unrealized Capital Appreciation”) and unrealized capital depreciation (“Adjusted Unrealized Capital Depreciation”).

Pre-Incentive Fee Adjusted Net Investment Income, expressed as a rate of return on the value of the Operating Company’s net assets at the end of the immediately preceding calendar quarter, will be compared to a “hurdle rate” of 2.0% per quarter (8.0% annualized), subject to a “catch-up” provision measured as of the end of each calendar quarter. The hurdle rate is appropriately pro-rated for any partial periods. The calculation of the Operating Company’s incentive fee with respect to the Pre-Incentive Fee Adjusted Net Investment Income for each quarter is as follows:

· No incentive fee is payable to the Investment Adviser in any calendar quarter in which the Operating Company’s Pre-Incentive Fee Adjusted Net Investment Income does not exceed the hurdle rate of 2.0% (the “preferred return” or “hurdle”).

· 100.0% of the Operating Company’s Pre-Incentive Fee Adjusted Net Investment Income with respect to that portion of such Pre-Incentive Fee Adjusted Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any calendar quarter (10.0% annualized) is payable to the Investment Adviser. This portion of the Operating Company’s Pre-Incentive Fee Adjusted Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) is referred to as the “catch-up”. The catch-up provision is intended to provide the Investment Adviser with an incentive fee of 20.0% on all of the Operating Company’s Pre-Incentive Fee Adjusted Net Investment Income as if a hurdle rate did not apply when the Operating Company’s Pre-Incentive Fee Adjusted Net Investment Income exceeds 2.5% in any calendar quarter.

· 20.0% of the amount of the Operating Company’s Pre-Incentive Fee Adjusted Net Investment Income, if any, that exceeds 2.5% in any calendar quarter (10.0% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved.

The second part will be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement) and will equal 20.0% of the Operating Company’s Adjusted Realized Capital Gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee.

In accordance with GAAP, the Operating Company accrues a hypothetical capital gains incentive fee based upon the cumulative net Adjusted Realized Capital Gains and Adjusted Realized Capital Losses and the cumulative net Adjusted Unrealized Capital Appreciation and Adjusted Unrealized Capital Depreciation on investments held at the end of each period. Actual amounts paid to the Investment Adviser are consistent with the Investment Management Agreement and are based only on actual Adjusted Realized Capital Gains computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis from inception through the end of each calendar year as if the entire portfolio was sold at fair value.

The Operating Company has revised its presentation of incentive fees on the Consolidated Statements of Assets, Liabilities and Members’ Capital and the Consolidated Statements of Operations to disclose the two parts of the incentive fee incurred by the Operating Company for net investment income related incentive fees and capital gains related incentive fees.

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The following table summarizes the management fees and incentive fees incurred by the Operating Company for the three and nine months ended September 30, 2013 and September 30, 2012.

	Three months ended				Nine months ended
	September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Management fee	$	3,754	$	2,768	$	11,049	$	7,887
Incentive fee, excluding accrued capital gains incentive fees	3,533		2,978		12,398		8,147
Accrued capital gains incentive fees(1)	1,587		2,583		2,568		3,547

(1) The accrued capital gains incentive fees would be paid by the Operating Company if the Operating Company ceased operations on September 30, 2013 and September 30, 2012, respectively, and liquidated its investments at the valuations as of the respective quarter ends. Approximately $939 of capital gains incentive fees would be owed under the Investment Management Agreement if the Operating Company had ceased operations as of September 30, 2013, as cumulative net Adjusted Realized Capital Gains exceeded cumulative Adjusted Unrealized Capital Depreciation. As of September 30, 2012, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Capital Gains did not exceed cumulative Adjusted Unrealized Capital Depreciation.

The Operating Company’s Consolidated Statements of Operations below are adjusted as if the step-up in cost basis to fair market value had occurred at the IPO date, May 19, 2011.

The following Statement of Operations for the three and nine months ended September 30, 2013 is adjusted to reflect this step-up to fair market value.

	Three months ended September 30, 2013			Adjustments			Adjusted three months ended September 30, 2013
Investment income
Interest income (1)	$	27,175		$	(111	)	$	27,064
Dividend income	(1,631		)	—			(1,631		)
Other income	249			—			249
Total investment income	25,793			(111		)	25,682
Total net expenses pre-incentive fee (2)	8,014			—			8,014
Pre-Incentive Fee Net Investment Income	17,779			(111		)	17,668
Incentive fee (3)	5,120			—			5,120
Post-Incentive Fee Net Investment Income	12,659			(111		)	12,548
Net realized gains on investments (4)	5,160			(121		)	5,039
Net change in unrealized appreciation (depreciation) of investments	2,659			232			2,891
Net increase in members’ capital resulting from operations	$	20,478					$	20,478

(1) Includes $841 in payment-in-kind interest from investments.

(2) Includes expense waivers and reimbursements of $600.

(3) For the three months ended September 30, 2013, the Operating Company incurred total incentive fees of $5,120, of which $1,587 related to capital gains incentive fees on a hypothetical liquidation basis.

(4) Includes $1,722 of realized gains on investments resulting from the modification of terms on one debt investment that was accounted for as an extinguishment.

	Nine months ended September 30, 2013		Adjustments			Adjusted nine months ended September 30, 2013
Investment income
Interest income (1)	$	79,539	$	(804	)	$	78,735
Dividend income	4,802		—			4,802
Other income	1,926		—			1,926
Total investment income	86,267		(804		)	85,463
Total net expenses pre-incentive fee (2)	23,472		—			23,472
Pre-Incentive Fee Net Investment Income	62,795		(804		)	61,991
Incentive fee (3)	14,966		—			14,966
Post-Incentive Fee Net Investment Income	47,829		(804		)	47,025
Net realized gains on investments (4)	9,516		(3,270		)	6,246
Net change in unrealized appreciation (depreciation) of investments	2,518		4,074			6,592
Net increase in members’ capital resulting from operations	$	59,863				$	59,863

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(1) Includes $2,387 in payment-in-kind interest from investments.

(2) Includes expense waivers and reimbursements of $2,265.

(3) For the nine months ended September 30, 2013, the Operating Company incurred total incentive fees of $14,966, of which $2,568 related to capital gains incentive fees on a hypothetical liquidation basis.

(4) Includes $1,722 of realized gains on investments resulting from the modification of terms on one debt investment that was accounted for as an extinguishment.

The following Statement of Operations for the three and nine months ended September 30, 2012 is adjusted to reflect the step-up to fair market value.

	Three months ended September 30, 2012		Adjustments			Adjusted three months ended September 30, 2012
Investment income
Interest income	$	21,362	$	(806	)	$	20,556
Dividend income	215		—			215
Other income	175		—			175
Total investment income	21,752		(806		)	20,946
Total net expenses pre-incentive fee (1)	6,055		—			6,055
Pre-Incentive Fee Net Investment Income	15,697		(806		)	14,891
Incentive fee (2)	5,561		—			5,561
Post-Incentive Fee Net Investment Income	10,136		(806		)	9,330
Net realized gains on investments	1,615		(168		)	1,447
Net change in unrealized appreciation (depreciation) of investments	10,494		974			11,468
Net increase in members’ capital resulting from operations	$	22,245				$	22,245

(1) Includes expense waivers and reimbursements of $439.

(2) For the three months ended September 30, 2012, the Operating Company incurred total incentive fees of $5,561, of which $2,583 related to capital gains incentive fees on a hypothetical liquidation basis.

	Nine months ended September 30, 2012		Adjustments			Adjusted nine months ended September 30, 2012
Investment income
Interest income	$	60,087	$	(2,654	)	$	57,433
Dividend income	215		—			215
Other income	771		—			771
Total investment income	61,073		(2,654		)	58,419
Total net expenses pre-incentive fee (1)	17,684		—			17,684
Pre-Incentive Fee Net Investment Income	43,389		(2,654		)	40,735
Incentive fee (2)	11,694		—			11,694
Post-Incentive Fee Net Investment Income	31,695		(2,654		)	29,041
Net realized gains on investments	14,591		(5,386		)	9,205
Net change in unrealized appreciation (depreciation) of investments	10,710		8,040			18,750
Net increase in members’ capital resulting from operations	$	56,996				$	56,996

(1) Includes expense waivers and reimbursements of $1,387.

(2) For the nine months ended September 30, 2012, the Operating Company incurred total incentive fees of $11,694, of which $3,547 related to capital gains incentive fees on a hypothetical liquidation basis.

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The Companies have entered into an Administration Agreement, as amended and restated, with the Administrator under which the Administrator provides administrative services. The Administrator performs, or oversees the performance of, the Companies’ financial records, prepares reports filed with the Securities and Exchange Commission, generally monitors the payment of the Companies’ expenses, and watches the performance of administrative and professional services rendered by others. The Operating Company will reimburse the Administrator for the Companies’ allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to the Companies under the Administration Agreement, as amended and restated. Pursuant to the Administration Agreement, as amended and restated, and further restricted by the Operating Company, expenses payable to the Administrator by the Operating Company as well as other direct and indirect expenses (excluding interest, other credit facility expenses, trading expenses and management and incentive fees) have been capped at $3,500 for the time period from April 1, 2012 to March 31, 2013 and capped at $4,250 for the time period from April 1, 2013 to March 31, 2014.

The Operating Company has revised its presentation of expenses and expense waivers and reimbursements for the three and nine months ended September 30, 2012. Expenses were previously presented net of waivers and reimbursements, which had been included parenthetically. The revised presentation shows total gross expenses with a separate reduction for expense waivers and reimbursements.

The Operating Company incurred the following expenses in excess of the expense cap for the three and nine months ended September 30, 2013 and September 30, 2012:

	Three months ended				Nine months ended
	September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Professional fees	$	317	$	171	$	1,345	$	536
Administrative expenses	283		268		920		851
Other general and administrative expenses	—		—		—		—
Total expense waivers and reimbursements	$	600	$	439	$	2,265	$	1,387

As of September 30, 2013, $317 of the expense waivers and reimbursements was receivable from an affiliate.

The Companies, the Investment Adviser and the Administrator have also entered into a 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 the Companies, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the “New Mountain” and the “New Mountain Finance” names. Under the Trademark License Agreement, as amended, subject to certain conditions, the Companies, the Investment Adviser and the Administrator will have a right to use the “New Mountain” and “New Mountain Finance” names, for so long as the Investment Adviser or one of its affiliates remains the investment adviser of the Operating Company. Other than with respect to this limited license, the Companies, the Investment Adviser and the Administrator will have no legal right to the “New Mountain” or the “New Mountain Finance” names.

NMFC entered into a Registration Rights Agreement with AIV Holdings, Steven B. Klinsky (the Chairman of the Companies’ board of directors), an entity related to Steven B. Klinsky and the Investment Adviser. Subject to several exceptions, AIV Holdings and the Investment Adviser have the right to require NMFC to register for public resale under the Securities Act of 1933, as amended (the “Securities Act of 1933”), all registerable securities that are held by any of them and that they request to be registered. Registerable securities subject to the Registration Rights Agreement are shares of NMFC’s common stock issued or issuable in exchange for units and any other shares of NMFC’s common stock held by AIV Holdings, the Investment Adviser and any of their transferees. The rights under the Registration Rights Agreement can be conditionally exercised by AIV Holdings or the Investment Adviser, meaning that prior to the effectiveness of the registration statement related to the shares, AIV Holdings or the Investment Adviser can withdraw their request to have the shares registered. AIV Holdings and the Investment Adviser may each assign their rights to any person that acquires registerable securities subject to the Registration Rights Agreement and who agrees to be bound by the terms of the Registration Rights Agreement. Steven B. Klinsky and a related entity will have the right to “piggyback”, or include their own registerable securities in such a registration. Shares held by AIV Holdings and Steven B. Klinsky were registered on a shelf registration statement on Form N-2.

AIV Holdings and the Investment Adviser may require NMFC to use its reasonable best efforts to register under the Securities Act of 1933 all or any portion of these registerable securities upon a “demand request”. The demand registration rights are subject to certain limitations.

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The Registration Rights Agreement includes limited blackout and suspension periods. In addition, AIV Holdings and the Investment Adviser may also require NMFC to file a shelf registration statement on Form N-2 for the resale of their registerable securities if NMFC is eligible to use Form N-2 at that time.

Holders of registerable securities have “piggyback” registration rights, including AIV Holdings, which means that these holders may include their respective shares in any future registrations of NMFC’s equity securities, whether or not that registration relates to a primary offering by NMFC or a secondary offering by or on behalf of any of NMFC’s stockholders. AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) have priority over NMFC in any registration that is an underwritten offering.

AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) will be responsible for the expenses of any demand registration (including underwriters’ discounts or commissions) and their pro-rata share of any “piggyback” registration. NMFC has agreed to indemnify AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) with respect to liabilities resulting from untrue statements or omissions in any registration statement filed pursuant to the Registration Rights Agreement, other than untrue statements or omissions resulting from information furnished to NMFC by such parties. AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) have also agreed to indemnify NMFC with respect to liabilities resulting from untrue statements or omissions furnished by them to NMFC relating to them in any registration statement.

Note 6. Related Parties

The Companies have entered into a number of business relationships with affiliated or related parties. NMFC and AIV Holdings own all the outstanding units of the Operating Company. As of September 30, 2013, NMFC and AIV Holdings owned approximately 85.3% and 14.7%, respectively, of the units of the Operating Company.

The Operating Company has entered into the Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New Mountain Capital. Therefore, New Mountain Capital is entitled to any profits earned by the Investment Adviser, which includes any fees payable to the Investment Adviser under the terms of the Investment Management Agreement, less expenses incurred by the Investment Adviser in performing its services under the Investment Management Agreement.

The Companies have entered into an Administration Agreement, as amended and restated, with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges office space for the Companies and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement, as amended and restated. The Operating Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Companies under the Administration Agreement, as amended and restated, including rent, the fees and expenses associated with performing administrative, finance and compliance functions, and the compensation of the Companies’ chief financial officer and chief compliance officer and their respective staffs. Pursuant to the Administration Agreement, as amended and restated, and further restricted by the Operating Company, expenses payable to the Administrator by the Operating Company as well as other direct and indirect expenses (excluding interest, other credit facility expenses, trading expenses and management and incentive fees) have been capped at $3,500 for the time period from April 1, 2012 to March 31, 2013 and capped at $4,250 for the time period from April 1, 2013 to March 31, 2014.

The Companies, 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 the Companies, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the name “New Mountain” and “New Mountain Finance”.

The Companies have adopted a formal code of ethics that governs the conduct of their respective officers and directors. These officers and directors also remain subject to the duties imposed by the 1940 Act, the Delaware General Corporation Law and the Delaware Limited Liability Company Act.

The Investment Adviser and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with the Operating Company’ investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for the Operating Company 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 the Operating Company should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the Securities and Exchange Commission and its staff, and consistent with the Investment Adviser’s allocation procedures.

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Concurrently with the IPO, NMFC sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in the Concurrent Private Placement.

Note 7. Borrowing Facilities

Holdings Credit Facility —The Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the “Holdings Credit Facility”) among the Operating Company as the Borrower and Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012. The Operating Company became a party to the Holdings Credit Facility upon the IPO of NMFC. The Holdings Credit Facility amends and restates the credit facility of the Predecessor Entities (the “Predecessor Credit Facility”).

The maximum amount of revolving borrowings available under the Holdings Credit Facility is $250,000, as amended on June 24, 2013. As of September 30, 2013, the Operating Company was permitted to borrow up to 45.0% or 25.0% of the purchase price of pledged first lien or non-first lien debt securities, and up to 70.0% and 45.0% of the purchase price of specified first lien debt securities and specified non-first lien debt securities, respectively, subject to approval by Wells Fargo Bank, National Association. The Holdings Credit Facility is collateralized by all of the investments of the Operating Company on an investment by investment basis. All fees associated with the origination or upsizing of the Holdings Credit Facility are capitalized on the Operating Company’s Consolidated Statement of Assets, Liabilities, and Members’ Capital and charged against income as other credit facility expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. In addition, the Holdings Credit Facility requires the Operating Company to maintain a minimum asset coverage ratio. However, the covenants are generally not tied to mark to market fluctuations in the prices of the Operating Company’s investments, but rather to the performance of the underlying portfolio companies.

The Holdings Credit Facility bears interest at a rate of the London Interbank Offered Rate (“LIBOR”) plus 2.75% per annum, as amended on May 8, 2012, and charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).

The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the Holdings Credit Facility for the three and nine months ended September 30, 2013 and September 30, 2012.

	Three months ended						Nine months ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Interest expense	$	1,430		$	807		$	4,307		$	2,920
Non-usage fee	75			178			144			251
Weighted average interest rate	2.9		%	3.0		%	2.9		%	3.1		%
Average debt outstanding	$	190,692		$	105,795		$	192,843		$	122,887

As of September 30, 2013 and December 31, 2012, the outstanding balance on the Holdings Credit Facility was $159,091 and $206,938, respectively, and the Operating Company was not aware of any instances of non-compliance related to the Holdings Credit Facility on such dates.

SLF Credit Facility —NMF SLF’s Loan and Security Agreement, as amended and restated, dated October 27, 2010 (the “SLF Credit Facility”) among NMF SLF as the Borrower, the Operating Company as the Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012. The maximum amount of revolving borrowings available under the SLF Credit Facility is $215,000, as amended on December 18, 2012. The loan is non-recourse to the Operating Company and secured by all assets owned by the borrower on an investment by investment basis. All fees associated with the origination or upsizing of the SLF Credit Facility are capitalized on the Consolidated Statement of Assets, Liabilities, and Members’ Capital and charged against income as other credit facility expenses over the life of the SLF Credit Facility. The SLF Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. The covenants are generally not tied to mark to market fluctuations in the prices of our investments, but rather to the performance of the underlying portfolio companies. Due to an amendment to the SLF Credit Facility on October 27, 2011, NMF SLF is no longer restricted from the purchase or sale of loans with an affiliate. Therefore, specified loans can be moved as collateral between the Holdings Credit Facility and the SLF Credit Facility.

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As of September 30, 2013, the SLF Credit Facility permits borrowings of up to 70.0% of the purchase price of pledged first lien debt securities and up to 25.0% of the purchase price of specified second lien loans, of which, up to 25.0% of the aggregate outstanding loan balance of all pledged debt securities in the SLF Credit Facility is allowed to be derived from second lien loans, subject to approval by Wells Fargo Bank, National Association, as amended on March 11, 2013.

The SLF Credit Facility bears interest at a rate of LIBOR plus 2.00% per annum for first lien loans and 2.75% for second lien loans, respectively, as amended on March 11, 2013. A non-usage fee is paid, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement).

The following table summarizes the interest expense and non-usage fees incurred by the Operating Company on the SLF Credit Facility for the three and nine months ended September 30, 2013 and September 30, 2012.

	Three months ended						Nine months ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Interest expense	$	1,243		$	1,051		$	3,663		$	3,138
Non-usage fee	—		(1)	8			2			20
Weighted average interest rate	2.3		%	2.2		%	2.3		%	2.4		%
Average debt outstanding	$	214,828		$	184,109		$	214,547		$	174,808

(1) For the three months ended September 30, 2013, the total non-usage fee was less than $1 thousand.

As of September 30, 2013 and December 31, 2012, the outstanding balance on the SLF Credit Facility was $215,000 and $214,262, respectively, and NMF SLF was not aware of any instances of non-compliance related to the SLF Credit Facility on such dates.

Leverage risk factors —The Operating Company utilizes and may utilize leverage to the maximum extent permitted by the law for investment and other general business purposes. The Operating Company’s lenders will have fixed dollar claims on certain assets that are superior to the claims of the Operating Company’s unit holders, and therefore NMFC’s common stockholders, and the Operating Company would expect such lenders to seek recovery against these assets in the event of a default. The use of leverage also magnifies the potential for gain or loss on amounts invested. Leverage may magnify interest rate risk (particularly on the Operating Company’s fixed-rate investments), which is the risk that the prices of portfolio investments will fall or rise if market interest rates for those types of securities rise or fall. As a result, leverage may cause greater changes in the Operating Company’s net asset value. Similarly, leverage may cause a sharper decline in the Operating Company’s income than if the Operating Company had not borrowed. Such a decline could negatively affect the Operating Company’s ability to make dividend payments to its unit holders. Leverage is generally considered a speculative investment technique. The Operating Company’s ability to service any debt incurred will depend largely on financial performance and will be subject to prevailing economic conditions and competitive pressures.

Note 8. Regulation

NMFC and AIV Holdings have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as RICs under Subchapter M of the Code. In order to continue to qualify as RICs, among other things, NMFC and AIV Holdings are required to timely distribute to their stockholders at least 90.0% of investment company taxable income, as defined by the Code, for each year. NMFC and AIV Holdings, among other things, intend to make and continue to make the requisite distributions to their stockholders, which will generally relieve NMFC and AIV Holdings from U.S. federal, state, and local income taxes (excluding excise taxes which may be imposed under the Code). However, under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to continue to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV.

Additionally as BDCs, the Companies must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70.0% of its total assets are qualifying assets (with certain limited exceptions).

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Note 9. Commitments and Contingencies

In the normal course of business, the Companies may enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Operating Company may also enter into future funding commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments. As of September 30, 2013, the Operating Company had unfunded commitments on revolving credit facilities of $10,500, outstanding bridge financing commitments of $52,500 and no other future funding commitments. The unfunded commitments on revolving credit facilities are disclosed on the Operating Company’s Consolidated Schedule of Investments. As of December 31, 2012, the Operating Company had unfunded commitments on revolving credit facilities of $10,500 and no outstanding bridge financing commitments or other future funding commitments, all of which are disclosed on the Operating Company’s Consolidated Schedule of Investments.

The Operating Company also has revolving borrowings available under the Holdings Credit Facility and the SLF Credit Facility as of September 30, 2013. See Note 7, Borrowing Facilities , for details.

The Operating Company may from time to time enter into financing commitment letters. As of September 30, 2013 and December 31, 2012, the Operating Company did not enter into any commitment letters to purchase debt investments, which could require funding in the future.

Note 10. Stockholders’ Equity

The table below illustrates the effect of certain transactions on the capital accounts of NMFC:

										Accumulated
				Paid in Capital			Undistributed			Undistributed Net			Net Unrealized		Total
	Common Stock			in Excess			Net Investment			Realized Gains			Appreciation		Stockholders’
	Shares	Par Amount		of Par			Income			(Losses)			(Depreciation)		Equity
Balance at December 31, 2012	24,326,251	$	243	$	335,487		$	—		$	952		$	5,244	$	341,926
Issuances of common stock	13,933,670	140		198,373			—			—			—		198,513
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.	—	—		(203		)	—			—			—		(203		)
Dividends declared	—	—		—			(35,695		)	(794		)	—		(36,489		)
Net increase (decrease) in stockholders’ equity resulting from operations	—	—		—			35,695			7,567			713		43,975
Balance at September 30, 2013	38,259,921	$	383	$	533,657		$	—		$	7,725		$	5,957	$	547,722

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The table below illustrates the effect of certain transactions on the capital accounts of AIV Holdings:

					Paid in Capital			Undistributed			Distributions			Net Unrealized			Total
	Common Stock				in Excess			Net Investment			In Excess of Net			(Depreciation)			Stockholders’
	Shares	Par Amount			of Par			Income			Realized (Losses) Gains			Appreciation			Equity

Balance at December 31, 2012	100	$	—	(1)	$	244,015		$	—		$	(6,676	)	$	(9,326	)	$	228,013
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.	—	—			(45		)	—			—			—			(45		)
Dividends declared	—	—			—			(12,133		)	(255		)	—			(12,388		)
Distribution to New Mountain Guardian AIV, L.P.	—	—			(134,699		)	—			—			—			(134,699		)
Net increase (decrease) in stockholders’ equity resulting from operations	—	—			(10,451		)	12,133			1,949			9,571			13,202

Balance at September 30, 2013	100	$	—	(1)	$	98,820		$	—		$	(4,982	)	$	245		$	94,083

(1) As of September 30, 2013 and December 31, 2012, the par amount of the total common stock was $1.

Note 11. Earnings Per Share

The following information sets forth the computation of basic and diluted net increase in NMFC’s net assets per share resulting from operations for the three and nine months ended September 30, 2013 and September 30, 2012:

	Three months ended				Nine months ended
	September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Numerator for basic earnings per share:	$	17,467	$	9,955	$	43,975	$	21,978
Denominator for basic weighted average share:	38,159,320		16,177,442		31,952,623		12,537,607
Basic earnings per share:	$	0.46	$	0.62	$	1.38	$	1.75
Numerator for diluted earnings per share(a):	$	20,478	$	22,245	$	59,863	$	56,996
Denominator for diluted weighted average share(b):	44,731,258		36,138,511		42,847,638		32,671,954
Diluted earnings per share:	$	0.46	$	0.62	$	1.40	$	1.74

(a) Includes the full income at the Operating Company for the period.

(b) Assumes AIV Holdings exchanges its units in the Operating Company for public shares of NMFC as of September 30, 2013 and September 30, 2012, respectively (see Note 1, Formation and Business Purpose ).

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Note 12. Financial Highlights

The following information sets forth the financial highlights for the Operating Company for the respective nine months ended September 30, 2013 and September 30, 2012.

	Nine months ended
	September 30, 2013			September 30, 2012
Total return based on net asset value (a)	10.20		%	13.06		%
Average net assets for the period	$	612,181		$	450,716
Ratio to average net assets (b):
Net investment income	10.45		%	9.39		%
Total expenses, before waivers/reimbursements	8.89		%	9.12		%
Total expenses, net of waivers/reimbursements	8.39		%	8.71		%
Net assets, end of period	$	641,805		$	520,355
Average debt outstanding—SLF Credit Facility	$	214,547		$	174,808
Average debt outstanding—Holdings Credit Facility	$	192,843		$	122,887
Weighted average common membership units outstanding	42,847,638			32,671,954
Asset coverage ratio	271.56		%	255.02		%
Portfolio turnover	30.46		%	34.77		%

(a) Total return is calculated assuming a purchase at net asset value on the opening of the first day of the year and a sale at net asset value on the last day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter.

(b) Ratio to average net assets has been annualized.

	Nine months ended
	September 30, 2013			September 30, 2012
Per unit data for the Operating Company (a):
Net asset value, January 1, 2013 and January 1, 2012, respectively	$	14.06		$	13.60
Net investment income	1.12			0.97
Net realized and unrealized gains (losses)	0.28			0.76
Dividends from net investment income	(1.14		)	(1.23		)
Net increase in net assets resulting from operations	0.26			0.50
Net asset value, September 30, 2013 and September 30, 2012, respectively	$	14.32		$	14.10

(a) Per unit data is based on weighted average common membership units outstanding.

The following information sets forth the financial highlights for NMFC for the nine months ended September 30, 2013 and September 30, 2012. The ratios to average net assets have been annualized.

	Nine months ended
	September 30, 2013			September 30, 2012
Per share data (a):
Net asset value, January 1, 2013 and January 1, 2012, respectively	$	14.06		$	13.60
Net increase (decrease) in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.:
Net investment income	1.12			0.97
Net realized and unrealized gains (losses)	0.28			0.76
Total net increase	1.40			1.73
Dividends declared	(1.14		)	(1.23		)
Net asset value, September 30, 2013 and September 30, 2012, respectively	$	14.32		$	14.10
Per share market value, September 30, 2013 and September 30, 2012, respectively	$	14.41		$	14.82
Total return based on market value (b)	4.58		%	20.27		%
Total return based on net asset value (c)	10.20		%	13.06		%
Shares outstanding at end of period	38,259,921			20,690,635
Average weighted shares outstanding for the period	31,952,623			12,537,607
Average net assets for the period	$	456,922		$	167,815
Ratio to average net assets (d):
Total expenses allocated from New Mountain Finance Holdings, L.L.C.	8.39		%	8.71		%
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	10.45		%	9.39		%

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(a) Per share data is based on the summation of the per share results of operations items over the outstanding shares for the period in which the respective line items were realized or earned.

(b) Total return is calculated assuming a purchase of common stock at the opening of the first day of the year and a sale on the closing of the last business day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under NMFC’s dividend reinvestment plan.

(c) Total return is calculated assuming a purchase at net asset value on the opening of the first day of the period and a sale at net asset value on the last day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at the net asset value on the last day of the respective quarter.

(d) Ratio to average net assets for the nine months ended September 30, 2013 is based on the summation of the results of operations items over the net assets for the period in which the respective line items were realized or earned.

The following information sets forth the financial highlights for AIV Holdings for the nine months ended September 30, 2013 and September 30, 2012. The ratios to average net assets have been annualized.

	Nine months ended
	September 30, 2013			September 30, 2012
Total return based on net asset value (a)	8.38		%	14.45		%
Average net assets for the period	$	155,259		$	279,835
Ratio to average net assets (b):
Total expenses allocated from New Mountain Finance Holdings, L.L.C.	8.39		%	8.71		%
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	10.45		%	9.39		%

(a) Total return is calculated assuming a purchase at net asset value on the opening of the first day of the period and a sale at net asset value on the last day of the period. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at net asset value on the last day of the respective quarter.

(b) Ratio to average net assets for the nine months ended September 30, 2013 is based on the summation of the results of operations items over the net assets for the period in which the respective line items were realized or earned.

Note 13. Subsequent Events

On November 8, 2013, the Operating Company’s board of directors, and subsequently NMFC’s board of directors, declared a fourth quarter 2013 distribution of $0.34 per unit/share payable on December 31, 2013 to holders of record as of December 17, 2013. Subsequently, AIV Holdings’ board of directors declared a dividend payable on December 31, 2013 to holders of record as of December 17, 2013 in an amount equal to $0.34 per unit multiplied by the total number of units owned by AIV Holdings of the Operating Company as of the record date.

On October 17, 2013, NMFC completed a public offering of 3,000,000 shares of its common stock and an underwritten secondary public offering of 3,000,000 shares of its common stock on behalf of a selling stockholder, AIV Holdings, at a public offering price of $14.34 per share. In connection with the underwritten secondary public offering, the underwriters purchased an additional 900,000 shares of NMFC’s common stock from AIV Holdings with the exercise of the overallotment option to purchase up to an additional 900,000 shares of common stock. The Operating Company received net proceeds of $43,020 in connection with the sale of 3,000,000 shares by NMFC of its common stock. NMFC did not receive any proceeds from the sale of shares of NMFC’s common stock by AIV Holdings. The Operating Company and NMFC bore only their allocable portion of offering expenses related to the public offering of 3,000,000 shares, and did not bear any expenses in connection with the secondary public offering of the 3,900,000 shares of NMFC’s common stock on behalf of AIV Holdings, which were borne by AIV Holdings.

On October 28, 2013, the Operating Company amended its Holdings Credit Facility to increase the maximum amount of revolving borrowings available under the Holdings Credit Facility from $250,000 to $280,000.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Boards of Directors of

New Mountain Finance Holdings, L.L.C.

New Mountain Finance Corporation and

New Mountain Finance AIV Holdings Corporation

New York, New York

We have reviewed the accompanying Consolidated Statement of Assets, Liabilities and Members’ Capital of New Mountain Finance Holdings, L.L. C. as of September 30, 2013, including the Consolidated Schedule of Investments, and the related Consolidated Statements of Operations for the three and nine month periods ended September 30, 2013 and 2012, and the Consolidated Statements of Changes in Members’ Capital, and Cash Flows for the nine month periods ended September 30, 2013 and 2012. Also, we have reviewed the Statements of Assets and Liabilities of New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation as of September 30, 2013, the related Statements of Operations for the three and nine month periods ended September 30, 2013 and 2012, and the Statements of Changes in Net Assets and Cash Flows for the nine month periods ended September 30, 2013 and 2012. These interim financial statements are the responsibility of the management of New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Statement of Assets, Liabilities and Members’ Capital of New Mountain Finance Holdings, L.L.C., including the Consolidated Schedule of Investments as of December 31, 2012 and the related Consolidated Statements of Operations, Changes in Members’ Capital, and Cash Flows for the year then ended (not presented herein), and the Statements of Assets and Liabilities of New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation as of December 31, 2012, the related Statements of Operations, Changes in Net Assets, and Cash Flows for the year then ended (not presented herein); and in our report dated March 6, 2013, we expressed unqualified opinions on those financial statements. In our opinion, the information set forth in the accompanying Consolidated Statement of Assets, Liabilities and Members’ Capital of New Mountain Finance Holdings, L.L.C., including the Consolidated Schedule of Investments, and the Statements of Assets and Liabilities of New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation as of December 31, 2012 is fairly stated, in all material respects, in relation to the Consolidated Statement of Assets, Liabilities, and Members’ Capital of New Mountain Finance Holdings, L.L.C., including the Consolidated Schedules of Investments, and the Statements of Assets and Liabilities of New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation from which they have been derived.

/s/ DELOITTE & TOUCHE LLP

New York, New York

November 12, 2013

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information in management’s discussion and analysis of financial condition and results of operations relates to each of the three separate registrants: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation (collectively, “we”, “us”, “our” or the “Companies”). Information that relates to an individual registrant will be specifically referenced by the respective company. None of the Companies makes any representation as to the information related solely to the other registrants other than itself.

The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the combined notes thereto contained elsewhere in this report.

Forward-Looking Statements

The information contained in this section should be read in conjunction with the financial data and financial statements and combined notes thereto appearing elsewhere in this report. Some of the statements in this report (including in the following discussion) constitute forward-looking statements, which relate to future events or the future performance or financial condition of New Mountain Finance Holdings, L.L.C. (the “Operating Company” or the “Master Fund”), New Mountain Finance Corporation (“NMFC”) or New Mountain Finance AIV Holdings Corporation (“AIV Holdings”). The forward-looking statements contained in this section involve a number of risks and uncertainties, including:

· statements concerning the impact of a protracted decline in the liquidity of credit markets;

· the general economy, including interest and inflation rates, and its impact on the industries in which the Operating Company invests;

· the ability of the Operating Company’s portfolio companies to achieve their objectives;

· the Operating Company’s ability to make investments consistent with its investment objectives, including with respect to the size, nature and terms of its investments;

· the ability of New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”) or its affiliates to attract and retain highly talented professionals;

· actual and potential conflicts of interest with the Investment Adviser and other affiliates of New Mountain Capital Group, L.L.C.; and

· the risk factors set forth in Item 1A.—Risk Factors contained in our annual report on Form 10-K for the year ended December 31, 2012.

Forward-looking statements are identified by their use of such terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “should”, “will”, “would” or similar expressions. Actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in Item 1A.—Risk Factors contained in our annual report on Form 10-K for the year ended December 31, 2012.

We have based the forward-looking statements included in this report on information available to us on the date of this report. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Although we undertake no obligation to revise or update any forward-looking statements, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission, including annual reports on Form 10-K, registration statements on Form N-2 or Form 10, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

The Operating Company is a Delaware limited liability company. The Operating Company is externally managed and has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As such, the Operating Company is obligated to comply with certain regulatory requirements. The Operating Company intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members.

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The Operating Company is externally managed by the Investment Adviser. New Mountain Finance Administration, L.L.C. (the “Administrator”) provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates). New Mountain Capital is a firm with a track record of investing in the middle market and with assets under management (which includes amounts committed, not all of which have been drawn down and invested to date) totaling more than $9.0 billion as of September 30, 2013. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity, and credit investment vehicles. The Operating Company, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. (“Guardian AIV”) by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the “Predecessor Entities”.

NMFC is a Delaware corporation that was originally incorporated on June 29, 2010. NMFC is a closed-end, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. As such, NMFC is obligated to comply with certain regulatory requirements. NMFC has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”).

AIV Holdings is a Delaware corporation that was originally incorporated on March 11, 2011. Guardian AIV, a Delaware limited partnership, is AIV Holdings’ sole stockholder. AIV Holdings is a closed-end, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. As such, AIV Holdings is obligated to comply with certain regulatory requirements. AIV Holdings has elected to be treated, and intends to comply with the requirements to continue to qualify annually, as a RIC under the Code.

During the quarter ended September 30, 2013, NMFC issued an additional 111,373 shares in conjunction with its dividend reinvestment plan at a weighted average price of $14.48. Since NMFC’s IPO, and through September 30, 2013, NMFC raised approximately $190.4 million in net proceeds from additional offerings of common stock and issued shares of its common stock valued at approximately $193.7 million on behalf of AIV Holdings for exchanged units. NMFC acquired from the Operating Company units of the Operating Company equal to the number of shares of NMFC’s common stock sold in additional offerings. As of September 30, 2013, NMFC and AIV Holdings owned approximately 85.3% and 14.7%, respectively, of the units of the Operating Company.

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The diagram below depicts the Companies’ organizational structure as of September 30, 2013.

* Includes partners of New Mountain Guardian Partners, L.P.

** These common membership units are exchangeable into shares of NMFC common stock on a one-for-one basis.

*** New Mountain Finance SPV Funding, L.L.C. (“NMF SLF”).

The Operating Company’s investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. In some cases, The Operating Company’s investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) niche market dominance.

As of September 30, 2013, the Operating Company’s net asset value was $641.8 million and its portfolio had a fair value of approximately $1,041.4 million in 57 portfolio companies, with a weighted average yield to maturity of approximately 10.4%. This yield to maturity calculation assumes that all investments not on non-accrual are purchased at fair value on September 30, 2013 and held until their respective maturities with no prepayments or losses and exited at par at maturity. The actual yield to maturity may be higher or lower due to the future selection of the London Interbank Offered Rate (“LIBOR”) contracts by the individual companies in the Operating Company’s portfolio or other factors.

Recent Developments

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December 17, 2013 in an amount equal to $0.34 per unit multiplied by the total number of units owned by AIV Holdings of the Operating Company as of the record date.

On October 17, 2013, NMFC completed a public offering of 3,000,000 shares of its common stock and an underwritten secondary public offering of 3,000,000 shares of its common stock on behalf of a selling stockholder, AIV Holdings, at a public offering price of $14.34 per share. In connection with the underwritten secondary public offering, the underwriters purchased an additional 900,000 shares of NMFC’s common stock from AIV Holdings with the exercise of the overallotment option to purchase up to an additional 900,000 shares of common stock. The Operating Company received net proceeds of $43.0 million in connection with the sale of 3,000,000 shares by NMFC of its common stock. NMFC did not receive any proceeds from the sale of shares of NMFC’s common stock by AIV Holdings. The Operating Company and NMFC bore only their allocable portion of offering expenses related to the public offering of 3,000,000 shares, and did not bear any expenses in connection with the secondary public offering of the 3,900,000 shares of NMFC’s common stock on behalf of AIV Holdings, which were borne by AIV Holdings.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.

Basis of Accounting

The Operating Company consolidates its wholly-owned subsidiary, NMF SLF. NMFC and AIV Holdings do not consolidate the Operating Company. NMFC and AIV Holdings apply investment company master-feeder financial statement presentation, as described in Accounting Standards Codification 946, Financial Services—Investment Companies , (“ASC 946”) to their interest in the Operating Company. NMFC and AIV Holdings observe that it is industry practice to follow the presentation prescribed for a master fund-feeder fund structure in ASC 946 in instances in which a master fund is owned by more than one feeder fund and that such presentation provides stockholders of NMFC and AIV Holdings with a clearer depiction of their investment in the master fund.

Valuation and Leveling of Portfolio Investments

At all times consistent with GAAP and the 1940 Act, the Operating Company conducts a valuation of assets, which impacts its net asset value, and, consequently, the net asset values of NMFC and AIV Holdings.

The Operating Company values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Operating Company’s board of directors is ultimately and solely responsible for determining the fair value of its portfolio investments on a quarterly basis in good faith, including investments that are not publicly traded, those whose market prices are not readily available, and any other situation where its portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. The Operating Company’s quarterly valuation procedures are set forth in more detail below:

(1) Investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services.

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b. For investments other than bonds, the investment professionals of the Investment Adviser look at the number of quotes readily available and perform the following:

i. Investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained;

ii. Investments for which one quote is received from a pricing service are validated internally. The investment professionals of the Investment Adviser analyze the market quotes obtained using an array of valuation methods (further described below) to validate the fair value. If the Investment Adviser is unable to sufficiently validate the quote internally and if the investment’s par value or its fair value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below).

(3) Investments for which quotations are not readily available through exchanges, pricing services, brokers, or dealers are valued through a multi-step valuation process:

a. Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser responsible for the credit monitoring;

b. Preliminary valuation conclusions will then be documented and discussed with the Operating Company’s senior management;

c. If an investment falls into (3) above for four consecutive quarters and if the investment’s par value or its fair value exceeds the materiality threshold, then at least once each fiscal year, the valuation for each portfolio investment for which the investment professionals of the Investment Adviser do not have a readily available market quotation will be reviewed by an independent valuation firm engaged by the Companies’ board of directors.

d. Also, when deemed appropriate by the Operating Company’s management, an independent valuation firm may be engaged to review and value investment(s) of a portfolio company, without any preliminary valuation being performed by the Investment Adviser. The investment professionals of the Investment Adviser will review and validate the value provided.

The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of certain investments may fluctuate from period to period and the fluctuations could be material.

GAAP fair value measurement guidance classifies the inputs used in measuring fair value into three levels as follows:

Level I—Quoted prices (unadjusted) are available in active markets for identical investments and the Operating Company has the ability to access such quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity securities and exchange-traded derivatives. As required by Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”), the Operating Company, to the extent that we hold such investments, does not adjust the quoted price for these investments, even in situations where the Operating Company holds a large position and a sale could reasonably impact the quoted price.

Level II—Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level I. Level II inputs include the following:

· Quoted prices for similar assets or liabilities in active markets;

· Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);

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· Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level III—Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment.

The following table summarizes the levels in the fair value hierarchy that the Operating Company’s portfolio investments fall into as of September 30, 2013:

(in thousands)	Total		Level I		Level II		Level III
First lien	$	533,259	$	—	$	519,089	$	14,170
Second lien	431,113		—		392,470		38,643
Subordinated	46,865		—		22,019		24,846
Equity and other	30,195		—		—		30,195
Total investments	$	1,041,432	$	—	$	933,578	$	107,854

NMFC and AIV Holdings are holding companies with no direct operations of their own, and their sole asset is their ownership in the Operating Company. NMFC’s and AIV Holdings’ investments in the Operating Company are carried at fair value and represent the pro-rata interest in the net assets of the Operating Company as of the applicable reporting date. NMFC and AIV Holdings value their ownership interest on a quarterly basis, or more frequently if required under the 1940 Act.

The Operating Company generally uses the following framework when determining the fair value of investments where there are little, if any, market activity or observable pricing inputs.

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				EBITDA Range						Discount Range
(in thousands) Type	Fair Value		Approach	Low		High		Weighted Average		Low		High		Weighted Average
First lien	$	14,170	Market and Income	4.0	x	6.5	x	5.3	x	5.5	%	22.8	%	16.0	%
Second lien	38,643		Market and Income	4.0	x	7.5	x	5.8	x	10.1	%	11.7	%	11.0	%
Subordinated	24,846		Market and Income	6.0	x	9.5	x	7.9	x	12.2	%	21.8	%	15.1	%
Equity	24,156		Market and Income	4.0	x	8.0	x	5.6	x	8.0	%	20.0	%	16.3	%

The Operating Company typically uses a Black Scholes analysis to fair value warrant investments. Input variables used in these analyses include, but are not limited to, stock price, exercise price, expiration date, valuation date, volatility, and discount rate. As of September 30, 2013, warrants had a fair value of $6.0 million, which have been excluded from the table above.

Revenue Recognition

The Operating Company’s revenue recognition policies are as follows:

Sales and paydowns of investments: Realized gains and losses on investments are determined on the specific identification method.

Dividend income: Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

NMFC’s and AIV Holdings’ revenue recognition policies are as follows:

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are allocated to NMFC and AIV Holdings based on their pro-rata interest in the net assets of the Operating Company. This is recorded on NMFC’s and AIV Holdings’ Statements of Operations. Realized gains and losses are recorded upon sales of NMFC’s and AIV Holdings’ investments in the Operating Company. Net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. is the difference between the net asset value per share and the closing price per share for shares issued as part of the dividend reinvestment plan on the dividend payment date. This net change in unrealized appreciation (depreciation) of investment in New Mountain Finance Holdings, L.L.C. includes the unrealized appreciation (depreciation) from the IPO. NMFC used the proceeds from its IPO and Concurrent Private Placement to purchase units in the Operating Company at $13.75 per unit (its IPO price per share). At the IPO date, $13.75 per unit represented a discount to the actual net asset value per unit of the Operating Company. As a result, NMFC experienced immediate unrealized appreciation on its investment. Concurrently, AIV Holdings experienced immediate unrealized depreciation on its investment in the Operating Company equal to the difference between NMFC’s IPO price of $13.75 per unit and the actual net asset value per unit.

Monitoring of Portfolio Investments

The Operating Company monitors the performance and financial trends of its portfolio companies on at least a quarterly basis. The Operating Company attempts to identify any developments at the portfolio company or within the industry or the macroeconomic environment that may alter any material element of its original investment strategy.

The Operating Company uses an investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in the portfolio. The Operating Company uses a four-level numeric rating scale as follows:

· Investment Rating 1—Investment is performing materially above expectations;

· Investment Rating 2—Investment is performing materially in-line with expectations. All new loans are rated 2 at initial purchase;

· Investment Rating 3—Investment is performing materially below expectations and risk has increased materially since the original investment; and

· Investment Rating 4—Investment is performing substantially below expectations and risks have increased substantially since the original investment. Payments may be delinquent. There is meaningful possibility that the Operating Company will not recoup its original cost basis in the investment and may realize a substantial loss upon exit.

As of September 30, 2013, all investments in the Operating Company’s portfolio had an Investment Rating of 1 or 2 with the exception of two portfolio companies; one with an Investment Rating of 3 and the other with an Investment Rating of 4. As of September 30, 2013, the Operating Company’s first lien positions in ATI Acquisition Company and equity positions in Ancora Acquisition LLC, which were received during the three months ended September 30, 2013 in relation to the two super priority first lien positions in ATI Acquisition Company, had an Investment Rating of 4 due to the underlying business encountering significant regulatory constraints which have led to the portfolio company’s underperformance. As of September 30, 2013, the Operating Company’s first lien positions in ATI Acquisition Company remained on non-accrual status due to the inability of the portfolio company to service its interest payments for the quarter then ended and uncertainty about its ability to pay such amounts in the future. As of September 30, 2013, the Operating Company’s investment had an aggregate cost basis of $5.9 million, an aggregate fair value of $0.4 million and total unearned interest income of $0.2 and $0.7 million, respectively, for the three and nine months then ended. Unrealized gains include a fee that the Operating Company would receive upon maturity of the two super priority first lien debt investments.

Portfolio and Investment Activity

The fair value of the Operating Company’s investments was approximately $1,041.4 million in 57 portfolio companies at September 30, 2013 and approximately $989.8 million in 63 portfolio companies at December 31, 2012.

The following table shows the Operating Company’s portfolio and investment activity for the nine months ended September 30, 2013 and September 30, 2012:

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	Nine months ended
(in millions)	September 30, 2013		September 30, 2012
New investments in 21 and 30 portfolio companies, respectively	$	349.3	$	392.2
Debt repayments in existing portfolio companies	288.4		190.5
Sales of securities in 9 and 13 portfolio companies, respectively	26.7		77.9
Change in unrealized appreciation on 42 and 43 portfolio companies, respectively	19.4		20.6
Change in unrealized depreciation 25 and 14 portfolio companies, respectively	16.9		9.9

At September 30, 2013, the Operating Company’s weighted average yield to maturity was approximately 10.4%.

Results of Operations

Since NMFC and AIV Holdings are holding companies with no direct operations of their own, and their only business and sole asset are their ownership of common membership units of the Operating Company, NMFC’s and AIV Holdings’ results of operations are based on the Operating Company’s results of operations.

Under GAAP, NMFC’s IPO did not step-up the cost basis of the Operating Company’s existing investments to fair market value at the IPO date. Since the total value of the Operating Company’s investments at the time of the IPO was greater than the investments’ cost basis, a larger amount of amortization of purchase or original issue discount, and different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such predecessor investments are sold or mature in the future. The Operating Company tracks the transferred (or fair market) value of each of its investments as of the time of the IPO and, for purposes of the incentive fee calculation, adjusts income as if each investment was purchased at the date of the IPO (or stepped up to fair market value). The respective “Adjusted Net Investment Income” (defined as net investment income adjusted to reflect income as if the cost basis of investments held at the IPO date had stepped-up to fair market value as of the IPO date) is used in calculating both the incentive fee and dividend payments. The Operating Company also uses the transferred (or fair market) value of each of its investments as of the time of the IPO to adjust capital gains (“Adjusted Realized Capital Gains”) or losses (“Adjusted Realized Capital Losses”) and unrealized capital appreciation (“Adjusted Unrealized Capital Appreciation”) and unrealized capital depreciation (“Adjusted Unrealized Capital Depreciation”). See Item 1.—Financial Statements—Note 5, Agreements for additional details.

The following table for the Operating Company for the three months ended September 30, 2013 is adjusted to reflect the step-up to fair market value and the allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income.

(in thousands)	Three months ended September 30, 2013			Stepped-up Cost Basis Adjustments			Incentive Fee Adjustments (1)			Adjusted three months ended September 30, 2013
Investment income
Interest income	$	27,175		$	(111	)	$	—		$	27,064
Dividend income	(1,631		)	—			—			(1,631		)
Other income	249			—			—			249
Total investment income	25,793			(111		)	—			25,682
Total net expenses pre-incentive fee (2)	8,014			—			—			8,014
Pre-Incentive Fee Net Investment Income	17,779			(111		)	—			17,668
Incentive fee	5,120			—			(1,587		)	3,533
Post-Incentive Fee Net Investment Income	12,659			(111		)	1,587			14,135
Net realized gains on investments	5,160			(121		)	—			5,039
Net change in unrealized appreciation (depreciation) of investments	2,659			232			—			2,891
Capital gains incentive fees	—			—			(1,587		)	(1,587		)
Net increase in members’ capital resulting from operations	$	20,478								$	20,478

(1) For the three months ended September 30, 2013, the Operating Company incurred total incentive fees of $5.1 million, of which $1.6 million related to capital gains incentive fees on a hypothetical liquidation basis.

(2) Includes expense waivers and reimbursements of $0.6 million.

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For the three months ended September 30, 2013, the Operating Company had a $0.1 million adjustment to interest income for amortization, a decrease of $0.1 million to net realized gains and an increase of $0.2 million to net change in unrealized depreciation to adjust for the stepped-up cost basis of the transferred investments as discussed above. For the three months ended September 30, 2013, total adjusted investment income of $25.7 million consisted of approximately $24.4 million in cash interest from investments, approximately $0.8 million in payment-in-kind interest from investments, approximately $1.2 million in prepayment fees, net amortization of purchase premiums and discounts and origination fees of approximately $0.7 million, approximately ($1.6) million in dividend income and approximately $0.2 million in other income. The Operating Company’s Adjusted Net Investment Income was $14.1 million for the three months ended September 30, 2013.

The following table for the Operating Company for the nine months ended September 30, 2013 is adjusted to reflect the step-up to fair market value and the allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income.

(in thousands)	Nine months ended September 30, 2013		Stepped-up Cost Basis Adjustments			Incentive Fee Adjustments (1)			Adjusted nine months ended September 30, 2013
Investment income
Interest income	$	79,539	$	(804	)	$	—		$	78,735
Dividend income	4,802		—			—			4,802
Other income	1,926		—			—			1,926
Total investment income	86,267		(804		)	—			85,463
Total net expenses pre-incentive fee (2)	23,472		—			—			23,472
Pre-Incentive Fee Net Investment Income	62,795		(804		)	—			61,991
Incentive fee	14,966		—			(2,568		)	12,398
Post-Incentive Fee Net Investment Income	47,829		(804		)	2,568			49,593
Net realized gains on investments	9,516		(3,270		)	—			6,246
Net change in unrealized appreciation (depreciation) of investments	2,518		4,074			—			6,592
Capital gains incentive fees	—		—			(2,568		)	(2,568		)
Net increase in members’ capital resulting from operations	$	59,863							$	59,863

(1) For the nine months ended September 30, 2013, the Operating Company incurred total incentive fees of $15.0 million, of which $2.6 million related to capital gains incentive fees on a hypothetical liquidation basis.

(2) Includes expense waivers and reimbursements of $2.3 million.

For the nine months ended September 30, 2013, the Operating Company had a $0.8 million adjustment to interest income for amortization, a decrease of $3.3 million to net realized gains and an increase of $4.1 million to net change in unrealized depreciation to adjust for the stepped-up cost basis of the transferred investments as discussed above. For the nine months ended September 30, 2013, total adjusted investment income of $85.5 million consisted of approximately $70.1 million in cash interest from investments, approximately $2.4 million in payment-in-kind interest from investments, approximately $4.4 million in prepayment fees, net amortization of purchase premiums and discounts and origination fees of approximately $1.9 million, approximately $4.8 million in dividend income and approximately $1.9 million in other income. The Operating Company’s Adjusted Net Investment Income was $49.6 million for the nine months ended September 30, 2013.

In accordance with GAAP, for the nine months ended September 30, 2013, the Operating Company accrued $2.6 million of hypothetical capital gains incentive fee based upon the cumulative net Adjusted Realized Capital Gains and Adjusted Realized Capital Losses and the cumulative net Adjusted Unrealized Capital Appreciation and Adjusted Unrealized Capital Depreciation on investments held at the end of each period. Actual amounts paid to the Investment Adviser are consistent with the Investment Management Agreement and are based only on actual Adjusted Realized Capital Gains computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis from inception through the end of each calendar year as if the entire portfolio was sold at fair value. Approximately $0.9 million of capital gains incentive fees would be owed under the Investment Management Agreement if the Operating Company had ceased operations as of September 30, 2013, as cumulative net Adjusted Realized Gains exceeded cumulative Adjusted Unrealized Depreciation.

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Results of Operations for the Operating Company for the Three Months Ended September 30, 2013 and September 30, 2012

Revenue

	Three months ended					Percent
(in thousands)	September 30, 2013			September 30, 2012		Change
Interest income	$	27,175		$	21,362	27	%
Dividend income	(1,631		)	215		NM	*
Other income	249			175		42	%
Total investment income	$	25,793		$	21,752

* Not meaningful.

The Operating Company’s total investment income increased by $4.0 million for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012. The increase in interest and other income from the three months ended September 30, 2012 to the three months ended September 30, 2013 was primarily attributable to larger invested balances, driven by the proceeds from the 2012 and 2013 primary offerings of NMFC’s common stock, the Operating Company’s use of leverage for its revolving credit facilities to originate new investments and prepayment fees received associated with the early repayments or partial repayments of three different portfolio companies held by the Operating Company as of June 30, 2013. Additionally, the Operating Company’s other income increased due to amendment and forbearance fees received associated with two different portfolio companies held by the Operating Company as of September 30, 2013. For the three months ended September 30, 2013, a change in an accounting estimate related to the classification of dividend income for a distribution recorded in the prior quarter resulted in a reduction in the cost basis of a warrant investment by approximately $0.5 million, a reduction to dividend income of approximately $1.8 million, a realized gain of approximately $1.3 million and an unrealized gain of approximately $0.5 million. As a result of the change in estimate, there was a reclass of total incentive fee of approximately $0.4 million from incentive fees attributable to Adjusted Net Investment Income to capital gains incentive fees for the three months ended September 30, 2013.

Operating Expenses

	Three months ended						Percent
(in thousands)	September 30, 2013			September 30, 2012			Change
Management fee	$	3,754		$	2,768		36	%
Incentive fee	3,533			2,978			19	%
Capital gains incentive fee (1)	1,587			2,583			(39	)%
Interest and other credit facility expenses	3,190			2,402			33	%
Administrative expenses	743			544			37	%
Professional fees	549			405			36	%
Other general and administrative expenses	378			375			1	%
Total expenses	13,734			12,055
Less: expenses waived and reimbursed	(600		)	(439		)	37	%
Net expenses	$	13,134		$	11,616

(1) Capital gains incentive fee accrual assumes a hypothetical liquidation basis.

The Operating Company’s total net operating expenses increased by $1.5 million for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012. Interest and other credit facility expenses increased by $0.8 million during the three months ended September 30, 2013, primarily due to the increase of average debt outstanding from $105.8 million to $190.7 million for the Holdings Credit Facility and from $184.1 million to $214.8 million for the SLF Credit Facility for the three months ended September 30, 2012 compared to September 30, 2013. During the three months ended September 30, 2013, the Operating Company incurred $7.2 thousand in other expenses that were not subject to the expense cap pursuant to the Administration Agreement, as amended and restated, and further restricted by the Operating Company.

Additionally, the Operating Company’s management fees increased by $1.0 million and total incentive fees decreased by $0.4 million for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012. The increase in management fees from the three months ended September 30, 2012 to the three months ended September 30, 2013 was attributable to larger invested balances, driven by the proceeds from the 2012 and 2013 primary offerings of NMFC’s common stock and the Operating Company’s use of leverage for its revolving credit facilities to originate new investments. The decrease in total incentive fees

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from the three months ended September 30, 2012 to the three months ended September 30, 2013 was attributable to lower net realized and unrealized gains or losses of investments during the three months ended September 30, 2013.

Net Realized Gains and Net Change in Unrealized Appreciation (Depreciation)

	Three months ended				Percent
(in thousands)	September 30, 2013		September 30, 2012		Change
Net realized gains on investments	$	5,160	$	1,615	220	%
Net change in unrealized appreciation (depreciation) of investments	2,659		10,494		(75	)%
Total net realized gains and net change in unrealized appreciation (depreciation) of investments	$	7,819	$	12,109

The Operating Company’s net realized and unrealized gains or losses resulted in a net gain of $7.8 million for the three months ended September 30, 2013 compared to a net gain of $12.1 million for the same period in 2012. We look at net realized and unrealized gains or losses together as movement in unrealized appreciation or depreciation can be the result of realizations. The net gain for the three months ended September 30, 2013 was driven by the overall increase in the market prices of the Operating Company’s investments during the period. For the three months ended September 30, 2013, a change in accounting estimate related to the classification of dividend income for a distribution recorded in the prior quarter resulted in a realized gain of approximately $1.3 million and an unrealized gain of approximately $0.5 million. In addition, the modification of terms on one debt investment that was accounted for as an extinguishment resulted in a realized gain of $1.7 million for the three months ended September 30, 2013. The net gain for the three months ended September 30, 2012 was primarily driven by the overall increase in the market prices of the Operating Company’s investments during the period.

Results of Operations for the Operating Company for the Nine Months Ended September 30, 2013 and September 30, 2012

Revenue

	Nine months ended				Percent
(in thousands)	September 30, 2013		September 30, 2012		Change
Interest income	$	79,539	$	60,087	32	%
Dividend income	4,802		215		NM	*
Other income	1,926		771		150	%
Total investment income	$	86,267	$	61,073

* Not meaningful.

The Operating Company’s total investment income increased by $25.2 million for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. The increase in interest and other income from the nine months ended September 30, 2012 to the nine months ended September 30, 2013 was primarily attributable to larger invested balances, driven by the proceeds from the 2012 and 2013 primary offerings of NMFC’s common stock, the Operating Company’s use of leverage for its revolving credit facilities to originate new investments and prepayment fees received associated with the early repayments or partial repayments of 15 different portfolio companies held by the Operating Company as of December 31, 2012. Additionally, the Operating Company’s other income increased due to consent, amendment and forbearance fees received associated with seven different portfolio companies held by the Operating Company as of December 31, 2012. The increase in dividend income from the nine months ended September 30, 2012 to the nine months ended September 30, 2013 was primarily attributable to a distribution from one of the Operating Company’s warrant investments.

Operating Expenses

	Nine months ended						Percent
(in thousands)	September 30, 2013			September 30, 2012			Change
Management fee	$	11,049		$	7,887		40	%
Incentive fee	12,398			8,147			52	%
Capital gains incentive fee (1)	2,568			3,547			(28	)%
Interest and other credit facility expenses	9,379			7,286			29	%
Administrative expenses	2,441			1,604			52	%
Professional fees	1,684			1,279			32	%
Other general and administrative expenses	1,184			1,015			17	%
Total expenses	40,703			30,765
Less: expenses waived and reimbursed	(2,265		)	(1,387		)	63	%
Net expenses	$	38,438		$	29,378

(1) Capital gains incentive fee accrual assumes a hypothetical liquidation basis.

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The Operating Company’s total net operating expenses increased by $9.1 million for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. Interest and other credit facility expenses increased by $2.1 million during the nine months ended September 30, 2013, primarily due to the increase of average debt outstanding from $122.9 million to $192.8 million for the Holdings Credit Facility and from $174.8 million to $214.5 million for the SLF Credit Facility for the nine months ended September 30, 2012 compared to September 30, 2013. As of September 30, 2013, the Operating Company incurred $43.8 thousand in other expenses that were not subject to the expense cap pursuant to the Administration Agreement, as amended and restated, and further restricted by the Operating Company.

Additionally, the Operating Company’s management fees increased by $3.2 million and total incentive fees increased by $3.3 million for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. The increase in management and total incentive fees from the nine months ended September 30, 2012 to the nine months ended September 30, 2013 was attributable to larger invested balances, driven by the proceeds from the 2012 and 2013 primary offerings of NMFC’s common stock, the Operating Company’s use of leverage for its revolving credit facilities to originate new investments and the receipt of a dividend distribution from one of the Operating Company’s warrant investments. The Operating Company’s capital gains incentive fees decreased from $3.5 million for the nine months ended September 30, 2012 to $2.6 million for the nine months ended September 30, 2013 which was attributable to lower net realized and unrealized gains or losses of investments during the period. Approximately $0.9 million of capital gains incentive fees would be owed under the Investment Management Agreement if the Operating Company had ceased operations as of September 30, 2013, as cumulative net Adjusted Realized Gains exceeded cumulative Adjusted Unrealized Depreciation. As of September 30, 2012, no actual capital gains incentive fee was owed under the Investment Management Agreement, as cumulative net Adjusted Realized Gains did not exceed cumulative Adjusted Unrealized Depreciation.

Net Realized Gains and Net Change in Unrealized Appreciation (Depreciation)

	Nine months ended				Percent
(in thousands)	September 30, 2013		September 30, 2012		Change
Net realized gains on investments	$	9,516	$	14,591	(35	)%
Net change in unrealized appreciation (depreciation) of investments	2,518		10,710		(76	)%
Total net realized gains and net change in unrealized appreciation (depreciation) of investments	$	12,034	$	25,301

The Operating Company’s net realized and unrealized gains or losses resulted in a net gain of $12.0 million for the nine months ended September 30, 2013 compared to a net gain of $25.3 million for the same period in 2012. We look at net realized and unrealized gains or losses together as movement in unrealized appreciation or depreciation can be the result of realizations. The net gain for the nine months ended September 30, 2013 was driven by sales or repayment of investments with fair values in excess of December 31, 2012 valuations, resulting in net realized gains being greater than the reversal of the cumulative net unrealized gains for those investments. Additionally, during the nine months ended September 30, 2013, a change in accounting estimate related to the classification of dividend income for a distribution recorded in the prior quarter resulted in a realized gain of approximately $1.3 million and an unrealized gain of approximately $0.5 million, as well as the modification of terms on one debt investment that was accounted for as an extinguishment, which resulted in a realized gain of $1.7 million for the nine months ended September 30, 2013. The net gain for the nine months ended September 30, 2012 was primarily related to the overall increase in the market and the quality of the Operating Company’s portfolio, directly impacting the prices of the Operating Company’s portfolio.

Liquidity and Capital Resources

The primary use of existing funds and any funds raised in the future is expected to be for the Operating Company’s repayment of indebtedness, the Operating Company’s investments in portfolio companies, cash distributions to the Operating Company’s unit holders or for other general corporate purposes.

Since NMFC’s IPO, and through September 30, 2013, NMFC raised approximately $190.4 million in net proceeds from additional offerings of common stock and issued shares valued at approximately $193.7 million on behalf of AIV Holdings for exchanged units. NMFC acquired from the Operating Company units of the Operating Company equal to the number of shares of NMFC’s common stock sold in the additional offerings.

On March 25, 2013, NMFC completed a public offering of 2,000,000 shares of its common stock and an underwritten secondary public offering of 4,000,000 shares of its common stock on behalf of a selling stockholder, AIV Holdings, at a public offering price of $14.30 per share. In connection with the underwritten secondary public offering, the underwriters purchased an additional 900,000 shares of NMFC’s common stock from AIV Holdings with the exercise of the overallotment option to purchase up

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to an additional 900,000 shares of common stock. The Operating Company received net proceeds of $28.4 million in connection with the sale of 2,000,000 shares by NMFC of its common stock. NMFC did not receive any proceeds from the sale of shares of NMFC’s common stock by AIV Holdings. The Operating Company and NMFC bore only their allocable portion of offering expenses related to the public offering of 2,000,000 shares, and did not bear any expenses in connection with the secondary public offering of the 4,900,000 shares of NMFC’s common stock on behalf of AIV Holdings, which were borne by AIV Holdings.

On June 21, 2013, NMFC completed a public offering of 2,000,000 shares of its common stock and an underwritten secondary public offering of 4,000,000 shares of its common stock on behalf of a selling stockholder, AIV Holdings, at a public offering price of $14.55 per share. In connection with the underwritten secondary public offering, the underwriters purchased an additional 750,000 shares of NMFC’s common stock from AIV Holdings with the exercise of the overallotment option to purchase up to an additional 900,000 shares of common stock. The Operating Company received net proceeds of $28.6 million in connection with the sale of 2,000,000 shares by NMFC of its common stock. NMFC did not receive any proceeds from the sale of shares of NMFC’s common stock by AIV Holdings. The Operating Company and NMFC bore only their allocable portion of offering expenses related to the public offering of 2,000,000 shares, and did not bear any expenses in connection with the secondary public offering of the 4,750,000 shares of NMFC’s common stock on behalf of AIV Holdings, which were borne by AIV Holdings.

The Operating Company’s liquidity is generated and generally available through advances from the revolving credit facilities, from cash flows from operations, and, we expect, through periodic follow-on equity offerings of NMFC.

At September 30, 2013 and December 31, 2012, the Operating Company had cash and cash equivalents of approximately $17.6 million and $12.8 million, respectively. Cash provided by operating activities for the nine months ended September 30, 2013 was approximately $52.1 million and cash used in operating activities for the nine months ended September 30, 2012 was approximately $83.8 million. We expect that all current liquidity needs by the Operating Company will be met with cash flows from operations and other activities.

Credit Facilities

Holdings Credit Facility —The Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the “Holdings Credit Facility”) among the Operating Company as the Borrower and Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012.

The maximum amount of revolving borrowings available under the Holdings Credit Facility is $250.0 million, as amended on June 24, 2013. The Operating Company is permitted to borrow up to 45.0% or 25.0% of the purchase price of pledged first lien or non-first lien debt securities, and up to 70.0% and 45.0% of the purchase price of specified first lien debt securities and specified non-first lien debt securities, respectively, subject to approval by Wells Fargo Bank, National Association. The Holdings Credit Facility is collateralized by all of the investments of the Operating Company on an investment by investment basis. All fees associated with the origination or upsizing of the Holdings Credit Facility are capitalized on the Operating Company’s Consolidated Statement of Assets, Liabilities, and Members’ Capital and charged against income as other credit facility expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. In addition, the Holdings Credit Facility requires the Operating Company to maintain a minimum asset coverage ratio. However, the covenants are generally not tied to mark to market fluctuations in the prices of the Operating Company’s investments, but rather to the performance of the underlying portfolio companies.

	Three months ended						Nine months ended
(in millions)	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Interest expense	$	1.4		$	0.8		$	4.3		$	2.9
Non-usage fee	—		(1)	0.2			0.1			0.3
Weighted average interest rate	2.9		%	3.0		%	2.9		%	3.1		%
Average debt outstanding	$	190.7		$	105.8		$	192.8		$	122.9

(1) For the three months ended September 30, 2013, the total non-usage fee was less than $0.1 million.

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As of September 30, 2013 and December 31, 2012, the outstanding balance on the Holdings Credit Facility was $159.1 million and $206.9 million, respectively, and the Operating Company was not aware of any instances of non-compliance related to the Holdings Credit Facility on such dates.

SLF Credit Facility —NMF SLF’s Loan and Security Agreement, as amended and restated, dated October 27, 2010 (the “SLF Credit Facility”) among NMF SLF as the Borrower, the Operating Company as the Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 27, 2016, as amended on May 8, 2012. The maximum amount of revolving borrowings available under the SLF Credit Facility is $215.0 million, as amended on December 18, 2012. The loan is non-recourse to the Operating Company and secured by all assets owned by the borrower on an investment by investment basis. All fees associated with the origination or upsizing of the SLF Credit Facility are capitalized on the Consolidated Statement of Assets, Liabilities, and Members’ Capital and charged against income as other credit facility expenses over the life of the SLF Credit Facility. The SLF Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. The covenants are generally not tied to mark to market fluctuations in the prices of our investments, but rather to the performance of the underlying portfolio companies. Due to an amendment to the SLF Credit Facility on October 27, 2011, NMF SLF is no longer restricted from the purchase or sale of loans with an affiliate. Therefore, specified loans can be moved as collateral between the Holdings Credit Facility and the SLF Credit Facility.

	Three months ended						Nine months ended
(in millions)	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Interest expense	$	1.2		$	1.0		$	3.7		$	3.1
Non-usage fee (1)	—		(1)	—		(1)	—		(1)	—		(1)
Weighted average interest rate	2.3		%	2.2		%	2.3		%	2.4		%
Average debt outstanding	$	214.8		$	184.1		$	214.5		$	174.8

(1) For the three and nine months ended September 30, 2013 and September 30, 2012, the total non-usage fee was less than $50 thousand.

As of September 30, 2013 and December 31, 2012, the outstanding balance on the SLF Credit Facility was $215.0 million and $214.3 million, respectively, and NMF SLF was not aware of any instances of non-compliance related to the SLF Credit Facility on such dates.

Off-Balance Sheet Arrangements

The Operating Company may become a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of September 30, 2013 and December 31, 2012, the Operating Company had outstanding commitments to third parties to fund investments totaling $10.5 million and $10.5 million, respectively, under various undrawn revolving credit facilities, delayed draw commitments or other future funding commitments.

The Operating Company may from time to time enter into financing commitment letters or bridge financing commitments, which could require funding in the future. As of September 30, 2013 and December 31, 2012, the Operating Company did not enter into any commitment letters to purchase debt investments. As of September 30, 2013 and December 31, 2013, the Operating Company

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had bridge financing commitments in an aggregate par amount of $52.5 million and $0, respectively, which could require funding in the future.

Borrowings

The Operating Company had borrowings of $159.1 million and $206.9 million outstanding as of September 30, 2013 and December 31, 2012, respectively, under the Holdings Credit Facility. The Operating Company had borrowings of $215.0 million and $214.3 million outstanding as of September 30, 2013 and December 31, 2012, respectively, under the SLF Credit Facility.

Contractual Obligations

A summary of the Operating Company’s significant contractual payment obligations as of September 30, 2013 is as follows:

			Contractual Obligations Payments Due by Period (in millions)
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
Holdings Credit Facility(1)	$	159.1	$	—	$	—	$	159.1	$	—
SLF Credit Facility(2)	215.0		—		—		215.0		—
Total Contractual Obligations	$	374.1	$	—	$	—	$	374.1	$	—

(1) Under the terms of the $250.0 million Holdings Credit Facility, all outstanding borrowings under that facility ($159.1 million as of September 30, 2013) must be repaid on or before October 27, 2016. As of September 30, 2013, there was approximately $90.9 million of possible capacity remaining under the Holdings Credit Facility.

(2) Under the terms of the $215.0 million SLF Credit Facility, all outstanding borrowings under that facility ($215.0 million as of September 30, 2013) must be repaid on or before October 27, 2016. As of September 30, 2013, there was no capacity remaining under the SLF Credit Facility.

The Operating Company has certain contracts under which it has material future commitments. The Operating Company has $10.5 million of undrawn funding commitments as of September 30, 2013 related to its participation as a lender in revolving credit facilities, delayed draw commitments or other future funding commitments of the Operating Company’s portfolio companies. As of September 30, 2013, the Operating Company had entered into $52.5 million of bridge financing commitments, which could require funding in the future.

We have entered into the Investment Management Agreement with the Investment Adviser in accordance with the 1940 Act. Under the Investment Management Agreement, the Investment Adviser has agreed to provide the Operating Company with investment advisory and management services. We have agreed to pay for these services (1) a management fee and (2) an incentive fee based on its performance.

We have also entered into an administration agreement, as amended and restated (the “Administration Agreement”), with the Administrator. Under the Administration Agreement, the Administrator has agreed to arrange office space for us and provide office equipment and clerical, bookkeeping and record keeping services and other administrative services necessary to conduct our respective day-to-day operations. The Administrator has also agreed to perform, or oversee the performance of, our financial records, our reports to stockholders / unit holders and reports filed with the Securities and Exchange Commission.

If any of the contractual obligations discussed above are terminated, our costs under any new agreements that are entered into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under the Investment Management Agreement and the Administration Agreement.

Distributions and Dividends

Dividends declared and paid to stockholders / unit holders of the Companies for the nine months ended September 30, 2013 totaled $48.9 million.

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The following table summarizes the Operating Company’s and NMFC’s quarterly cash distributions, including dividends and returns of capital, if any, per unit/share that have been declared by the Operating Company’s board of directors, and subsequently NMFC’s board of directors, since NMFC’s IPO:

Fiscal Year Ended	Date Declared	Record Date	Payment Date	Per Share/Unit Amount
*December 31, 2013*
Third Quarter	August 7, 2013	September 16, 2013	September 30, 2013	$	0.34
Third Quarter (1)	August 7, 2013	August 20, 2013	August 30, 2013	0.12
Second Quarter	May 6, 2013	June 14, 2013	June 28, 2013	0.34
First Quarter	March 6, 2013	March 15, 2013	March 28, 2013	0.34

*December 31, 2012*
Fourth Quarter (2)	December 27, 2012	December 31, 2012	January 31, 2013	$	0.14
Fourth Quarter	November 6, 2012	December 14, 2012	December 28, 2012	0.34
Third Quarter	August 8, 2012	September 14, 2012	September 28, 2012	0.34
Second Quarter	May 8, 2012	June 15, 2012	June 29, 2012	0.34
Second Quarter (3)	May 8, 2012	May 21, 2012	May 31, 2012	0.23
First Quarter	March 7, 2012	March 15, 2012	March 30, 2012	0.32

*December 31, 2011*
Fourth Quarter	November 8, 2011	December 15, 2011	December 30, 2011	$	0.30
Third Quarter	August 10, 2011	September 15, 2011	September 30, 2011	0.29
Second Quarter	August 10, 2011	August 22, 2011	August 31, 2011	0.27

*Total*				$	3.71

(1) Special dividend related to a distribution received attributable to the Operating Company’s investment in YP Equity Investors LLC.

(2) Special dividend intended to minimize to the greatest extent possible NMFC’s federal income or excise tax liability.

(3) Special dividend related to estimated realized capital gains attributable to the Operating Company’s investments in Lawson Software, Inc. and Infor Lux Bond Company.

The following table summarizes AIV Holdings’ quarterly cash distributions, including dividends and returns of capital, if any, that have been declared by the Operating Company’s board of directors on a per share/unit basis, and subsequently AIV Holdings’ board of directors, since NMFC’s IPO:

Fiscal Year Ended	Date Declared	Record Date	Payment Date	Amount (in millions)
*December 31, 2013*
Third Quarter (1)	August 7, 2013	September 16, 2013	September 30, 2013	$	2.2
Third Quarter (1)(2)	August 7, 2013	August 20, 2013	August 30, 2013	0.8
Second Quarter (3)	May 6, 2013	June 14, 2013	June 28, 2013	3.8		(4)
First Quarter (5)	March 6, 2013	March 15, 2013	March 28, 2013 (6)	5.5		(7)

*December 31, 2012*
Fourth Quarter (5)(8)	December 27, 2012	December 31, 2012	January 31, 2013	$	2.3
Fourth Quarter (5)	November 6, 2012	December 14, 2012	December 28, 2012(9)	5.5
Third Quarter (10)	August 8, 2012	September 14, 2012	September 28, 2012	6.9		(11)
Second Quarter (10)	May 8, 2012	June 15, 2012	June 29, 2012 (12)	6.9
Second Quarter (10)(13)	May 8, 2012	May 21, 2012	May 31, 2012	4.6
First Quarter (10)	March 7, 2012	March 15, 2012	March 30, 2012 (14)	6.5

*December 31, 2011 (10)*
Fourth Quarter	November 8, 2011	December 15, 2011	December 30, 2011	$	6.1
Third Quarter	August 10, 2011	September 15, 2011	September 30, 2011	5.9
Second Quarter	August 10, 2011	August 22, 2011	August 31, 2011	5.4

*Total*				$	62.4

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(1) As of the record date, AIV Holdings owned 6,571,938 units of the Operating Company. AIV Holdings received a total dividend for the amounts and subsequently AIV Holdings’ board of directors declared total dividends in the same amounts payable to the holders of record as of the record date.

(2) Special dividend related to a distribution received attributable to the Operating Company’s investment in YP Equity Investors LLC.

(3) As of the record date, AIV Holdings owned 11,321,938 units of the Operating Company. AIV Holdings received a total dividend for the amounts and subsequently AIV Holdings’ board of directors declared total dividends in the same amounts payable to the holders of record as of the record date.

(4) This amount does not include the distribution to Guardian AIV of $66.9 million in connection with net proceeds from the June 21, 2013 underwritten secondary public offering of NMFC’s common stock on behalf of AIV Holdings.

(5) As of the respective record dates, AIV Holdings owned 16,221,938 units of the Operating Company. AIV Holdings received a total dividend for the respective amounts and subsequently AIV Holdings’ board of directors declared total dividends in the same amounts payable to the holders of record as of the respective record dates.

(6) Actual cash payment was made on April 5, 2013.

(7) This amount does not include the distribution to Guardian AIV of $67.8 million in connection with net proceeds from the March 25, 2013 underwritten secondary public offering of NMFC’s common stock on behalf of AIV Holdings.

(8) Special dividend intended to minimize to the greatest extent possible NMFC’s federal income or excise tax liability.

(9) Actual cash payment was made on January 7, 2013.

(10) As of the respective record dates, AIV Holdings owned 20,221,938 units of the Operating Company. AIV Holdings received a total dividend for the respective amounts and subsequently AIV Holdings’ board of directors declared total dividends in the same amounts payable to the holders of record as of the respective record dates.

(11) This amount does not include the distribution to Guardian AIV of $58.2 million in connection with net proceeds from the September 28, 2012 underwritten secondary public offering of NMFC’s common stock on behalf of AIV Holdings.

(12) Actual cash payment was made on July 9, 2012.

(13) Special dividend related to estimated realized capital gains attributable to the Operating Company’s investments in Lawson Software, Inc. and Infor Lux Bond Company.

(14) Actual cash payment was made on April 4, 2012.

Tax characteristics of all dividends paid by NMFC and AIV Holdings were reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly dividends, if any, for the Companies will be determined by their respective boards of directors.

Since NMFC and AIV Holdings are holding companies, all distributions on their common stock will be paid from distributions received from the Operating Company. The Operating Company intends to make distributions to its unit holders that will be sufficient to enable NMFC and AIV Holdings to pay quarterly distributions to their stockholders and to maintain their status as RICs. Under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as a dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV. AIV Holdings intends to make quarterly distributions to Guardian AIV out of assets legally available for distribution each quarter. NMFC intends to distribute approximately its entire portion of the Operating Company’s Adjusted Net Investment Income on a quarterly basis and substantially its entire portion of the Operating Company’s taxable income on an annual basis, except that it may retain certain net capital gains for reinvestment.

NMFC maintains an “opt out” dividend reinvestment plan for its common stockholders. As a result, if the Operating Company declares a dividend, then NMFC stockholders’ cash dividends will be automatically reinvested in additional shares of NMFC’s common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash dividends. Cash dividends reinvested in additional shares of NMFC’s common stock will be automatically reinvested by NMFC in the Operating Company in exchange for additional units of the Operating Company. See Item 1—Financial Statements—Note 2, Summary of Significant Accounting Policies for additional details regarding NMFC’s dividend reinvestment plan.

AIV Holdings does not intend to reinvest any distributions received in additional units of the Operating Company.

Related Parties

The Companies have entered into a number of business relationships with affiliated or related parties, including the following:

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· Together, NMFC and AIV Holdings own all the outstanding units of the Operating Company. As of September 30, 2013, NMFC and AIV Holdings own approximately 85.3% and 14.7%, respectively, of the units of the Operating Company.

· The Operating Company has entered into the Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New Mountain Capital. Therefore, New Mountain Capital is entitled to any profits earned by the Investment Adviser, which includes any fees payable to the Investment Adviser under the terms of the Investment Management Agreement, less expenses incurred by the Investment Adviser in performing its services under the Investment Management Agreement.

· The Companies have entered into an Administration Agreement, with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Administrator arranges office space for the Companies and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement. The Operating Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Companies under the Administration Agreement, including rent, the fees and expenses associated with performing administrative, finance, and compliance functions, and the compensation of the Operating Company’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 the Operating Company, expenses payable to the Administrator by the Operating Company as well as other direct and indirect expenses (excluding interest, other credit facility expense, trading expenses and management and incentive fees) has been capped at $3.5 million for the time period from April 1, 2012 to March 31, 2013 and capped at $4.25 million for the time period from April 1, 2013 to March 31, 2014.

· The Companies, the Investment Adviser and the Administrator have entered into a royalty-free Trademark License Agreement, as amended, with New Mountain Capital, pursuant to which New Mountain Capital has agreed to grant the Companies, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the name “New Mountain” and “New Mountain Finance”.

In addition, NMFC and the Operating Company have adopted a formal code of ethics that governs the conduct of their respective officers and directors. These officers and directors also remain subject to the duties imposed by the 1940 Act, the Delaware General Corporation Law and the Delaware Limited Liability Company Act.

The Investment Adviser and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with the Operating Company’s investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for the Operating Company 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 only to the extent permitted by applicable law and interpretive positions of the Securities and Exchange Commission and its staff, and consistent with the Investment Adviser’s allocation procedures.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Operating Company is subject to certain financial market risks, such as interest rate fluctuations. During the nine months ended September 30, 2013, certain of the loans held in the Operating Company’s portfolio had floating interest rates. As of September 30, 2013, approximately 88% of investments (excluding investments on non-accrual, revolvers, and non-interest bearing equity investments) represent floating-rate investments with a LIBOR floor (includes investments bearing prime interest rate contracts) and approximately 12% of investments represent fixed-rate investments. Additionally, the Operating Company’s senior secured revolving credit facilities are also subject to floating interest rates and are currently paid based on one-month floating LIBOR rates.

The following table estimates the potential changes in net cash flow generated from interest income and expenses, should interest rates increase by 100, 200 or 300 basis points, or decrease by 25 basis points. Interest income is calculated as revenue from interest generated from the Operating Company’s portfolio of investments held on September 30, 2013. Interest expense is calculated based on the terms of the Operating Company’s two outstanding revolving credit facilities. For the Operating Company’s floating rate credit facilities, the Operating Company uses the outstanding balance as of September 30, 2013. Interest expense on the Operating Company’s floating rate credit facilities are calculated using the interest rate as of September 30, 2013, adjusted for the hypothetical changes in rates, as shown below. The base interest rate case assumes the rates on the Operating Company’s portfolio investments remain unchanged from the actual effective interest rates as of September 30, 2013. These hypothetical calculations are based on a model of the investments in our portfolio, held as of September 30, 2013, and are only adjusted for assumed changes in the underlying base interest rates.

Actual results could differ significantly from those estimated in the table.

Change in Interest Rates	Estimated Percentage Change in Interest Income Net of Interest Expense (unaudited)
-25 Basis Points (1)	0.74	%
Base Interest Rate	—	%
+100 Basis Points	(3.96	)%
+200 Basis Points	1.07	%
+300 Basis Points	7.18	%

(1) Limited to the lesser of the September 30, 2013 LIBOR rates or a decrease of 25 basis points.

The Operating Company was not exposed to any foreign currency exchange risks as of September 30, 2013.

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of September 30, 2013 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Act of 1934, as amended). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic Securities and Exchange Commission filings is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

(b) Changes in Internal Controls Over Financial Reporting

Management has not identified any change in the Companies’ internal control over financial reporting that occurred during the third quarter of 2013 that has materially affected, or is reasonably likely to materially affect, the Companies’ internal control over financial reporting.

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PART II. OTHER INFORMATION

The terms “we”, “us”, “our” and the “Companies” refers to the collective: New Mountain Finance Holdings, L.L.C., New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation.

Item 1. Legal Proceedings

We, New Mountain Finance Advisers BDC, L.L.C. and New Mountain Finance Administration, L.L.C., are not currently subject to any material pending legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Companies. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. There have been no material changes during the nine months ended September 30, 2013 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not engage in unregistered sales of securities during the quarter ended September 30, 2013.

Issuer Purchases of Equity Securities

For the quarter ended September 30, 2013, NMFC did not purchase any of its common stock in the open market.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the Securities and Exchange Commission:

Exhibit Number		Description
2.1		Merger Agreement, dated May 19, 2011 by and between New Mountain Finance Holdings, L.L.C. and New Mountain Guardian Debt Funding, L.L.C.(5)

2.2		Merger Agreement, dated May 19, 2011 by and between New Mountain Guardian Partners Debt Funding, L.L.C. and New Mountain Guardian Partners (Leveraged), L.L.C.(5)

2.3		Merger Agreement, dated May 19, 2011 by and between New Mountain Finance Holdings, L.L.C. and New Mountain Guardian Partners (Leveraged), L.L.C.(5)

3.1(a)		Certificate of Incorporation of New Mountain Guardian Corporation(3)

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3.1(b)		Certificate of Amendment to Certificate of Incorporation of New Mountain Guardian Corporation changing its name to New Mountain Finance Corporation(1)

3.1(c)		Amended and Restated Certificate of Incorporation of New Mountain Finance Corporation(4)

3.1(d)		Certificate of Formation of New Mountain Guardian (Leveraged), L.L.C.(1)

3.1(e)		Certificate of Amendment to Certificate of Formation of New Mountain Guardian (Leveraged), L.L.C. changing its name to New Mountain Finance Holdings, L.L.C.(5)

3.1(f)		Certificate of Incorporation of New Mountain Finance AIV Holdings Corporation(6)

3.1(g)		Amended and Restated Certificate of Incorporation of New Mountain Finance AIV Holdings Corporation(9)

3.1(h)		Certificate of Change of Registered Agent and/or Registered Office of New Mountain Finance Corporation(7)

3.1(i)		Certificate of Change of Registered Agent and/or Registered Office of New Mountain Finance AIV Holdings Corporation(7)

3.2(a)		Bylaws of New Mountain Finance Corporation(3)

3.2(b)		Amended and Restated Bylaws of New Mountain Finance Corporation(4)

3.3		Bylaws of New Mountain Finance AIV Holdings Corporation(6)

4.1		Form of Stock Certificate of New Mountain Finance Corporation(1)

4.2		Form of Stock Certificate of New Mountain Finance AIV Holdings Corporation(2)

10.1		Amended and Restated Limited Liability Company Agreement of New Mountain Finance Holdings, L.L.C.(5)

10.2		First Joinder Agreement with Respect to the Amended and Restated Limited Liability Company Agreement of New Mountain Finance Holdings, L.L.C.(5)

10.3		Second Joinder Agreement with Respect to the Amended and Restated Limited Liability Company Agreement of New Mountain Finance Holdings, L.L.C.(5)

10.4		Amendment No. 1 to the Amended and Restated Limited Liability Company Agreement of New Mountain Finance Holdings, L.L.C.(8)

10.5		Letter Agreement relating to entry into Amended and Restated Loan and Security Agreement by and among New Mountain Finance Holdings, L.L.C., as Borrower and Collateral Administrator, each of the lenders thereto, Wells Fargo Securities, LLC, as Administrative Agent and Wells Fargo Bank, National Association, as Collateral Custodian.(1)

10.6		Form of Variable Funding Note of New Mountain Finance Holdings, L.L.C., as the Borrower(1)

10.7		Form of Amended and Restated Account Control Agreement among New Mountain Finance Holdings, L.L.C., Wells Fargo Securities, LLC as the Administrative Agent and Wells Fargo Bank, National Association, as Securities Intermediary(1)

10.8		First Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent and Wells Fargo Bank, National Association, as Lender(8)

10.9		Second Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent and Wells Fargo Bank, National Association, as Lender(8)

10.10		Third Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities LLC, as Administrative Agent and Wells Fargo Bank,

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		National Association, as Lender(8)

10.11		Sixth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities LLC, as Administrative Agent and Wells Fargo Bank, National Association, as Lender (11)

10.12		Seventh Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Collateral Custodian(12)

10.13		Eighth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Collateral Custodian (13)

10.14		Ninth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Collateral Custodian (15)

10.15		Tenth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Collateral Custodian (16)

10.16		Eleventh Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance Holdings, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Collateral Custodian (17)

10.17		Loan and Security Agreement by and among New Mountain Guardian (Leveraged), L.L.C., as Collateral Administrator, New Mountain Guardian SPV Funding, L.L.C., as Borrower, each of the lenders party thereto, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Collateral Custodian(1)

10.18		First Amendment to Loan and Security Agreement between New Mountain Guardian SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender(1)

10.19		Second Amendment to Loan and Security Agreement between New Mountain Guardian SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender(1)

10.20		Third Amendment to Loan and Security Agreement between New Mountain Guardian SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender(8)

10.21		Fourth Amendment to Loan and Security Agreement between New Mountain Finance SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender(8)

10.22		Fifth Amendment to Loan and Security Agreement between New Mountain SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender(8)

10.23		Ninth Amendment to Loan and Security Agreement between New Mountain Finance SPV Funding, L.L.C., as Borrower, Wells Fargo Securities, LLC, as Administrative Agent and Wells Fargo Bank,
		National Association, as Lender (11)

10.24		Tenth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance SPV Funding, L.L.C. , as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender(12)

10.25		Eleventh Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance

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		SPV Funding, L.L.C. , as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender(13)

10.26		Twelfth Amendment to Amended and Restated Loan and Security Agreement between New Mountain Finance SPV Funding, L.L.C. , as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, and Wells Fargo Bank, National Association, as Lender (14)

10.27		Account Control Agreement by and between New Mountain Guardian SPV Funding, L.L.C., as Pledgor, Wells Fargo Securities, LLC, as Administrative Agent on behalf of the Secured Parties, and Wells Fargo Bank, N.A., as Securities Intermediary(1)

10.28		Variable Funding Note of New Mountain Guardian SPV Funding, L.L.C., as the Borrower(10)

10.29		Form of Amended and Restated Investment Advisory and Management Agreement(10)

10.30		Form of Safekeeping Agreement among New Mountain Finance Holdings, L.L.C., Wells Fargo Securities, LLC as the Administrative Agent and Wells Fargo Bank, National Association, as Safekeeping Agent(1)

10.31		Amended and Restated Administration Agreement(8)

10.32		Form of Trademark License Agreement(1)

10.33		Amendment No. 1 to Trademark License Agreement(8)

10.34		Form of Registration Rights Agreement(1)

10.35		Form of Indemnification Agreement by and between New Mountain Finance Corporation and each director(1)

10.36		Form of Indemnification Agreement by and between New Mountain Finance Holdings, L.L.C. and each director(1)

10.37		Dividend Reinvestment Plan(4)

11.1		Computation of Per Share Earnings for New Mountain Finance Corporation (included in the notes to the financial statements contained in this report)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

32.1		Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

32.2		Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

(1) Previously filed in connection with New Mountain Finance Holdings, L.L.C.’s registration statement on Form N-2 Pre-Effective Amendment No. 3 (File Nos. 333-168280 and 333-172503) filed on May 9, 2011.

(2) Previously filed in connection with New Mountain Finance AIV Holdings Corporation’s registration statement on Form 10 (File No. 000-54412), filed May 19, 2011.

(3) Previously filed in connection with New Mountain Finance Corporation’s registration statement on Form N-2 (File No. 333-168280) filed on July 22, 2010.

(4) Previously filed in connection with New Mountain Finance Corporation’s quarterly report on Form 10-Q filed on August 11, 2011.

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(5) Previously filed in connection with New Mountain Finance Holdings, L.L.C.’s quarterly report on Form 10-Q filed on August 11, 2011.

(6) Previously filed in connection with New Mountain Finance AIV Holdings Corporation’s quarterly report on Form 10-Q filed on August 23, 2011.

(7) Previously filed in connection with New Mountain Finance Corporation and New Mountain Finance AIV Holdings Corporation report on Form 8-K filed on August 25, 2011.

(8) Previously filed in connection with New Mountain Finance Corporation’s quarterly report on Form 10-Q filed on November 14, 2011.

(9) Previously filed in connection with New Mountain Finance AIV Holdings Corporation’s report on Form 8-K filed on February 29, 2012.

(10) Previously filed as Annex A to New Mountain Finance Corporation’s, New Mountain Finance Holdings, L.L.C.’s and New Mountain Finance AIV Holdings Corporations’ Joint Proxy Materials on Schedule 14A filed on March 28, 2012.

(11) Previously filed in connection with New Mountain Finance Corporation’s quarterly report on Form 10-Q filed May 8, 2012.

(12) Previously filed in connection with New Mountain Finance Corporation’s quarterly report on Form 10-Q filed August 8, 2012.

(13) Previously filed in connection with New Mountain Finance Holdings, L.L.C.’s report on Form 8-K filed on December 21, 2012.

(14) Previously filed in connection with New Mountain Finance Holdings, L.L.C.’s report on Form 8-K filed on March 13, 2013.

(15) Previously filed in connection with New Mountain Finance Holdings, L.L.C.’s report on Form 8-K filed on April 1, 2013.

(16) Previously filed in connection with New Mountain Finance Holdings, L.L.C.’s report on Form 8-K filed on June 26, 2013.

(17) Previously filed in connection with New Mountain Finance Holdings, L.L.C.’s report on Form 8-K filed on October 29, 2013.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 12, 2013.

	NEW MOUNTAIN FINANCE HOLDINGS, L.L.C.
	NEW MOUNTAIN FINANCE CORPORATION
	NEW MOUNTAIN FINANCE AIV HOLDINGS
	CORPORATION

	By:	/s/ ROBERT A. HAMWEE
		Robert A. Hamwee
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ DAVID M. CORDOVA
		David M. Cordova
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

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Part I. Financial Information Item 1. Financial Statements Note 1. Formation and Business Purpose Note 2. Summary Of Significant Accounting Policies Note 3. Investments Note 4. Fair Value Note 5. Agreements Note 6. Related Parties Note 7. Borrowing Facilities Note 8. Regulation Note 9. Commitments and Contingencies Note 10. Stockholders Equity Note 11. Earnings Per Share Note 12. Financial Highlights Note 13. Subsequent Events Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

NMFC 10-Q Quarter ended Sept. 30, 2013