Saratoga Investment Corp. Announces Fiscal First Quarter 2021 Financial Results and Declares $0.40 Per Share Quarterly Dividend for the Quarter Ending May 31, 2020

NEW YORK, July 08, 2020 (GLOBE NEWSWIRE) -- Saratoga Investment Corp. (NYSE:SAR) (“Saratoga Investment” or “the Company”), a business development company (“BDC”), today announced financial results for its 2021 fiscal first quarter.

Summary Financial Information

The Company’s summarized financial information is as follows:

 

 
For the quarter
ended and as of
May 31, 2020
For the quarter
ended and as of
February 29, 2020
For the quarter
ended and as of
May 31, 2019
 ($ in thousands except per share) 
AUM482,947 485,632 409,451 
NAV281,631 304,287 186,784 
NAV per share25.11 27.13 24.06 
Investment Income13,297 17,613 12,751 
Net Investment Income per share0.80 0.01 0.48 
Adjusted Net Investment Income per share0.51 0.61 0.60 
Earnings per share(2.02)2.39 0.99 
Dividends per share (declared)0.40 0.00 0.55 
Return on Equity – last twelve months9.9%23.6%11.7%
  – annualized quarter(30.9)%36.5%16.6%
Originations38,999 43,971 27,369 
Repayments9,350 70,100 26,917 
    
    

“Coming off one of the most challenging quarters in our experience, we believe Saratoga is in a strong position to weather the increased economic challenges presented by COVID-19,” said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. “We believe our performance for the fiscal first quarter 2021 reflected the market’s economic difficulties, particularly widening spreads, and importantly the underlying strength of our financial position and ability to withstand the early stages of this crisis. Our quarterly metrics include LTM return on equity of 9.9%, adjusted NII per share of $0.51 per share and adjusted NII yield of 7.9%. As we look ahead to the numerous challenges that the COVID-19 pandemic presents to the economy and particularly small businesses, balance sheet strength, liquidity and NAV preservation are paramount, both for our portfolio companies and ourselves. Our current capital structure at quarter-end was strong, with $282 million of equity supporting $60 million of long-term covenant-free non-SBIC debt. Our quarter-end regulatory leverage of 569% substantially exceeds our 150% requirement. And recently, we further increased our capital and liquidity by raising a new $43.1 million public baby bond, the first BDC issuing public debt since the pandemic began. This increases our quarter-end BDC cash and our available liquidity to support our existing portfolio companies, and we also have $155 million of available SBIC II facilities which can be used to finance new opportunities. We had $9 million of committed undrawn lending commitments as of year-end.

Following our recent baby bond raise and considering the current resiliency of our portfolio, the Board of Directors decided to declare a $0.40c per share dividend for the quarter ended May 31, 2020. This dividend has been calibrated at this level relative to the most recent $0.56c per share dividend to reflect, on the one hand our relatively strong quarterly results and recently improved liquidity profile, and on the other the lack of short- and long-term visibility of portfolio company and general fundamental economic earnings levels. We will continue to reassess the amount of our dividends on at least a quarterly basis as we gain better visibility on the economy and business performance. As discussed on our May call, we have historically conservatively managed our RIC compliance obligations, such that we have no ordinary income spillover obligations and therefore substantial spillover flexibility and consequent liquidity. Payment of this dividend further preserves our spillover liquidity position.”

Michael J. Grisius, President and Chief Investment Officer, added, “Portfolio management has become a significant part of our daily life. The bar for all investments has been significantly raised in this environment. Despite the current economic volatility, we continued to bring new platform investments into the portfolio, with two investments in new companies added this quarter, in addition to the success we continue to have with follow-ons in existing borrowers with strong business models and balance sheets, totaling $39.0 million invested in the fiscal quarter. We believe the quality of our asset base remains high, with our end of May valuations reflecting quarter-end market spreads and individual COVID-19 impacts, resulting in a 6% reduction in the fair value of our overall portfolio. Our credit quality remained at a high level at quarter-end, with over 90% of credits rated in our highest category, putting our portfolio in a strong position from which to face the volatility and uncertainty ahead. With 73.4% of our investments at year-end in first lien debt and generally supported by strong enterprise values and balance sheets in industries that have historically performed well in stressed situations, we remain confident thus far in the durability of our portfolio in these uncertain times. However, we do recognize that there is still a lot of uncertainty in the economy that is impacting small businesses. We have confidence in our experienced management team, high underwriting standards and time-tested investment strategy and believe we have the resources to weather the economic challenges ahead, and that once these volatile conditions subside and uncertainty is reduced, that our team will be able to continue to steadily grow portfolio size and maintain quality over the long-term.”

Business Update:

Saratoga Investment remains focused on ensuring the safety of its employees and the employees of its portfolio companies, while also managing its ongoing business activities.  The Company continues to work collaboratively with its employees and portfolio companies to navigate the significant challenges created by the novel coronavirus (“COVID-19”) pandemic. 

Saratoga Investment continues to take the necessary steps to ensure that its personnel can effectively operate remotely, and its senior management team and staff remain fully engaged.  Thus far, the Company has not experienced any significant operational limitations, and has been capable of providing the necessary support or service that its portfolio companies have required.

Saratoga Investment has been actively engaged with its portfolio companies and continues to be pleased with the diligent and proactive actions taken by the portfolio company management teams and their ability to respond effectively to the continuing challenges in the current environment.  The Company stands ready to assist them as they manage their respective businesses.  While virtually every business has had some level of impact in the near-term, the ultimate impact of COVID-19 on any individual business remains unknown.  Notwithstanding these uncertainties, based on the information we have in hand, the Company believes that its portfolio companies are generally taking the right steps to help mitigate both the near and long-term effect of COVID-19 on their businesses.

Saratoga Investment believes that its historically conservative approaches to investing, leverage utilization and maintaining solid levels of liquidity, put it in a position of strength going into this uncertain and challenging time.  While no business can anticipate with clarity how long the displacement in the market and global economy will last, the Company believes that Saratoga Investment’s capital structure, liquidity and management experience will enable it to effectively navigate the challenges presented by COVID-19.

The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Such actions are creating disruption in global supply chains and adversely impacting a number of industries. The continued development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty and risks with respect to the underlying value of the Company’s portfolio companies, the Company’s business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, Company decisions to delay, defer and/or modify the character of dividends in order to preserve liquidity, increased costs of operations, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.

Discussion of Financial Results for the Quarter ended May 31, 2020:

As of May 31, 2020, Saratoga Investment’s assets under management (“AUM”) was $482.9 million, an increase of 17.9% from $409.5 million as of May 31, 2019, and a decrease of 0.6% from $485.6 million as of February 29, 2020. This past quarter, $39.0 million in originations was offset by $9.4m of repayments and amortizations, as well as $32.0 million unrealized depreciation reflecting the impact of changes to market spreads, EBITDA multiples and/or revised portfolio company performance on the quarter-end valuations. This reduction in fair values reflects a 6.1% impact to the overall portfolio. Saratoga Investment’s portfolio remains strong, with 73.4% of the portfolio in first liens, and a continued high level of investment quality in loan investments, with 90.4% of its loans this quarter at its highest internal rating. This quarter’s originations include two investments in new platforms, and ten follow-ons in existing portfolio companies, including drawdowns on committed facilities. Since Saratoga Investment took over the management of the BDC, $483.0 million of repayments and sales of investments originated by Saratoga Investment have generated a gross unlevered IRR of 16.7%.

For the three months ended May 31, 2020, total investment income of $13.3 million increased by $0.5 million, or 4.3%, compared to $12.8 million for the three months ended May 31, 2019. This increased investment income was generated from an investment base that has grown by 17.9% since last year. This was offset by lower interest rates, with the weighted average current coupon on non-CLO BDC investments decreasing from 10.8% to 9.5% year-over-year, and the weighted average rate on CLO interest income decreasing from 16.0% to 11.7%. In addition, this quarter’s investment income was down 24.5% on a quarter-on-quarter basis from $17.6 million for the quarter ended February 29, 2020, primarily due to the non-recurrence of both advisory fees and prepayment premiums related to the Easy Ice sale last quarter.

As compared to the three months ended May 31, 2019, in addition to the investment income increase of $0.5 million, net investment income increased further with reduced debt and financing expenses, as the sales proceeds received from recent realizations were used to repay the $74.5 million baby bond last quarter. This increase was offset by (i) increased base and incentive management fees generated from the management of this larger pool of investments, and (ii) increased total expenses, excluding interest and debt financing expenses, base management fees and incentive fees and income tax benefit, that increased from $1.3 million for the three months ended May 31, 2019, to $1.4 million for the three months ended May 31, 2020.

Net investment income on a weighted average per share basis was $0.80 for the quarter ended May 31, 2020. Adjusted for the incentive fee accrual related to net capital gains, the net investment income on a weighted average per share basis was $0.51. This compares to adjusted net investment income per share of $0.61 for the quarter ended February 29, 2020, and $0.60 for the quarter ended May 31, 2019, reflecting decreases of $0.10 per share and $0.09 per share, respectively. During these periods, weighted average common shares outstanding increased from 7.7 million shares for the three months ended May 31, 2019, to 11.2 million shares for both the three months ended February 29, 2020, and May 31, 2020.

Net investment income yield as a percentage of average net asset value (“Net Investment Income Yield”) was 12.3% for the quarter ended May 31, 2020. Adjusted for the incentive fee accrual related to net capital gains, the Net Investment Income Yield was 7.9%. In comparison, adjusted Net Investment Income Yield was 9.3% and 10.1% for the quarters ended February 29, 2020, and May 31, 2019, respectively.

Net Asset Value (“NAV”) was $281.6 million as of May 31, 2020, a decrease of $22.7 million from $304.3 million as of February 29, 2020, but an increase of $94.8 million from $186.8 million as of May 31, 2019.

  • For the three months ended May 31, 2020, $9.0 million of net investment income and $0.3 million deferred tax benefit on net unrealized depreciation were earned, partially offset by $32.0 million of net unrealized depreciation on investments. There were no distributions to shareholders during the quarter and no activity related to the Company’s At-the-Market (“ATM”) equity offering or share repurchase plan.

NAV per share was $25.11 as of May 31, 2020, compared to $27.13 as of February 29, 2020, and $24.06 as of May 31, 2019.

  • For the three months ended May 31, 2020, NAV per share decreased by $2.02 per share, reflecting the $31.7 million, or $2.82 net realized and unrealized loss on investments, offset by the $9.0 million, or $0.80 net investment income.

Return on equity for the last twelve months ended May 31, 2020, was 9.9%, compared to 11.7% for the comparable period last year.

Earnings per share for the quarter ended May 31, 2020, was ($2.02), compared to earnings per share of $2.39 for the quarter ended February 29, 2020, and $0.99 for the quarter ended May 31, 2019.

Investment portfolio activity for the quarter ended May 31, 2020:

  • Cost of investments made during the period: $39.0 million, including investments in two new portfolio companies.
  • Principal repayments during the period: $9.4 million.

Additional Financial Information

For the fiscal quarter ended May 31, 2020, Saratoga Investment reported net investment income of $9.0 million, or $0.80 on a weighted average per share basis, and a net realized and unrealized loss on investments of $31.7 million, or $2.82 on a weighted average per share basis, resulting in a net decrease in net assets from operations of $22.7 million, or $2.02 on a weighted average per share basis. The $31.7 million net loss on investments was comprised of $32.0 million in net unrealized depreciation on investments, offset by $0.3 million of net change in provision for deferred taxes on unrealized depreciation on investments. The $32.0 million unrealized depreciation reflects a 6.1% reduction in the total value of the portfolio, primarily related to the impact of Covid-19 that resulted in changes to market spreads, EBITDA multiples and/or revised portfolio company performance, following the events since March 2020. This is compared to the fiscal quarter ended May 31, 2019, with net investment income of $3.7 million, or $0.48 on a weighted average per share basis, and a net realized and unrealized gain on investments of $4.0 million, or $0.51 on a weighted average per share basis, resulting in a net increase in net assets from operations of $7.6 million, or $0.99 on a weighted average per share basis. The $4.0 million net gain on investments consisted of $4.0 million in net unrealized appreciation, offset by $0.02 million in net deferred tax expense on unrealized gains in Saratoga Investment’s blocker subsidiaries.

Adjusted for the incentive fee accrual related to net capital gains, the net investment income was $5.8 million and $4.6 million for the quarters ended May 31, 2020, and May 31, 2019, respectively – an increase of $1.1 million year-over-year, or 24.5%.

Total expenses, excluding interest and debt financing expenses, base management fees and incentive management fees, increased from $1.3 million for the quarter ended May 31, 2019, to $1.4 million for the quarter ended May 31, 2020, but remained unchanged at 1.1% of average total assets.

Portfolio and Investment Activity

As of May 31, 2020, the fair value of Saratoga Investment’s portfolio was $482.9 million (excluding $25.8 million in cash and cash equivalents), principally invested in 36 portfolio companies and one collateralized loan obligation fund (“CLO”). The overall portfolio composition consisted of 73.4% of first lien term loans, 14.4% of second lien term loans, 1.2% of unsecured term loans, 5.6% of subordinated notes in a CLO and 5.4% of common equity.

For the fiscal quarter ended May 31, 2020, Saratoga Investment invested $39.0 million in two new and ten existing portfolio companies and had $9.4 million in aggregate amount of exits and repayments, resulting in net investments of $29.6 million for the quarter. 

As of May 31, 2020, the weighted average current yield on Saratoga Investment’s portfolio based on fair values for the twelve months ended was 9.6%, which was comprised of a weighted average current yield of 9.9% on first lien term loans, 11.1% on second lien term loans, 6.7% on unsecured term loans, 11.7% on CLO subordinated notes and 0.0% on equity interests.

Liquidity and Capital Resources

As of May 31, 2020, Saratoga Investment had no outstanding borrowings under its $45 million senior secured revolving credit facility with Madison Capital Funding LLC. At the same time, Saratoga Investment had $150.0 million SBA debentures in its SBIC I license outstanding, $20.0 million in SBA debentures in its SBIC II license outstanding, $60.0 million of baby bonds (fair value of $56.5 million) issued and an aggregate of $25.8 million in cash and cash equivalents.

With $45.0 million available under the credit facility and the $25.8 million of cash and cash equivalents as of May 31, 2020, Saratoga Investment has a total of $70.8 million of undrawn borrowing capacity and cash and cash equivalents for new investments or to support its existing portfolio companies. In addition, Saratoga Investment has $155.0 million in undrawn SBA debentures from the most recently approved SBIC II license to finance new SBIC-eligible portfolio companies. It should be noted that, depending on portfolio company performance, availability under the Madison credit facility might be reduced. In addition, certain follow-on investments in SBIC I and the BDC will not qualify for SBIC II funding. As of quarter-end, Saratoga Investment had $9.1 million of committed undrawn lending commitments and $40.2 million of discretionary funding commitments.

On June 24, 2020, the Company issued $37.5 million in aggregate principal amount of 7.25% fixed-rate notes due 2025 (the “Second 2025 Notes”) for net proceeds of $36.3 million after deducting underwriting commissions of approximately $1.2 million. Offering costs incurred were approximately $0.2 million. The Company also granted the underwriters an option to purchase up to an additional $5.625 million in aggregate principal amount of Notes within 30 days, which they fully exercised on July 6, 2020 for additional net proceeds of $5.4 million after deducting additional underwriting commissions of approximately $0.2 million. Interest on the Second 2025 Notes is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 7.25% per year, beginning August 31, 2020. The Second 2025 Notes mature on June 30, 2025 and commencing June 24, 2022, may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering will be used for general corporate purposes in accordance with the Company’s investment objective and strategies.  The Second 2025 Notes are expected to be listed on the New York Stock Exchange and to trade thereon within 30 days of the original issue date under the trading symbol “SAK”. The Company has received an investment grade private rating of “BBB” from Egan-Jones Ratings Company, an independent, unaffiliated rating agency.

On March 16, 2017, Saratoga Investment entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc., through which Saratoga may offer for sale, from time to time, up to $30.0 million of its common stock through an ATM offering. Subsequent to this, BB&T Capital Markets and B. Riley FBR, Inc. were also added to the agreement. On July 11, 2019, the amount of common stock to be offered through this offering was increased to $70.0 million, and on October 8, 2019, the amount of common stock to be offered through this offering was further increased to $130.0 million. As of May 31, 2020, the Company sold 3,992,018 shares for gross proceeds of $97.1 million at an average price of $24.77 for aggregate net proceeds of $95.9 million (net of transaction costs). During the three months ended May 31, 2020, there was no activity related to the ATM offering.

On April 24, 2020, we entered into a fourth amendment to the Credit Facility with Madison Capital Funding LLC to, among other things:

  • Permit certain amendments related to the Paycheck Protection Program (“Permitted PPP Amendment”) to Loan Asset Documents;
  • Exclude certain debt and interest amounts allowed by the Permitted PPP Amendments from certain calculations related to Net Leverage Ratio, Interest Coverage Ratio and EBITDA; and
  • Exclude such Permitted PPP Amendments from constituting a Material Modification.

Dividend

Saratoga Investment has raised its dividend for the past five years. In light of the dramatic uncertainties currently present in the economy, and to ensure we retain liquidity to not only support our current portfolio companies during these challenged times, but to also create new, important relationships through the provision of critically crucial liquidity in new situations, Saratoga Investment’s Board of Directors (the “Board of Directors”) deferred its dividend last quarter.

Furthermore, while many BDCs have spillover obligations from prior years, representing taxable income from past obligations yet to be distributed, Saratoga Investment has historically managed its distributions conservatively so it is current with all spillover obligations, other than those related to our Easy Ice and Censis long-term net capital gains. This therefore means that Saratoga Investment is not obligated to pay current dividends related to historical earnings and enabling preservation of precious liquidity in this challenging market environment.

Following Saratoga Investment’s recent baby bond raise and the current resiliency of its portfolio, the Board of Directors declared a $0.40c per share dividend for the quarter ended May 31, 2020. This dividend has been calibrated at this level relative to the most recent $0.56c per share dividend to reflect, on the one hand our relatively strong quarterly results and recently improved liquidity profile, and on the other the lack of short- and long-term visibility of portfolio company performance and the general fundamental economic earnings levels. The Board of Directors will continue to reassess this on at least a quarterly basis as better visibility is gained on the economy and business performance. An important consideration for this decision arises from Saratoga Investment’s historically conservative management of its RIC compliance obligations, such that it has no ordinary income spillover obligations and therefore substantial spillover flexibility and consequent liquidity.

The Board of Directors declared this dividend on July 7, 2020 and is payable on August 12, 2020, to common stockholders of record on July 27, 2020. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company’s DRIP.

In fiscal year 2020, the Company declared a quarterly dividend of $0.56 per share for the quarter ended November 30, 2019, $0.56 per share for the quarter ended August 31, 2019, $0.55 per share for the quarter ended May 31, 2019, and $0.54 per share for the quarter ended February 28, 2019. Total dividends declared for the fiscal years ended February 28, 2019, and 2018, were $2.06 per share and $1.90 per share, respectively.

Share Repurchase Plan

In fiscal year 2015, the Company announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published financial statements. During fiscal year 2017, the share repurchase plan was increased to 600,000 shares of common stock, and during fiscal years 2018, 2019 and 2020, this share repurchase plan was extended for another year at the same level of approval, currently through January 15, 2021. On May 4, 2020, the Board of Directors increased the share repurchase plan to 1.3 million shares of common stock. As of May 31, 2020, the Company purchased 218,491 shares of common stock, at the average price of $16.87 for approximately $3.7 million pursuant to this repurchase plan.

Saratoga Investment made no purchases of common stock in the open market during the current fiscal year.

 
2021 Fiscal First Quarter Conference Call/Webcast Information
  
When: Thursday, July 9, 2020, 10:00 a.m. Eastern Time (ET)
  
Call: Interested parties may participate by dialing (877) 312-9208 (U.S. and Canada) or (678) 224-7872 (outside U.S. and Canada). 
  
 A replay of the call will be available from 1:00 p.m. ET on Thursday, July 9, 2020, through 1:00 p.m. ET on Thursday, July 16, 2020, by dialing (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (outside U.S. and Canada), passcode for both replay numbers: 8978338.
  
Webcast: Interested parties may access a simultaneous webcast of the call and find the Q1 2021 presentation by going to the “Events & Presentations” section of Saratoga Investment Corp.’s investor relations website, http://ir.saratogainvestmentcorp.com/events-presentations
  

About Saratoga Investment Corp.

Saratoga Investment is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses. The Company invests primarily in senior and unitranche leveraged loans and mezzanine debt, and, to a lesser extent, equity to provide financing for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives in partnership with business owners, management teams and financial sponsors. Saratoga Investment’s objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from its debt and equity investments. Saratoga Investment has elected to be regulated as a business development company under the Investment Company Act of 1940 and is externally-managed by Saratoga Investment Advisors, LLC, an SEC-registered investment advisor focusing on credit-driven strategies. Saratoga Investment owns two SBIC-licensed subsidiaries and manages a $500 million collateralized loan obligation (“CLO”) fund. It also owns 100% of the Class F-R-2, G-R-2 and subordinated notes of the CLO. The Company’s diverse funding sources, combined with a permanent capital base, enable Saratoga Investment to provide a broad range of financing solutions.

Forward Looking Statements

Statements included herein contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events or our future performance or financial condition. Forward-looking statements can be identified by the use of forward looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or negative versions of those words, other comparable words or other statements that do not relate to historical or factual matters. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including but not limited to the impact of the COVID-19 pandemic and the pandemic's impact on the U.S. and global economy, as well as those described from time to time in our filings with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which it is made. Saratoga Investment Corp. undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call, whether as a result of new information, future developments or otherwise, except as required by law.

Financials

Saratoga Investment Corp.
Consolidated Statements of Assets and Liabilities
     
     
  May 31, 2020 February 29, 2020
  (unaudited)  
ASSETS    
Investments at fair value    
Non-control/Non-affiliate investments (amortized cost of $442,916,804 and $418,006,725, respectively) $420,930,113  $420,442,928 
Affiliate investments (amortized cost of $25,998,569 and $23,998,917, respectively)  18,041,254   18,485,854 
Control investments (amortized cost of $46,649,515 and $44,293,619, respectively)  43,975,865   46,703,192 
Total investments at fair value (amortized cost of $515,564,888 and $486,299,261, respectively)  482,947,232   485,631,974 
Cash and cash equivalents  12,842,608   24,598,905 
Cash and cash equivalents, reserve accounts  12,952,393   14,851,447 
Interest receivable (net of reserve of $1,500,123 and $1,238,049, respectively)  4,308,981   4,810,456 
Management fee receivable  285,588   272,207 
Other assets  660,775   701,007 
Total assets $513,997,577  $530,865,996 
     
LIABILITIES    
Revolving credit facility $-  $- 
Deferred debt financing costs, revolving credit facility  (489,361)  (512,628)
SBA debentures payable  170,000,000   150,000,000 
Deferred debt financing costs, SBA debentures payable  (2,892,760)  (2,561,495)
2025 Notes payable  60,000,000   60,000,000 
Deferred debt financing costs, 2025 notes payable  (1,953,054)  (2,046,735)
Base management and incentive fees payable  3,552,457   15,800,097 
Deferred tax liability  1,070,678   1,347,363 
Accounts payable and accrued expenses  1,580,913   1,713,157 
Interest and debt fees payable  994,956   2,234,042 
Directors fees payable  63,000   61,500 
Due to manager  439,730   543,842 
Total liabilities  232,366,559   226,579,143 
     
     
NET ASSETS    
Common stock, par value $0.001, 100,000,000 common shares    
authorized, 11,217,545 and 11,217,545 common shares issued and outstanding, respectively  11,218   11,218 
Capital in excess of par value  289,476,991   289,476,991 
Total distributable earnings (loss)  (7,857,191)  14,798,644 
Total net assets  281,631,018   304,286,853 
Total liabilities and net assets $513,997,577  $530,865,996 
NET ASSET VALUE PER SHARE $25.11  $27.13 
     
Asset Coverage Ratio  569.4%  607.1%
         



Saratoga Investment Corp.
Consolidated Statements of Operations
(unaudited)
     
     
  For the three months ended
  May 31, 2020 May 31, 2019
INVESTMENT INCOME    
Interest from investments    
Interest income:    
Non-control/Non-affiliate investments $9,955,562  $8,527,740 
Affiliate investments  398,370   249,325 
Control investments  1,133,584   1,648,146 
Payment-in-kind interest income:    
Non-control/Non-affiliate investments  581,946   151,897 
Affiliate investments  46,223   40,150 
Control investments  34,782   985,869 
Total interest from investments  12,150,467   11,603,127 
Interest from cash and cash equivalents  11,796   51,359 
Management fee income  634,572   629,516 
Structuring and advisory fee income*  313,306   316,375 
Other income*  187,000   150,807 
Total investment income  13,297,141   12,751,184 
     
OPERATING EXPENSES    
Interest and debt financing expenses  2,563,876   3,864,576 
Base management fees  2,160,528   1,812,169 
Incentive management fees expense (benefit)  (1,858,310)  2,113,169 
Professional fees  386,888   395,126 
Administrator expenses  556,250   500,000 
Insurance  67,726   64,619 
Directors fees and expenses  60,000   60,000 
General & administrative  350,814   258,601 
Income tax expense (benefit)  (8,945)  2,136 
Total operating expenses  4,278,827   9,070,396 
NET INVESTMENT INCOME  9,018,314   3,680,788 
     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS    
Net realized gain (loss) from investments:    
Non-control/Non-affiliate investments  8,480   - 
Net realized gain (loss) from investments  8,480   - 
Net change in unrealized appreciation (depreciation) on investments:    
Non-control/Non-affiliate investments  (24,422,894)  2,393,191 
Affiliate investments  (2,444,252)  169,944 
Control investments  (5,083,223)  1,425,995 
Net change in unrealized appreciation (depreciation) on investments  (31,950,369)  3,989,130 
Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments  267,740   (20,930)
Net realized and unrealized gain (loss) on investments  (31,674,149)  3,968,200 
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(22,655,835)  $7,648,988 
     
WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE $(2.02) $0.99 
     
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED  11,217,545   7,746,187 
     
* Certain prior period amounts have been reclassified to conform to current period presentation. 
     

 

Supplemental Information Regarding Adjusted Net Investment Income, Adjusted Net Investment Income Yield and Adjusted Net Investment Income per share

On a supplemental basis, Saratoga Investment provides information relating to adjusted net investment income, adjusted net investment income yield and adjusted net investment income per share, which are non-GAAP measures. These measures are provided in addition to, but not as a substitute for, net investment income, net investment income yield and net investment income per share. Adjusted net investment income represents net investment income excluding any capital gains incentive fee expense or reversal attributable to realized and unrealized gains. The management agreement with the Company’s advisor provides that a capital gains incentive fee is determined and paid annually with respect to cumulative realized capital gains (but not unrealized capital gains) to the extent such realized capital gains exceed realized and unrealized losses for such year. In addition, Saratoga Investment accrues, but does not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate. All capital gains incentive fees are presented within net investment income within the Consolidated Statements of Operations, but the associated realized and unrealized gains and losses that these incentive fees relate to, are excluded. As such, Saratoga Investment believes that adjusted net investment income, adjusted net investment income yield and adjusted net investment income per share is a useful indicator of operations exclusive of any capital gains incentive fee expense or reversal attributable to gains. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. The following table provides a reconciliation of net investment income to adjusted net investment income, net investment income yield to adjusted net investment income yield and net investment income per share to adjusted net investment income per share for the quarters ended May 31, 2020, and May 31, 2019.

  
 For the three months ended
May 31,
  2020   2019 
    
Net Investment Income$  9,018,314  $  3,680,788 
Changes in accrued capital gains incentive fee expense/(reversal) (3,250,239)  954,007 
Adjusted net investment income 5,768,075   4,634,795 
        
Net investment income yield 12.3%  8.0%
Changes in accrued capital gains incentive fee expense/(reversal) (4.4%)  2.1%
Adjusted net investment income yield (1) 7.9%  10.1%
 

 

Net investment income per share
$0.80  $0.48 
Changes in accrued capital gains incentive fee expense/(reversal)$(0.29) $0.12 
Adjusted net investment income per share (2)$0.51  $0.60 
    
  1. Adjusted net investment income yield is calculated as adjusted net investment income divided by average net asset value.
  2. Adjusted net investment income per share is calculated as adjusted net investment income divided by weighted average common shares outstanding.

Contact: Henri Steenkamp
Saratoga Investment Corp.
212-906-7800
                                                                                                       
Roland Tomforde
Broadgate Consultants
212-232-2222

 

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