New Mountain Finance (NMFC) risk factors, 2025 10-K

RISKS RELATED TO OUR BUSINESS AND STRUCTURE

1. 01We are currently operating in a period of capital markets disruption and economic uncertainty
2. 02Adverse developments in the credit markets may impair our ability to secure debt financing
3. 03Further downgrades of the U.S. credit rating, impending automatic spending cuts or another government shutdown could negatively impact our liquidity, financial condition and earnings
4. 04U.S. and worldwide economic, political, regulatory and financial market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability
5. 05Increased geopolitical unrest, terrorist attacks, or acts of war may affect any market for our common stock, impact the businesses in which we invest, and harm our business, operating results, and financial conditions
6. 06Inflation and rising commodity prices may adversely impact our portfolio companies
7. 07There is uncertainty surrounding potential legal, regulatory and policy changes by new presidential administrations in the United States that may directly affect financial institutions and the global economy
8. 08Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us
9. 09Changes to U.S. tariff and trade policies may have a negative impact on our portfolio companies, which may in turn negatively impact us
10. 10We may suffer credit losses
11. 11Changes to U.S. tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us
12. 12There is uncertainty as to the value of our portfolio investments because most of our investments are, and may continue to be in private companies and recorded at fair value. In addition, the fair values of our investments are determined by our board of directors in accordance with our valuation policy
13. 13Our ability to achieve our investment objective depends on key investment personnel of the Investment Adviser. If the Investment Adviser were to lose any of its key investment personnel, our ability to achieve our investment objective could be significantly harmed
14. 14The 1940 Act and the Code impose numerous constraints on the operations of BDCs and RICs, which could adversely affect our business
15. 15We operate in a highly competitive market for investment opportunities and may not be able to compete effectively
16. 16Our business, results of operations and financial condition depend on our ability to manage future growth effectively
17. 17The management fee and incentive fee may induce the Investment Adviser to make speculative investments
18. 18We may be obligated to pay the Investment Adviser incentive compensation even if we incur a loss
19. 19The incentive fee we pay to the Investment Adviser with respect to capital gains may be effectively greater than 20.0%
20. 20We may face risks due to shared employees between our Investment Adviser and its affiliates and other activities of the personnel of our Investment Adviser
21. 21We may pay additional consulting fees to New Mountain Capital’s Executive Advisory Council
22. 22We borrow money, which could magnify the potential for gain or loss on amounts invested in us and increase the risk of investing in us
23. 23NMFC Credit Facility 27.9 7.0 %
24. 24If we are unable to comply with the covenants or restrictions in our borrowings, our business could be materially adversely affected
25. 25The NMFC Credit Facility includes customary covenants, including certain financial covenants related to asset coverage and liquidity and other maintenance covenants, as well as customary events of default
26. 26The terms of our credit facilities may contractually limit our ability to incur additional indebtedness
27. 27We may enter into reverse repurchase agreements, which are another form of leverage
28. 28If we are unable to obtain additional debt financing, or if our borrowing capacity is materially reduced, our business could be materially adversely affected
29. 29We may need to raise additional capital to grow
30. 30A renewed disruption in the capital markets and the credit markets could adversely affect our business
31. 31Changes in interest rates may affect our cost of capital and net investment income
32. 32SBIC I and SBIC II are licensed by the SBA and are subject to SBA regulations

RISKS RELATED TO OUR OPERATIONS

1. 33Because we intend to distribute substantially all of our income to our stockholders to maintain our status as a RIC, we will continue to need additional capital to finance our growth. If additional funds are unavailable or not available on favorable terms, our ability to grow may be impaired
2. 34In order for us to qualify for the tax benefits available to RICs and to avoid payment of excise taxes, we intend to distribute to our stockholders substantially all of our annual taxable income. As a result of these requirements, we may need to raise capital from other sources to grow our business
3. 35SBIC I and SBIC II may be unable to make distributions to us that will enable us to meet or maintain our RIC tax treatment
4. 36Our ability to enter into transactions with our affiliates is restricted
5. 37The Investment Adviser has significant potential conflicts of interest with us and, consequently, your interests as stockholders which could adversely impact our investment returns
6. 38The Investment Committee, the Investment Adviser or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion
7. 39The valuation process for certain of our portfolio holdings creates a conflict of interest
8. 40Conflicts of interest may exist related to other arrangements with the Investment Adviser or its affiliates
9. 41The Investment Management Agreement with the Investment Adviser and the Administration Agreement with the Administrator were not negotiated on an arm’s length basis
10. 42The Investment Adviser’s liability is limited under the Investment Management Agreement, and we have agreed to indemnify the Investment Adviser against certain liabilities, which may lead the Investment Adviser to act in a riskier manner than it would when acting for its own account
11. 43The Investment Adviser can resign upon 60 days’ notice, and a suitable replacement may not be found within that time, resulting in disruptions in our operations that could adversely affect our business, results of operations and financial condition
12. 44The Administrator can resign upon 60 days’ notice from its role as Administrator under the Administration Agreement, and a suitable replacement may not be found, resulting in disruptions that could adversely affect our business, results of operations and financial condition
13. 45If we fail to operate as a BDC, our business and operating flexibility could be significantly reduced
14. 46If we do not invest a sufficient portion of our assets in qualifying assets, we could be precluded from investing in certain assets or could be required to dispose of certain assets, which could have a material adverse effect on our business, financial condition and results of operations
15. 47Our ability to invest in public companies may be limited in certain circumstances
16. 48Regulations governing the operations of BDCs will affect our ability to raise additional equity capital as well as our ability to issue senior securities or borrow for investment purposes, any or all of which could have a negative effect on our investment objectives and strategies
17. 49We may experience fluctuations in our annual and quarterly results due to the nature of our business
18. 50Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse to your interests as stockholders
19. 51We will be subject to U.S. federal income tax imposed at corporate rates on all of our income if we are unable to maintain tax treatment as a RIC under Subchapter M of the Code, which would have a material adverse effect on our financial performance
20. 52You may have current tax liabilities on distributions you reinvest in our common stock
21. 53We may not be able to pay you distributions on our common stock, our distributions to you may not grow over time and a portion of our distributions to you may be a return of capital for U.S. federal income tax purposes
22. 54We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash representing such income
23. 55Special tax issues regarding below investment grade securities
24. 56Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy
25. 57We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business
26. 58Our business and operations could be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price
27. 59The effect of global climate change may impact the operations and valuation of our portfolio companies
28. 60The Small Business Credit Availability Act ("SBCA") allows us to incur additional leverage, which could increase the risk of investing in our securities
29. 61We incur significant costs as a result of being a publicly traded company
30. 62Efforts to comply with Section 404 of the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us and the market price of our common stock
31. 63Our business is highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions
32. 64The failure of cybersecurity protection systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively
33. 65We, the Investment Adviser and our portfolio companies are subject to risks associated with “phishing” and other cyber-attacks

RISKS RELATING TO OUR INVESTMENTS

1. 66Our investments in portfolio companies may be risky, and we could lose all or part of any of our investments
2. 67Although the Investment Adviser’s investment strategy includes a focus on tight control of risk, there can be no assurance that the various risks of an investment will be successfully controlled or that losses can be avoided
3. 68Our investment strategy, which is focused primarily on privately held companies, presents certain challenges, including the lack of available information about these companies
4. 69Our investments in securities rated below investment grade are speculative in nature and are subject to additional risk factors such as increased possibility of default, illiquidity of the security, and changes in value based on changes in interest rates
5. 70Our portfolio may be concentrated in a limited number of industries, which may subject us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated
6. 71If we make unsecured investments, those investments might not generate sufficient cash flow to service their debt obligations to us
7. 72If we invest in the securities and obligations of distressed and bankrupt issuers, we might not receive interest or other payments
8. 73Defaults by our portfolio companies may harm our operating results
9. 74The lack of liquidity in our investments may adversely affect our business
10. 75Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation
11. 76If we are unable to make follow-on investments in our portfolio companies, the value of our investment portfolio could be adversely affected
12. 77Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
13. 78The disposition of our investments may result in contingent liabilities
14. 79There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
15. 80Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us
16. 81Covenant-lite loans may offer us fewer protections than traditional investments
17. 82We generally do not control our portfolio companies
18. 83We do not have influence over the day-to-day management of portfolio companies or their retention of effective personnel
19. 84Economic recessions, downturns or government spending cuts could impair our portfolio companies and harm our operating results
20. 85Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
21. 86We may not realize gains from our equity-related investments

Risks Relating to Due Diligence of and Conduct at Portfolio Companies

1. 87Our performance may differ from our historical performance as our current investment strategy includes significantly more primary originations in addition to secondary market purchases
2. 88We may be subject to additional risks if we invest in foreign securities
3. 89Hedging using derivatives may impact investment performance
4. 90Our ability to enter into transactions involving derivatives and unfunded commitment transactions may be limited
5. 91Valuing OTC derivatives may be less certain than actively traded financial instruments
6. 92Our rights under an OTC derivative may be restricted by regulations
7. 93The use of OTC derivatives may expose us to early termination risk, which could result in significant losses

RISKS RELATING TO OUR SECURITIES

1. 94The market price of our common stock may fluctuate significantly
2. 95Investing in our common stock may involve an above average degree of risk
3. 96Certain provisions of our certificate of incorporation and bylaws, as well as aspects of the Delaware General Corporation Law, could deter takeover attempts and have an adverse impact on the price of our common stock
4. 97Shares of our common stock have traded at a discount from net asset value and may do so in the future
5. 98You may not receive distributions or our distributions may decline or may not grow over time
6. 99We will have broad discretion over the use of proceeds of any offering made pursuant to our prospectus
7. 100Your interest in NMFC may be diluted if you do not fully exercise your subscription rights in any rights offering
8. 101If we issue preferred stock, the net asset value and market value of our common stock will likely become more volatile
9. 102Holders of any preferred stock we might issue would have the right to elect members of our board of directors and class voting rights on certain matters