Item 1. Business.
NMF SLF I, Inc. (the "Company","we", "us" or "our") was formed on January 23, 2019 as a corporation under the laws of the State of Maryland under our former name NMF Senior Loan Fund I, Inc. In January 2020, we changed our name to NMF SLF I, Inc. We are a non-diversified management investment company that, in January 2020, elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). With the filing of our tax return for the year ended December 31, 2020, we have elected to be treated, and intend to comply with the requirements to continue to qualify annually, as a regulated investment company ("RIC") for U.S. federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
NMF SLF I SPV, L.L.C. ("SLF I SPV"), our wholly-owned direct subsidiary, was formed on December 9, 2020 in Delaware as a limited liability company whose assets are used to secure SLF I SPV's credit facility. NMF SLF I Opportunistic SPV, L.L.C., our wholly-owned direct subsidiary, was formed on October 6, 2022 in Delaware as a limited liability company.
During any time that our underlying assets are considered for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and Section 4975 of the Code, to be assets of employee benefit plans and other plans that purchase our shares, our investments and the activities of our investment adviser will be subject to and, in certain cases, limited by, such laws. Accordingly, all investors should carefully read "— ERISA Considerations" in this Annual Report on Form 10-K.
New Mountain Finance Advisers BDC, L.L.C.
New Mountain Finance Advisers BDC, L.L.C. (the "Investment Adviser") is a wholly-owned subsidiary of New Mountain Capital Group, L.P. (together with New Mountain Capital L.L.C. and its affiliates, "New Mountain Capital") whose ultimate owners include Steven B. Klinsky, other current and former New Mountain Capital professionals and related vehicles and a minority investor. New Mountain Capital is a global investment firm with approximately $50 billion of assets under management and a track record of investing in the middle market. New Mountain Capital focuses on investing in defensive growth companies across its private equity, credit and net lease investment strategies. The Investment Adviser manages our day-to-day operations and provides us with investment advisory and management services. In particular, the Investment Adviser is responsible for identifying attractive investment opportunities, conducting research and due diligence on prospective investments, structuring our investments and monitoring and servicing our investments. The Investment Adviser is managed by a six member investment committee (the "Investment Committee"), which is responsible for approving purchases and sales of our investments above $6.5 million in the aggregate by a single issuer. For additional information on the Investment Committee, see "Investment Committee".
New Mountain Finance Administration, L.L.C.
New Mountain Finance Administration, L.L.C. (the "Administrator"), a wholly-owned subsidiary of New Mountain Capital, provides the administrative services necessary to conduct our day-to-day operations. The Administrator also maintains, or oversees the maintenance of, our consolidated financial records, our reports to stockholders and reports filed with the U.S. Securities and Exchange Commission ("SEC"). The Administrator performs the calculation and publication of the value of our net assets, the payment of our expenses and oversees the performance of various third-party service providers and the preparation and filing of our tax returns. The Administrator may also provide, on our behalf, significant managerial assistance to our portfolio companies.
Because (i) "benefit plan investors", as defined in Section 3(42) of ERISA, and any regulations promulgated thereunder ("Benefit Plan Investors"), hold 25% or more of our outstanding shares, and (ii) our shares are not listed on a national securities exchange, an unaffiliated third-party (the "Sub-Administrator") has been engaged to independently value our investments, in consultation with the Investment Adviser. In accordance with the 1940 Act, the fair value of our investments is ultimately determined by the board of directors (the "Board"). In addition, our Administrator is not entitled to reimbursement for our allocable portion of the compensation of, or other expenses pertaining to, any personnel employed by the Administrator or any of its affiliates that may perform services for us, including our chief financial officer, chief compliance officer and their respective staffs. The Administrator is also not entitled to reimbursement for our allocable portion of its overhead expenses. In the event (i) Benefit Plan Investors do not hold 25% or more of our outstanding shares, or (ii) our shares are listed on a national securities exchange, we will reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to us, including the compensation of our chief financial officer and chief compliance officer, and their respective staffs.
Competition
We compete for investments with a number of BDCs and investment funds (including private equity and hedge funds), as well as traditional financial services companies such as commercial banks and other sources of financing. Many of these entities have greater financial and managerial resources than we do. We believe we are able to compete with these entities
primarily on the basis of the experience and contacts of our management team, our responsive and efficient investment analysis and decision-making processes, the investment terms we offer, the model that we employ to perform our due diligence with the broader New Mountain Capital team and our model of investing in companies and industries we know well.
We believe that some of our competitors may make investments with interest rates and returns that are comparable to or lower than the rates and returns that we target. Therefore, we do not seek to compete solely on the interest rates and returns that we offer to potential portfolio companies. For additional information concerning the competitive risks we face, see Item 1A.—Risk Factors in this Annual Report on Form 10-K.
Investment Objective and Portfolio
We are focused on providing direct lending solutions to U.S. upper middle market companies backed by top private equity sponsors. Our investment objective is to generate current income and capital appreciation through the sourcing and origination of senior secured loans and select junior capital positions, to growing businesses in defensive industries that offer attractive risk-adjusted returns. Our differentiated investment approach leverages the deep sector knowledge and operating resources of New Mountain Capital.
We primarily invest in senior secured debt of U.S. sponsor-backed, middle market companies. We define middle market companies as those businesses with annual earnings before interest, taxes, depreciation, and amortization ("EBITDA") between $10.0 million and $200.0 million. We focus on defensive growth businesses that generally exhibit the following characteristics: (i) acyclicality, (ii) sustainable secular growth drivers, (iii) niche market dominance and high barriers to competitive entry, (iv) recurring revenue and strong free cash flow, (v) flexible cost structures and (vi) seasoned management teams.
Senior secured loans may include traditional first lien loans or unitranche loans. We invest a significant portion of its portfolio in unitranche loans, which are loans that combine both senior and subordinated debt, generally in a first-lien position. Because unitranche loans combine characteristics of senior and subordinated debt, they have risks similar to the risks associated with secured debt and subordinated debt. Certain unitranche loan investments may include “last-out” positions, which generally heighten the risk of loss.
As of December 31, 2023, our top five industry concentrations were software, business services, healthcare, financial services and consumer services. At December 31, 2023, our portfolio consisted of 110 portfolio companies and was invested 95.4% in first lien loans, 4.5% in second lien loans, 0.1% in subordinated debt, and less than 0.1% in equity and other, as measured at fair value versus 95 portfolio companies invested 95.0% in first lien loans, 4.9% in second lien loans, 0.1% in subordinated debt, and 0.0% in equity and other, as measured at fair value at December 31, 2022.
The fair value of our investments, as determined in good faith by our board of directors (the "Board"), was approximately $1,320.4 million at December 31, 2023 and approximately $1,173.4 million at December 31, 2022.
The following table shows our portfolio and investment activity for the years ended December 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in millions) | | 2023 | | 2022 |
| New investments in 58 and 60 portfolio companies, respectively | | $ | 230.9 | | | $ | 310.4 | |
| Debt repayments in existing portfolio companies | | (62.3) | | | (141.1) | |
| Sales of securities in 12 and 9 portfolio companies, respectively | | (48.2) | | | (53.8) | |
| Change in unrealized appreciation on 84 and 17 portfolio companies, respectively | | 23.3 | | | 1.0 | |
| Change in unrealized depreciation on 30 and 90 portfolio companies, respectively | | (6.5) | | | (28.0) | |
The following summarizes our ten largest portfolio company investments and the top ten industries in which we were invested as of December 31, 2023, calculated as a percentage of fair value as of December 31, 2023:
| | | | | | | | | | | | |
| | December 31, 2023 | | | | |
| Portfolio Company | | Percent of Total Investments at Fair Value | | | | |
| Wealth Enhancement Group, LLC | | 2.4 | % | | | | |
| Affinipay Midco, LLC | | 2.3 | % | | | | |
| GS Acquisitionco, Inc. | | 2.3 | % | | | | |
| Pye-Barker Fire & Safety, LLC | | 2.3 | % | | | | |
| Associations, Inc. | | 2.2 | % | | | | |
| Higginbotham Insurance Agency, Inc. | | 2.1 | % | | | | |
| Zone Climate Services, Inc. | | 2.1 | % | | | | |
| Syndigo LLC | | 2.1 | % | | | | |
| iCIMS, Inc. | | 2.0 | % | | | | |
| Allworth Financial Group, L.P. | | 1.9 | % | | | | |
| Total | | 21.7 | % | | | | |
| | | | | | | | |
| | | December 31, 2023 |
| Industry Type | | Percent of Total
Investments at Fair Value |
| Software | | 40.5 | % |
| Business Services | | 22.9 | % |
| Healthcare | | 15.5 | % |
| Financial Services | | 7.5 | % |
| Consumer Services | | 3.9 | % |
| Education | | 2.6 | % |
| Distribution & Logistics | | 1.7 | % |
| Consumer Products | | 1.6 | % |
| Packaging | | 1.3 | % |
| Food & Beverage | | 1.1 | % |
| Specialty Chemicals & Materials | | 0.9 | % |
| Business Products | | 0.5 | % |
| Total | | 100.0 | % |