Saratoga Investment Corp. Announces Fiscal First Quarter 2019 Financial Results

NEW YORK, July 10, 2018 /PRNewswire/ — Saratoga Investment Corp. (NYSE:SAR) (“Saratoga Investment” or “the Company”), a business development company, today announced financial results for its 2019 fiscal first quarter.

Summary Financial Information

The Company’s summarized financial information is as follows:

For the quarter

ended and as of

May 31, 2018

For the quarter

ended and as of

February 28, 2018

For the quarter

ended and as of

May 31, 2017

($ in thousands except per share)

AUM

343,351

342,694

329,690

NAV

144,845

143,691

127,609

NAV per share

23.06

22.96

21.69

Investment Income

10,488

10,128

8,707

Net Investment Income per share

0.63

0.53

0.60

Adjusted Net Investment Income per share

0.64

0.60

0.50

Earnings per share

0.61

0.89

0.17

Return on Equity – last twelve months

14.9%

13.2%

7.1%

                            – annualized quarter

10.7%

15.7%

3.2%

 

“We are pleased with the strength of our first fiscal quarter of 2019 which continues to drive industry leading performance metrics across the board,” said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. “Adjusted NII per share is $0.64, thirteen cents above our current $0.51 dividend; adjusted NII Yield is 11.1%; LTM ROE is 14.9%, almost 600 basis points above the BDC industry mean; and NAV per share is $23.06, up $1.37 from the same period last year. While overall NAV increased to $144.8 million, representing a 13.5% increase over the same period last year. Last month, we increased our dividend for the fifteenth consecutive quarter, a $0.01 increase to $0.51 per share. Importantly, we continue to out-earn our dividend payments – by 18% currently based on the last twelve months earnings. In the current rising rate environment, we believe we are well-structured, with 81% of our interest earning investments having floating-rate interest rates and through their LIBOR floors, and all of our debt at quarter-end being fixed-rate.”

Michael J. Grisius, President and Chief Investment Officer, added, “This fiscal quarter has again demonstrated the important, positive impact on performance of our relentless focus on identifying and underwriting high quality credits, which we’ve been able to accomplish despite persistent market challenges. The number of portfolio investments rated in our highest category rose to 99%, and we were able to move capital from non-accrual or low-yielding investments to higher-yielding, performing credits from which we will benefit in the future. In addition, this quarter we also invested in three new portfolio companies, and subsequent to quarter-end, also closed deals in a further three new portfolio companies, bringing our total investments for the past two months to six new platforms while continuing to also grow through smaller follow-ons. By combining a robust pipeline with flexible sources of liquidity, we have been able to compensate for quarterly repayments that can be lumpy and unpredictable. We remain confident that we can continue to improve the size and quality of our AUM steadily over the long-term.”

As of May 31, 2018, Saratoga Investment increased its assets under management (“AUM”) to $343.4 million, an increase of 0.2% from $342.7 million as of February 28, 2018, and an increase of 4.1% from $329.7 million as of May 31, 2017. The increase this quarter reflects originations of $35.2 million, offset by repayments and amortizations of $36.5 million that were primarily non-accrual or lower yielding syndicated investments. Including realized and unrealized gains, Saratoga Investment’s portfolio has continued to grow this quarter and remains strong, with a continued high level of investment quality in loan investments, with 99.3% of our loans this quarter at our highest internal rating. Included in this quarter’s originations are also three investments in new portfolio companies. Since Saratoga management has taken over the management of the BDC, $296.9 million of repayments and sales of investments originated by Saratoga have generated a gross unlevered IRR of 13.4%.

For the three months ended May 31, 2018, total investment income of $10.5 million increased $1.8 million, or 20.5%, compared to $8.7 million for the three months ended May 31, 2017. This increased investment income was generated from an investment base that has grown by 4.1% since last year, with the weighted average current coupon on non-CLO investments unchanged at 11.3%, but further benefitting from an increase on interest earned on the CLO equity. In addition, this quarter’s investment income was up 3.6% on a quarter-on-quarter basis from $10.1 million for the quarter ended February 28, 2018.

As compared to the three months ended May 31, 2017, the investment income increase of $1.8 million was offset by (i) increased debt and financing expenses from higher outstanding SBA debentures this quarter for the full period, reflective of the growing investment and asset base, (ii) increased base management fees generated from the management of this larger pool of investments and (iii) increased total expenses, excluding interest and debt financing expenses, base management fees and incentive fees, reflecting primarily higher broken deal fees and administrator expenses this quarter, as well as higher professional fees due to increased Sarbanes-Oxley (“SOX”) activities now that the Company qualifies as an accelerated filer.   

Net investment income on a weighted average per share basis was $0.63 for the quarter ended May 31, 2018. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income on a weighted average per share basis was $0.64. This compares to adjusted net investment income per share of $0.60 for the quarter ended February 28, 2018 and $0.50 for the quarter ended May 31, 2017, reflecting increases of 6.7% and 28.0%, respectively.

Net investment income yield as a percentage of average net asset value (“Net Investment Income Yield”) was 10.9% for the quarter ended May 31, 2018. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 11.1%. In comparison, adjusted Net Investment Income Yield was 10.7% and 9.2% for the quarters ended February 28, 2018 and May 31, 2017, respectively.

Net Asset Value (“NAV”) was $144.8 million as of May 31, 2018, an increase of $1.1 million from $143.7 million as of February 28, 2018, and an increase of $17.2 million from $127.6 million as of May 31, 2017.

  • For the three months ended May 31, 2018, $3.9 million of net investment income, $0.2 million of net realized gains and $0.6 million of net unrealized appreciation were earned, partially offset by $0.9 million deferred tax expense on net unrealized gains in Saratoga Investment’s blocker subsidiaries and $3.1 million of dividends declared. In addition, $0.5 million of stock dividend distributions were made through the Company’s dividend reinvestment plan (“DRIP”). No shares were sold through the Company’s At-the-Market (“ATM”) equity offering during the quarter.

NAV per share was $23.06 as of May 31, 2018, compared to $22.96 as of February 28, 2018 and $21.69 as of May 31, 2017.

  • For the three months ended May 31, 2018, NAV per share increased by $0.10 per share, primarily reflecting the $0.7 million, or $0.11 per share increase in net assets (net of the $0.50 dividend paid during the first fiscal quarter of 2019). This was slightly offset by the $0.01 dilutive impact of the quarter’s share issuances from the 25,435 shares issued under the DRIP. The Company made no purchases of common stock in the open market during the quarter.

Return on equity for the last twelve months ended May 31, 2018 was 14.9%, compared to 7.1% for the comparable period last year.

Earnings per share for the quarter ended May 31, 2018 was $0.61, compared to earnings per share of $0.89 for the quarter ended February 28, 2018 and $0.17 for the quarter ended on May 31, 2017.

Investment portfolio activity for the quarter ended May 31, 2018:

  • Cost of investments made during the period: $35.2 million, including investments in three new portfolio companies
  • Principal repayments during the period: $36.5 million

Additional Financial Information

For the fiscal quarter ended May 31, 2018, Saratoga Investment reported net investment income of $3.8 million, or $0.63 on a weighted average per share basis, and a net realized and unrealized loss on investments of $0.1 million, or $0.01 on a weighted average per share basis, resulting in a net increase in net assets from operations of $3.8 million, or $0.61 on a weighted average per share basis. The $0.1 million net loss on investments was comprised of $0.2 million in net realized gain on investments and $0.6 million in net unrealized appreciation on investments, offset by $0.9 million of net deferred tax expense on unrealized gains in Saratoga Investment’s blocker subsidiaries. The $0.6 million unrealized appreciation is primarily due to $0.8 million unrealized appreciation on Saratoga Investment’s Easy Ice investment. This compared to the fiscal quarter ended May 31, 2017 with net investment income of $3.5 million, or $0.60 on a weighted average per share basis, and a net realized and unrealized loss on investments of $2.5 million, or $0.42 on a weighted average per share basis, resulting in a net increase in net assets from operations of $1.0 million, or $0.17 on a weighted average per share basis. The $2.5 million net loss on investments consisted of $0.1 million in net realized gains on investments offset by $2.6 million in unrealized depreciation.

Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $4.0 million and $2.9 million for the quarters ended May 31, 2018 and May 31, 2017, respectively – an increase of $1.1 million year-over-year, or 35.9%.

Total expenses, excluding interest and debt financing expenses, base management fees and incentive management fees, increased from $1.1 million for the quarter ended May 31, 2017 to $1.2 million for the quarter ended May 31, 2018, remaining unchanged at 1.4% of average total assets.

Portfolio and Investment Activity

As of May 31, 2018, the fair value of Saratoga Investment’s portfolio was $343.4 million (excluding $13.7 million in cash and cash equivalents), principally invested in 32 portfolio companies and one collateralized loan obligation fund (“CLO”). The overall portfolio composition consisted of 57.0% of first lien term loans, 28.3% of second lien term loans, 0.6% of unsecured term loans, 4.8% of subordinated notes in a CLO, and 9.3% of common equity.

For the fiscal quarter ended May 31, 2018, Saratoga Investment invested $35.2 million in new or existing portfolio companies and had $36.5 million in aggregate amount of exits and repayments, resulting in net divestment of $1.3 million for the quarter. 

As of May 31, 2018, the weighted average current yield on Saratoga Investment’s portfolio for the twelve months ended was 11.3%, which was comprised of a weighted average current yield of 11.3% on first lien term loans, 11.9% on second lien term loans, 8.2% on unsecured term loans, 23.2% on CLO subordinated notes, and 3.4% on equity interests.

As of May 31, 2018, 80.6% of Saratoga Investment’s interest earning portfolio is in floating rate debt, with many of these investments having floors. For all of these investments, the relevant 1-month or 3-month LIBOR rate is currently above the floors. Pursuant to the disclosure included in Item 3 of Saratoga Investment’s Form 10-Q for the quarter ended May 31, 2018, assuming that the investments as of May 31, 2018 were to remain constant for a full fiscal year and no actions were taken to alter the existing interest rate terms, a hypothetical change of 1.0% in interest rates would cause a corresponding increase of approximately $2.5 million to interest income over twelve months.

Liquidity and Capital Resources

As of May 31, 2018, 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 $137.7 million SBA debentures outstanding, $74.5 million of baby bonds (fair value of $77.0 million) issued and an aggregate of $13.7 million in cash and cash equivalents.

With $45.0 million available under the credit facility and the $12.3 million additional borrowing capacity at the SBIC subsidiary, as well as the $13.7 million of cash and cash equivalents, Saratoga Investment has a total of $71.0 million of undrawn borrowing capacity and cash and cash equivalents available as of May 31, 2018. The proceeds from the DRIP program totaled $0.5 million of equity investments in the first fiscal quarter of 2019. Saratoga Investment also has the ability to issue additional equity or baby bonds through the existing shelf registration statement.

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. As of May 31, 2018, the Company sold 348,123 shares for gross proceeds of $7.8 million at an average price of $22.52 for aggregate net proceeds of $7.8 million (net of transaction costs).

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 year 2018, this share repurchase plan was extended for another year, through October 2018, at the same level of approval. As of May 31, 2018, Saratoga purchased 218,491 shares of common stock, at the average price of $16.84 for approximately $3.7 million pursuant to this repurchase plan.

Dividend

On May 30, 2018, Saratoga Investment announced a dividend of $0.51 per share for the fiscal quarter ended May 31, 2018, payable on June 27, 2018, to all stockholders of record at the close of business on June 15, 2018. In addition, on February 26, 2018, Saratoga Investment announced a dividend of $0.50 per share for the fiscal quarter ended February 28, 2018, paid on March 26, 2018 to all stockholders of record at the close of business on March 14, 2018.

During fiscal year 2018, Saratoga Investment declared and paid dividends of $1.90 per share, composed of $0.46 for the quarter ended February 28, 2017, $0.47 per share for the quarter ended May 31, 2017, $0.48 per share for the quarter ended August 31, 2017, and $0.49 per share for the quarter ended November 30, 2017.

Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP.

2019 Fiscal First Quarter Conference Call/Webcast Information

When:

Wednesday, July 11, 2018, 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 Wednesday, July 11, 2018 through 1:00 p.m. ET on Wednesday, July 18, 2018 by dialing (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (outside U.S. and Canada), passcode for both replay numbers: 6957307.

Webcast:

Interested parties may access a simultaneous webcast of the call and find the Q1 2019 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 Corp. 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, 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 Corp.’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 Corp. has elected to be regulated as a business development company (“BDC”) 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 Corp. owns an SBIC-licensed subsidiary and manages a $300 million Collateralized Loan Obligation (CLO) fund.  It also owns 100% of the subordinated notes of the CLO.  These diverse funding sources, combined with a permanent capital base, enable Saratoga Investment Corp. to provide a broad range of financing solutions.

Forward Looking Statements

This press release contains certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties and other factors enumerated in this press release and the filings Saratoga Investment Corp. makes with the SEC.  Saratoga Investment Corp. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Financials

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 As of  

May 31, 2018

February 28, 2018

 (unaudited) 

ASSETS

Investments at fair value

Non-control/Non-affiliate investments (amortized cost of $280,991,102 and $281,534,277, respectively)

$       285,822,252

$           286,061,722

Affiliate investments (amortized cost of $18,395,802 and $18,358,611, respectively)

11,722,193

12,160,564

Control investments (amortized cost of $40,317,247 and $39,797,229, respectively)

45,806,847

44,471,767

Total investments at fair value (amortized cost of $339,704,151 and $339,690,117, respectively)

343,351,292

342,694,053

Cash and cash equivalents

3,313,448

3,927,579

Cash and cash equivalents, reserve accounts

10,417,363

9,849,912

Interest receivable (net of reserve of $235,419 and $1,768,021, respectively)

3,780,769

3,047,125

Management and incentive fee receivable

183,925

233,024

Other assets

544,337

584,668

Deferred tax asset

267,310

Receivable from unsettled trades

159,271

Total assets

$       362,017,715

$           360,336,361

LIABILITIES

Revolving credit facility

$                          –

$                             –

Deferred debt financing costs, revolving credit facility

(674,230)

(697,497)

SBA debentures payable

137,660,000

137,660,000

Deferred debt financing costs, SBA debentures payable

(2,479,788)

(2,611,120)

Notes payable

74,450,500

74,450,500

Deferred debt financing costs, notes payable

(2,216,368)

(2,316,370)

Base management and incentive fees payable

5,950,723

5,776,944

Deferred tax liability

940,546

Accounts payable and accrued expenses

1,059,495

924,312

Interest and debt fees payable

1,967,630

3,004,354

Directors fees payable

86,500

43,500

Due to manager

427,960

410,371

Total liabilities

$       217,172,968

$           216,644,994

Commitments and contingencies

NET ASSETS

Common stock, par value $.001, 100,000,000 common shares

authorized, 6,282,384 and 6,257,029 common shares issued and outstanding, respectively

$                  6,282

$                      6,257

Capital in excess of par value

189,480,443

188,975,590

Distribution in excess of net investment income

(27,128,708)

(27,862,543)

Accumulated net realized loss 

(20,219,865)

(20,431,873)

Net unrealized appreciation on investments, net of deferred taxes

2,706,595

3,003,936

Total net assets

144,844,747

143,691,367

Total liabilities and net assets

$       362,017,715

$           360,336,361

NET ASSET VALUE PER SHARE

$                  23.06

$                      22.96

Asset Coverage Ratio

294.6%

293.0%

 

Saratoga Investment Corp.

Consolidated Statements of Operations

(unaudited)

For the three months ended

May 31, 2018

May 31, 2017

INVESTMENT INCOME

Interest from investments

Interest income:

     Non-control/Non-affiliate investments

$           7,405,909

$           5,700,878

     Affiliate investments

239,350

219,555

     Control investments

1,146,665

1,335,386

Payment-in-kind interest income:

     Non-control/Non-affiliate investments

216,010

223,273

     Affiliate investments

34,147

     Control investments

564,857

262,109

 Total interest from investments

9,606,938

7,741,201

Interest from cash and cash equivalents

16,293

7,081

Management fee income

385,194

375,681

Incentive fee income

199,183

105,295

Other income

280,410

478,190

Total investment income

10,488,018

8,707,448

OPERATING EXPENSES

Interest and debt financing expenses

2,722,792

2,523,606

Base management fees

1,532,468

1,391,027

Professional fees

542,797

384,331

Administrator expenses

437,500

375,000

Incentive management fees

1,072,612

176,096

Insurance

63,859

66,165

Directors fees and expenses

95,500

51,000

General & administrative

80,540

197,243

Excise tax credit

(270)

Other expense

12,572

38,531

Total operating expenses

6,560,370

5,202,999

NET INVESTMENT INCOME

3,927,648

3,504,449

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

Net realized gain from investments:

Non-control/Non-affiliate investments

212,008

95,589

    Net realized gain from investments

212,008

95,589

Net change in unrealized appreciation (depreciation) on investments:

Non-control/Non-affiliate investments

303,705

(4,104,566)

Affiliate investments

(475,562)

67,333

Control investments

815,062

1,451,282

    Net change in unrealized appreciation (depreciation) on investments

643,205

(2,585,951)

Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments

(940,546)

Net realized and unrealized loss on investments

(85,333)

(2,490,362)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$           3,842,315

$           1,014,087

WEIGHTED AVERAGE – BASIC AND DILUTED EARNINGS PER COMMON SHARE

$                    0.61

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