Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

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

For the Quarterly Period Ended May 31, 2018

 

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

Commission File No. 001-33376

 

 

SARATOGA INVESTMENT CORP.

(Exact name of Registrant as specified in its charter)

 

 

 

Maryland   20-8700615

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

535 Madison Avenue

New York, New York

  10022
(Address of principal executive offices)   (Zip Code)

(212) 906-7800

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if changed Since Last Report)

 

 

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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  ☒    No  ☐

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).    Yes  ☐    No  ☐

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

 

Large Accelerated Filer      Accelerated Filer  
Non-Accelerated Filer      Smaller Reporting Company  
     Emerging Growth Company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

The number of outstanding common shares of the registrant as of July 10, 2018 was 6,303,947.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

 

 

         Page  

PART I.

  FINANCIAL INFORMATION      3  
Item 1.   Consolidated Financial Statements      3  
  Consolidated Statements of Assets and Liabilities as of May 31, 2018 (unaudited) and February 28, 2018      3  
  Consolidated Statements of Operations for the three months ended May 31, 2018 (unaudited) and May 31, 2017 (unaudited)      4  
  Consolidated Schedules of Investments as of May 31, 2018 (unaudited) and February 28, 2018      5  
  Consolidated Statements of Changes in Net Assets for the three months ended May 31, 2018 (unaudited) and May 31, 2017 (unaudited)      7  
  Consolidated Statements of Cash Flows for the three months ended May 31, 2018 (unaudited) and May 31, 2017 (unaudited)      8  
  Notes to Consolidated Financial Statements as of May 31, 2018 (unaudited)      9  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      35  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      58  
Item 4.   Controls and Procedures      59  
PART II.   OTHER INFORMATION      60  
Item 1.   Legal Proceedings      60  
Item 1A.   Risk Factors      60  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      60  
Item 3.   Defaults Upon Senior Securities      60  
Item 4.   Mine Safety Disclosures      60  
Item 5.   Other Information      60  
Item 6.   Exhibits      61  
Signatures      63  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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 (See Note 7)

    

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  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

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     $ 0.17  

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED

     6,275,494       5,861,654  

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

May 31, 2018

(unaudited)

 

Company

   Industry   

Investment Interest Rate/

Maturity

   Original
Acquisition
Date
     Principal/
Number of
Shares
     Cost      Fair Value (c)      % of
Net Assets
 

Non-control/Non-affiliate investments - 197.3% (b)

 

           

Tile Redi Holdings, LLC (d)

   Building Products   

First Lien Term Loan

(3M USD LIBOR+10.00%), 12.32% Cash, 6/16/2022

     6/16/2017      $ 15,000,000      $ 14,872,035      $ 14,850,000        10.3
              

 

 

    

 

 

    

 

 

 
      Total Building Products            14,872,035        14,850,000        10.3
              

 

 

    

 

 

    

 

 

 

Apex Holdings Software Technologies, LLC

   Business Services   

First Lien Term Loan

(3M USD LIBOR+8.00%), 10.32% Cash, 9/21/2021

     9/21/2016      $ 18,000,000        17,887,616        18,000,000        12.4

Avionte Holdings, LLC (h)

   Business Services    Common Stock      1/8/2014        100,000        100,000        583,984        0.4

CLEO Communications Holding, LLC

   Business Services   

First Lien Term Loan

(3M USD LIBOR+8.00%), 10.32% Cash/2.00% PIK, 3/31/2022

     3/31/2017      $ 13,288,184        13,184,977        13,288,184        9.2

CLEO Communications Holding, LLC

   Business Services   

Delayed Draw Term Loan

(3M USD LIBOR+8.00%), 10.32% Cash/2.00% PIK, 3/31/2022

     3/31/2017      $ 5,037,221        4,991,562        5,037,221        3.5

Destiny Solutions Inc. (a), (d)

   Business Services   

First Lien Term Loan

(3M USD LIBOR+7.00%), 9.50% Cash, 11/16/2023

     5/16/2018      $ 8,500,000        8,415,086        8,415,000        5.8

Destiny Solutions Inc. (a), (k)

   Business Services   

Delayed Draw First Lien Term Loan

(3M USD LIBOR+7.00%), 9.50% Cash, 11/16/2023

     5/16/2018      $ —          —          —          0.0

Destiny Solutions Inc. (a), (h), (i)

   Business Services    Limited Partner Interests      5/16/2018        999,000        999,000        999,000        0.7

Emily Street Enterprises, L.L.C.

   Business Services   

Senior Secured Note

(3M USD LIBOR+8.50%), 10.82% Cash, 1/23/2020

     12/28/2012      $ 3,300,000        3,298,617        3,313,860        2.3

Emily Street Enterprises, L.L.C. (h)

   Business Services   

Warrant Membership Interests

Expires 12/28/2022

     12/28/2012        49,318        400,000        416,243        0.3

Erwin, Inc.

   Business Services   

Second Lien Term Loan

(3M USD LIBOR+11.50%), 13.82% Cash/1.00% PIK, 8/28/2021

     2/29/2016      $ 13,278,121        13,191,101        13,278,121        9.2

FMG Suite Holdings, LLC

   Business Services   

Second Lien Term Loan

(1M USD LIBOR+8.00%), 10.00% Cash, 11/16/2023

     5/16/2018      $ 15,000,000        14,887,500        14,887,500        10.3

FranConnect LLC (d)

   Business Services   

First Lien Term Loan

(3M USD LIBOR+7.00%), 9.32% Cash, 5/26/2022

     5/26/2017      $ 14,500,000        14,437,858        14,450,700        10.0

Identity Automation Systems (h)

   Business Services    Common Stock Class A Units      8/25/2014        232,616        232,616        680,653        0.5

Identity Automation Systems

   Business Services   

First Lien Term Loan

(3M USD LIBOR+9.50%), 11.82% Cash, 3/31/2021

     8/25/2014      $ 17,925,000        17,839,816        17,925,000        12.4

Knowland Technology Holdings, L.L.C.

   Business Services   

First Lien Term Loan

(3M USD LIBOR+7.75%), 10.07% Cash, 7/20/2021

     11/29/2012      $ 22,288,730        22,217,338        22,342,223        15.4

Microsystems Company

   Business Services   

Second Lien Term Loan

(3M USD LIBOR+8.25%), 10.57% Cash, 7/1/2022

     7/1/2016      $ 18,000,000        17,867,260        18,180,000        12.5

National Waste Partners (d)

   Business Services   

Second Lien Term Loan

10.00% Cash, 2/13/2022

     2/13/2017      $ 9,000,000        8,929,632        9,000,000        6.2

Omatic Software, LLC

   Business Services   

First Lien Term Loan

(3M USD LIBOR+8.00%), 10.32% Cash, 5/29/2023

     5/29/2018      $ 5,500,000        5,445,066        5,445,000        3.7

Omatic Software, LLC (k)

   Business Services   

Delayed Draw Term Loan

(3M USD LIBOR+8.00%), 10.32% Cash, 5/29/2023

     5/29/2018      $ —          —          —          0.0

Vector Controls Holding Co., LLC (d)

   Business Services   

First Lien Term Loan

13.75% (12.00% Cash/1.75% PIK), 3/6/2022

     3/6/2013      $ 10,988,071        10,986,237        10,988,071        7.6

Vector Controls Holding Co., LLC (h)

   Business Services    Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027      5/31/2015        343        —          1,070,979        0.7
              

 

 

    

 

 

    

 

 

 
      Total Business Services            175,311,282        178,301,739        123.1
              

 

 

    

 

 

    

 

 

 

Targus Holdings, Inc. (h)

   Consumer Products    Common Stock      12/31/2009        210,456        1,791,242        531,409        0.4
              

 

 

    

 

 

    

 

 

 
      Total Consumer Products            1,791,242        531,409        0.4
              

 

 

    

 

 

    

 

 

 

My Alarm Center, LLC

   Consumer Services    Preferred Equity Class A Units 8.00% PIK      7/14/2017        2,227        2,357,879        2,309,523        1.6

My Alarm Center, LLC (h)

   Consumer Services    Preferred Equity Class B Units      7/14/2017        1,797        1,796,880        1,197,980        0.8

My Alarm Center, LLC (h)

   Consumer Services    Common Stock      7/14/2017        96,224        —          —          0.0
              

 

 

    

 

 

    

 

 

 
      Total Consumer Services            4,154,759        3,507,503        2.4
              

 

 

    

 

 

    

 

 

 

C2 Educational Systems (d)

   Education   

First Lien Term Loan

(3M USD LIBOR+8.50%), 10.82% Cash, 5/31/2020

     5/31/2017      $ 16,000,000        15,888,816        16,000,000        11.0

M/C Acquisition Corp., L.L.C. (h)

   Education    Class A Common Stock      6/22/2009        544,761        30,241        —          0.0

M/C Acquisition Corp., L.L.C. (h), (l)

   Education   

First Lien Term Loan

1.00% Cash, 3/31/2018

     8/10/2004      $ 2,318,121        1,190,838        8,058        0.0

Texas Teachers of Tomorrow, LLC (h), (i)

   Education    Common Stock      12/2/2015        750,000        750,000        772,403        0.5

Texas Teachers of Tomorrow, LLC

   Education   

Second Lien Term Loan

(3M USD LIBOR+9.75%), 12.07% Cash, 6/2/2021

     12/2/2015      $ 10,000,000        9,938,797        10,000,000        6.9
              

 

 

    

 

 

    

 

 

 
      Total Education            27,798,692        26,780,461        18.4
              

 

 

    

 

 

    

 

 

 

TMAC Acquisition Co., LLC (h), (l)

   Food and Beverage   

Unsecured Term Loan

8.00% PIK, 9/01/2023

     3/1/2018      $ 2,216,427        2,216,427        2,149,934        1.5
              

 

 

    

 

 

    

 

 

 
      Total Food and Beverage            2,216,427        2,149,934        1.5
              

 

 

    

 

 

    

 

 

 

Censis Technologies, Inc.

   Healthcare Services   

First Lien Term Loan B

(1M USD LIBOR+10.00%), 12.00% Cash, 7/24/2019

     7/25/2014      $ 10,125,000        10,067,923        10,125,000        7.0

Censis Technologies, Inc. (h), (i)

   Healthcare Services    Limited Partner Interests      7/25/2014        999        999,000        1,744,474        1.2

ComForCare Health Care

   Healthcare Services   

First Lien Term Loan

(3M USD LIBOR+8.50%), 10.82% Cash, 1/31/2022

     1/31/2017      $ 15,000,000        14,876,231        14,955,000        10.3

Ohio Medical, LLC (h)

   Healthcare Services    Common Stock      1/15/2016        5,000        500,000        128,417        0.1

Ohio Medical, LLC

   Healthcare Services   

Senior Subordinated Note

12.00% Cash, 7/15/2021

     1/15/2016      $ 7,300,000        7,253,330        6,381,161        4.4

Pathway Partners Vet Management Company LLC

   Healthcare Services   

Second Lien Term Loan

(1M USD LIBOR+8.00%), 10.00% Cash, 10/10/2025

     10/20/2017      $ 2,848,958        2,829,647        2,820,469        2.0

Pathway Partners Vet Management Company LLC (j)

   Healthcare Services   

Delayed Draw Term Loan

(1M USD LIBOR+8.00%), 10.00% Cash, 10/10/2025

     10/20/2017      $ —          —          —          0.0

Roscoe Medical, Inc. (h)

   Healthcare Services    Common Stock      3/26/2014        5,081        508,077        347,220        0.2

Roscoe Medical, Inc.

   Healthcare Services   

Second Lien Term Loan

11.25% Cash, 9/26/2019

     3/26/2014      $ 4,200,000        4,175,777        3,938,340        2.7
              

 

 

    

 

 

    

 

 

 
      Total Healthcare Services            41,209,985        40,440,081        27.9
              

 

 

    

 

 

    

 

 

 

HMN Holdco, LLC

   Media   

First Lien Term Loan

12.00% Cash, 7/8/2021

     5/16/2014      $ 7,909,949        7,872,896        8,068,149        5.6

HMN Holdco, LLC

   Media    Delayed Draw First Lien Term Loan 12.00% Cash, 7/8/2021      5/16/2014      $ 5,300,000        5,263,784        5,406,000        3.7

HMN Holdco, LLC (h)

   Media    Class A Series, Expires 1/16/2025      1/16/2015        4,264        61,647        309,609        0.2

HMN Holdco, LLC (h)

   Media    Class A Warrant, Expires 1/16/2025      1/16/2015        30,320        438,353        1,810,407        1.3

HMN Holdco, LLC (h)

   Media    Warrants to Purchase Limited Liability Company Interests (Common), Expires 5/16/2024      1/16/2015        57,872        —          3,165,598        2.2

HMN Holdco, LLC (h)

   Media    Warrants to Purchase Limited Liability Company Interests (Preferred), Expires 5/16/2024      1/16/2015        8,139        —          501,362        0.3
              

 

 

    

 

 

    

 

 

 
      Total Media            13,636,680        19,261,125        13.3
              

 

 

    

 

 

    

 

 

 

Sub Total Non-control/Non-affiliate investments

           280,991,102        285,822,252        197.3
              

 

 

    

 

 

    

 

 

 

Affiliate investments - 8.1% (b)

              

GreyHeller LLC (f)

   Business Services   

First Lien Term Loan

(3M USD LIBOR+11.00%), 13.32% Cash, 11/16/2021

     11/17/2016      $ 7,000,000        6,947,372        7,150,500        4.9

GreyHeller LLC (f), (k)

   Business Services   

Delayed Draw Term Loan B

(3M USD LIBOR+11.00%), 13.32% Cash, 11/16/2021

     11/17/2016      $ —          —          —          0.0

GreyHeller LLC (f), (h)

   Business Services    Series A Preferred Units      11/17/2016        850,000        850,000        985,870        0.7
              

 

 

    

 

 

    

 

 

 
      Total Business Services            7,797,372        8,136,370        5.6
              

 

 

    

 

 

    

 

 

 

Elyria Foundry Company, L.L.C. (f), (h)

   Metals    Common Stock      7/30/2010        60,000        9,685,029        2,672,422        1.9

Elyria Foundry Company, L.L.C. (d), (f)

   Metals   

Second Lien Term Loan

15.00% PIK, 8/10/2022

     7/30/2010      $ 913,401        913,401        913,401        0.6
              

 

 

    

 

 

    

 

 

 
      Total Metals            10,598,430        3,585,823        2.5
              

 

 

    

 

 

    

 

 

 

Sub Total Affiliate investments

           18,395,802        11,722,193        8.1
              

 

 

    

 

 

    

 

 

 

Control investments - 31.6% (b)

              

Easy Ice, LLC (g)

   Business Services   

Preferred Equity

10.00% PIK

     2/3/2017        5,080,000        8,980,023        11,676,227        8.1

Easy Ice, LLC (d), (g)

   Business Services   

Second Lien Term Loan

(3M USD LIBOR+11.00%), 5.44% Cash/7.56% PIK, 2/28/2023

     3/29/2013      $ 17,674,651        17,589,434        17,674,651        12.2
              

 

 

    

 

 

    

 

 

 
      Total Business Services            26,569,457        29,350,878        20.3
              

 

 

    

 

 

    

 

 

 

Saratoga Investment Corp. CLO 2013-1, Ltd. (a), (e), (g)

   Structured Finance
Securities
  

Other/Structured Finance Securities

36.02%, 10/20/2025

     1/22/2008      $ 30,000,000        9,247,790        11,956,869        8.2

Saratoga Investment Corp. Class F Note (a), (g)

   Structured Finance
Securities
  

Other/Structured Finance Securities

(3M USD LIBOR+8.50%), 10.82%, 10/20/2025

     10/17/2013      $ 4,500,000        4,500,000        4,499,100        3.1
              

 

 

    

 

 

    

 

 

 
      Total Structured Finance Securities            13,747,790        16,455,969        11.3
              

 

 

    

 

 

    

 

 

 

Sub Total Control investments

           40,317,247        45,806,847        31.6
              

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENTS - 237.0% (b)

         $ 339,704,151      $ 343,351,292        237.0
              

 

 

    

 

 

    

 

 

 
                      Number of
Shares
     Cost      Fair Value      % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 9.5% (b)

 

           

U.S. Bank Money Market (m)

        13,730,811      $ 13,730,811      $ 13,730,811        9.5
           

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents and cash and cash equivalents, reserve accounts

 

     13,730,811      $ 13,730,811      $ 13,730,811        9.5
           

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Represents a non-qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 7.5% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.
(b) Percentages are based on net assets of $144,844,747 as of May 31, 2018.
(c) Because there is no readily available market value for these investments, the fair values of these investments were determined using significant unobservable inputs and approved in good faith by our board of directors. These investments have been included as Level 3 in the Fair Value Hierarchy (see Note 3 to the consolidated financial statements).
(d) These securities are either fully or partially pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).
(e) This investment does not have a stated interest rate that is payable thereon. As a result, the 36.02% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.
(f) As defined in the Investment Company Act, this portfolio company is an Affiliate as we own between 5.0% and 25.0% of the voting securities. Transactions during the quarter ended May 31, 2018 in which the issuer was an Affiliate are as follows:

 

Company

   Purchases      Sales      Total Interest
from
Investments
     Management
and Incentive
Fee Income
     Net Realized
Gain (Loss) from
Investments
     Net Change in
Unrealized
Appreciation
(Depreciation)
 

GreyHeller LLC

   $                —        $                —        $         239,350      $                —        $                —        $         285,817  

Elyria Foundry Company, L.L.C.

     —          —          34,147        —          —          (761,379
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 273,497      $ —        $ —        $ (475,562
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(g) As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the quarter ended May 31, 2018 in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

Company

   Purchases      Sales      Total Interest
from
Investments
     Management
and Incentive
Fee Income
     Net Realized
Gain (Loss) from
Investments
     Net Change in
Unrealized
Appreciation
 

Easy Ice, LLC

   $                —        $                —        $         818,546      $                —        $                —        $         684,815  

Saratoga Investment Corp. CLO 2013-1, Ltd.

     —          —          786,984        584,377        —          130,247  

Saratoga Investment Corp. Class F Note

     —          —          105,992        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 1,711,522      $ 584,377      $ —        $ 815,062  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(h) Non-income producing at May 31, 2018.
(i) Includes securities issued by an affiliate of the Company.
(j) The investment has an unfunded commitment as of May 31, 2018 (see Note 7 to the consolidated financial statements).
(k) The entire commitment was unfunded as of May 31, 2018. As such, no interest is being earned on this investment (see Note 7 to the consolidated financial statements).
(l) As of May 31, 2018, the investment was on non-accrual status. The fair value of these investments was approximately $2.2 million, which represented 0.6% of the Company’s portfolio (see Note 2 to the consolidated financial statements).
(m) Included within cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s consolidated statements of assets and liabilities as of May 31, 2018.

LIBOR - London Interbank Offered Rate

1M USD LIBOR - The 1 month USD LIBOR rate as of May 31, 2018 was 2.00%.

3M USD LIBOR - The 3 month USD LIBOR rate as of May 31, 2018 was 2.32%.

PIK - Payment-in-Kind (see Note 2 to the consolidated financial statements).

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

February 28, 2018

 

Company

  

Industry

  

Investment Interest Rate/

Maturity

  Original
Acquisition
Date
    Principal/
Number of
Shares
    Cost     Fair Value (c)     % of
Net Assets
 

Non-control/Non-affiliate investments - 199.1% (b)

 

       

Tile Redi Holdings, LLC (d)

   Building Products   

First Lien Term Loan

(3M USD LIBOR+10.00%), 12.02% Cash, 6/16/2022

    6/16/2017     $ 15,000,000     $ 14,865,903     $ 14,850,000       10.3
           

 

 

   

 

 

   

 

 

 
      Total Building Products         14,865,903       14,850,000       10.3
           

 

 

   

 

 

   

 

 

 

Apex Holdings Software Technologies, LLC

   Business Services   

First Lien Term Loan

(3M USD LIBOR+8.00%), 10.02% Cash, 9/21/2021

    9/21/2016     $ 18,000,000       17,886,188       18,000,000       12.5

Avionte Holdings, LLC (h)

   Business Services    Common Stock     1/8/2014       100,000       100,000       449,685       0.3

CLEO Communications Holding, LLC

   Business Services   

First Lien Term Loan

(3M USD LIBOR+8.00%), 10.02% Cash/2.00% PIK, 3/31/2022

    3/31/2017     $ 13,243,267       13,128,695       13,243,267       9.2

CLEO Communications Holding, LLC (j)

   Business Services   

Delayed Draw Term Loan

(3M USD LIBOR+8.00%), 10.02% Cash/2.00% PIK, 3/31/2022

    3/31/2017     $ 3,026,732       2,999,896       3,026,732       2.1

Emily Street Enterprises, L.L.C.

   Business Services   

Senior Secured Note

(3M USD LIBOR+8.50%), 10.52% Cash, 1/23/2020

    12/28/2012     $ 3,300,000       3,298,099       3,316,500       2.3

Emily Street Enterprises, L.L.C. (h)

   Business Services    Warrant Membership Interests Expires 12/28/2022     12/28/2012       49,318       400,000       468,521       0.3

Erwin, Inc.

   Business Services   

Second Lien Term Loan

(3M USD LIBOR+11.50%), 13.52% Cash/1.00% PIK, 8/28/2021

    2/29/2016     $ 13,245,008       13,153,253       13,245,008       9.2

FranConnect LLC (d)

   Business Services   

First Lien Term Loan

(3M USD LIBOR+7.00%), 9.02% Cash, 5/26/2022

    5/26/2017     $ 14,500,000       14,435,057       14,574,035       10.1

Help/Systems Holdings, Inc.(Help/Systems, LLC)

   Business Services   

First Lien Term Loan

(3M USD LIBOR+4.50%), 6.52% Cash, 10/8/2021

    10/26/2015     $ 5,376,934       5,294,119       5,376,934       3.8

Help/Systems Holdings, Inc.(Help/Systems, LLC)

   Business Services   

Second Lien Term Loan

(3M USD LIBOR+9.50%), 11.52% Cash, 10/8/2022

    10/26/2015     $ 3,000,000       2,933,255       3,000,000       2.1

Identity Automation Systems (h)

   Business Services    Common Stock Class A Units     8/25/2014       232,616       232,616       673,377       0.5

Identity Automation Systems

   Business Services   

First Lien Term Loan

(3M USD LIBOR+9.50%), 11.52% Cash, 3/31/2021

    8/25/2014     $ 17,950,000       17,849,294       17,950,000       12.5

Knowland Technology Holdings, L.L.C.

   Business Services   

First Lien Term Loan

(3M USD LIBOR+7.75%), 9.77% Cash, 7/20/2021

    11/29/2012     $ 22,288,730       22,214,703       22,288,731       15.5

Microsystems Company

   Business Services   

Second Lien Term Loan

(3M USD LIBOR+8.25%), 10.27% Cash, 7/1/2022

    7/1/2016     $ 18,000,000       17,866,185       18,014,400       12.5

National Waste Partners (d)

   Business Services   

Second Lien Term Loan

10.00% Cash, 2/13/2022

    2/13/2017     $ 9,000,000       8,925,728       9,000,000       6.3

Vector Controls Holding Co., LLC (d)

   Business Services   

First Lien Term Loan

13.75% (12.00% Cash/1.75% PIK), 3/6/2022

    3/6/2013     $ 11,248,990       11,246,851       11,248,991       7.8

Vector Controls Holding Co., LLC (h)

   Business Services    Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027     5/31/2015       343       —         1,064,145       0.8
           

 

 

   

 

 

   

 

 

 
      Total Business Services         151,963,939       154,940,326       107.8
           

 

 

   

 

 

   

 

 

 

Targus Holdings, Inc. (h)

   Consumer Products    Common Stock     12/31/2009       210,456       1,791,242       433,927       0.3
           

 

 

   

 

 

   

 

 

 
      Total Consumer Products         1,791,242       433,927       0.3
           

 

 

   

 

 

   

 

 

 

My Alarm Center, LLC

   Consumer Services    Preferred Equity Class A Units 8.00% PIK     7/14/2017       2,227       2,311,649       2,340,154       1.6

My Alarm Center, LLC (h)

   Consumer Services    Preferred Equity Class B Units     7/14/2017       1,797       1,796,880       1,481,939       1.0

My Alarm Center, LLC (h)

   Consumer Services    Common Stock     7/14/2017       96,224       —         —         0.0

PrePaid Legal Services, Inc. (d)

   Consumer Services   

First Lien Term Loan

(1M USD LIBOR+5.25%), 6.92% Cash, 7/1/2019

    7/10/2013     $ 2,377,472       2,370,104       2,377,472       1.7

PrePaid Legal Services, Inc. (d)

   Consumer Services   

Second Lien Term Loan

(1M USD LIBOR+9.00%), 10.67% Cash, 7/1/2020

    7/14/2011     $ 11,000,000       10,974,817       11,000,000       7.7
           

 

 

   

 

 

   

 

 

 
      Total Consumer Services         17,453,450       17,199,565       12.0
           

 

 

   

 

 

   

 

 

 

C2 Educational Systems (d)

   Education   

First Lien Term Loan

(3M USD LIBOR+8.50%), 10.52% Cash, 5/31/2020

    5/31/2017     $ 16,000,000       15,875,823       15,977,118       11.1

M/C Acquisition Corp., L.L.C. (h)

   Education    Class A Common Stock     6/22/2009       544,761       30,241       —         0.0

M/C Acquisition Corp., L.L.C. (h), (l)

   Education   

First Lien Term Loan

1.00% Cash, 3/31/2018

    8/10/2004     $ 2,318,121       1,190,838       8,058       0.0

Texas Teachers of Tomorrow, LLC (h), (i)

   Education    Common Stock     12/2/2015       750,000       750,000       792,681       0.6

Texas Teachers of Tomorrow, LLC

   Education   

Second Lien Term Loan

(3M USD LIBOR+9.75%), 11.77% Cash, 6/2/2021

    12/2/2015     $ 10,000,000       9,934,492       10,000,000       7.0
           

 

 

   

 

 

   

 

 

 
      Total Education         27,781,394       26,777,857       18.7
           

 

 

   

 

 

   

 

 

 

TM Restaurant Group L.L.C. (h), (l)

   Food and Beverage   

First Lien Term Loan

14.50% PIK, 7/17/2017

    7/17/2012     $ 9,358,694       9,358,694       9,133,149       6.3

TM Restaurant Group L.L.C. (h), (l)

   Food and Beverage    Revolver
14.50% PIK, 7/17/2017
    5/1/2017     $ 398,645       398,644       389,037       0.3
           

 

 

   

 

 

   

 

 

 
      Total Food and Beverage         9,757,338       9,522,186       6.6
           

 

 

   

 

 

   

 

 

 

Censis Technologies, Inc.

   Healthcare Services   

First Lien Term Loan B

(1M USD LIBOR+10.00%), 11.67% Cash, 7/24/2019

    7/25/2014     $ 10,350,000       10,279,781       10,350,000       7.2

Censis Technologies, Inc. (h), (i)

   Healthcare Services    Limited Partner Interests     7/25/2014       999       999,000       1,578,840       1.1

ComForCare Health Care

   Healthcare Services   

First Lien Term Loan

(3M USD LIBOR+8.50%), 10.52% Cash, 1/31/2022

    1/31/2017     $ 15,000,000       14,869,275       14,955,000       10.4

Ohio Medical, LLC (h)

   Healthcare Services    Common Stock     1/15/2016       5,000       500,000       238,069       0.2

Ohio Medical, LLC

   Healthcare Services    Senior Subordinated Note 12.00% Cash, 7/15/2021     1/15/2016     $ 7,300,000       7,250,224       6,635,570       4.6

Pathway Partners Vet Management Company LLC

   Healthcare Services   

Second Lien Term Loan

(1M USD LIBOR+8.00%), 9.67% Cash, 10/10/2025

    10/20/2017     $ 2,083,333       2,063,158       2,062,500       1.4

Pathway Partners Vet Management Company LLC (k)

   Healthcare Services   

Delayed Draw Term Loan

(1M USD LIBOR+8.00%), 9.67% Cash, 10/10/2025

    10/20/2017     $ —         —         —         0.0

Roscoe Medical, Inc. (h)

   Healthcare Services    Common Stock     3/26/2014       5,081       508,077       352,097       0.3

Roscoe Medical, Inc.

   Healthcare Services   

Second Lien Term Loan

11.25% Cash, 9/26/2019

    3/26/2014     $ 4,200,000       4,171,558       3,900,960       2.7

Zest Holdings, LLC (d)

   Healthcare Services   

Syndicated Loan

(1M USD LIBOR+4.25%), 5.92% Cash, 8/16/2023

    9/10/2013     $ 4,105,884       4,033,095       4,105,884       2.9
           

 

 

   

 

 

   

 

 

 
      Total Healthcare Services         44,674,168       44,178,920       30.8
           

 

 

   

 

 

   

 

 

 

HMN Holdco, LLC

   Media   

First Lien Term Loan

12.00% Cash, 7/8/2021

    5/16/2014     $ 8,028,824       7,981,971       8,249,617       5.7

HMN Holdco, LLC

   Media   

Delayed Draw First Lien Term Loan

12.00% Cash, 7/8/2021

    5/16/2014     $ 4,800,000       4,764,872       4,938,000       3.4

HMN Holdco, LLC (h)

   Media   

Class A Series,

Expires 1/16/2025

    1/16/2015       4,264       61,647       274,431       0.2

HMN Holdco, LLC (h)

   Media   

Class A Warrant,

Expires 1/16/2025

    1/16/2015       30,320       438,353       1,565,118       1.1

HMN Holdco, LLC (h)

   Media    Warrants to Purchase Limited Liability Company Interests (Common), Expires 5/16/2024     1/16/2015       57,872       —         2,696,257       1.9

HMN Holdco, LLC (h)

   Media    Warrants to Purchase Limited Liability Company Interests (Preferred), Expires 5/16/2024     1/16/2015       8,139       —         435,518       0.3
           

 

 

   

 

 

   

 

 

 
      Total Media         13,246,843       18,158,941       12.6
           

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliate investments

        281,534,277       286,061,722       199.1
           

 

 

   

 

 

   

 

 

 

Affiliate investments - 8.5% (b)

 

       

GreyHeller LLC (f)

   Business Services   

First Lien Term Loan

(3M USD LIBOR+11.00%), 13.02% Cash, 11/16/2021

    11/17/2016     $ 7,000,000       6,944,319       7,106,501       5.0

GreyHeller LLC (f), (k)

   Business Services    Delayed Draw Term Loan B (3M USD LIBOR+11.00%), 13.02% Cash, 11/16/2021     11/17/2016     $ —         —         —         0.0

GreyHeller LLC (f), (h)

   Business Services    Series A Preferred Units     11/17/2016       850,000       850,000       740,999       0.5
           

 

 

   

 

 

   

 

 

 
      Total Business Services         7,794,319       7,847,500       5.5
           

 

 

   

 

 

   

 

 

 

Elyria Foundry Company, L.L.C. (f), (h)

   Metals    Common Stock     7/30/2010       60,000       9,685,028       3,433,800       2.4

Elyria Foundry Company, L.L.C. (d), (f)

   Metals    Second Lien Term Loan 15.00% PIK, 8/10/2022     7/30/2010     $ 879,264       879,264       879,264       0.6
           

 

 

   

 

 

   

 

 

 
      Total Metals         10,564,292       4,313,064       3.0
           

 

 

   

 

 

   

 

 

 

Sub Total Affiliate investments

        18,358,611       12,160,564       8.5
           

 

 

   

 

 

   

 

 

 

Control investments - 30.9% (b)

               

Easy Ice, LLC (g)

   Business Services   

Preferred Equity

10.00% PIK

    2/3/2017       5,080,000       8,761,000       10,760,435       7.5

Easy Ice, LLC (d), (g)

   Business Services   

Second Lien Term Loan

(3M USD LIBOR+11.00%), 5.44% Cash/7.56% PIK, 2/28/2023

    3/29/2013     $ 17,337,528       17,240,357       17,337,528       12.0
           

 

 

   

 

 

   

 

 

 
      Total Business Services         26,001,357       28,097,963       19.5
           

 

 

   

 

 

   

 

 

 

Saratoga Investment Corp. CLO 2013-1, Ltd. (a), (e), (g)

   Structured Finance Securities   

Other/Structured Finance Securities

32.21%, 10/20/2025

    1/22/2008     $ 30,000,000       9,295,872       11,874,704       8.3

Saratoga Investment Corp. Class F Note (a), (g)

   Structured Finance Securities   

Other/Structured Finance Securities

(3M USD LIBOR+8.50%), 10.52%, 10/20/2025

    10/17/2013     $ 4,500,000       4,500,000       4,499,100       3.1
           

 

 

   

 

 

   

 

 

 
      Total Structured Finance Securities         13,795,872       16,373,804       11.4
           

 

 

   

 

 

   

 

 

 

Sub Total Control investments

           39,797,229       44,471,767       30.9
           

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS - 238.5% (b)

         $ 339,690,117     $ 342,694,053       238.5
           

 

 

   

 

 

   

 

 

 
                    Number of
Shares
    Cost     Fair Value     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 9.6% (b)

         

U.S. Bank Money Market (m)

      13,777,491     $ 13,777,491     $ 13,777,491       9.6
         

 

 

   

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents and cash and cash equivalents, reserve accounts

      13,777,491     $ 13,777,491     $ 13,777,491       9.6
         

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Represents a non-qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 4.8% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.
(b) Percentages are based on net assets of $143,691,367 as of February 28, 2018.
(c) Because there is no readily available market value for these investments, the fair values of these investments were determined using significant unobservable inputs and approved in good faith by our board of directors. These investments have been included as Level 3 in the Fair Value Hierarchy (see Note 3 to the consolidated financial statements).
(d) These securities are either fully or partially pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).
(e) This investment does not have a stated interest rate that is payable thereon. As a result, the 32.21% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.
(f) As defined in the Investment Company Act, this portfolio company is an Affiliate as we own between 5.0% and 25.0% of the voting securities. Transactions during the year ended February 28, 2018 in which the issuer was an Affiliate are as follows:

 

Company

   Purchases      Sales      Total Interest
from
Investments
     Management and
Incentive

Fee Income
     Net Realized
Gain (Loss) from
Investments
     Net Change in
Unrealized
Appreciation
 

GreyHeller LLC

   $ —        $ —        $ 886,948      $ —        $ —        $ 56,322  

Elyria Foundry Company, L.L.C.

     800,000        —          80,460        —          —          762,001  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 800,000      $ —        $ 967,408      $ —        $ —        $ 818,323  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g) As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the year ended February 28, 2018 in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

Company

   Purchases      Sales     Total Interest
from
Investments
     Management and
Incentive

Fee Income
     Net Realized
Gain from
Investments
     Net Change in
Unrealized
Appreciation
(Depreciation)
 

Easy Ice, LLC

   $ —        $ (10,180,000   $ 3,656,285      $ —        $ 166      $ 1,880,768  

Saratoga Investment Corp. CLO 2013-1, Ltd.

     —          —         2,429,680        2,100,685        —          1,947,957  

Saratoga Investment Corp. Class F Note

     —          —         423,903        —          —          (450
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ (10,180,000   $ 6,509,868      $ 2,100,685      $ 166      $ 3,828,275  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(h) Non-income producing at February 28, 2018.
(i) Includes securities issued by an affiliate of the company.
(j) The investment has an unfunded commitment as of February 28, 2018 (see Note 7 to the consolidated financial statements).
(k) The entire commitment was unfunded at February 28, 2018. As such, no interest is being earned on this investment (see Note 7 to the consolidated financial statements).
(l) At February 28, 2018, the investment was on non-accrual status. The fair value of these investments was approximately $9.5 million, which represented 2.8% of the Company’s portfolio (see Note 2 to the consolidated financial statements).
(m) Included within cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s consolidated statements of assets and liabilities as of February 28, 2018.

LIBOR - London Interbank Offered Rate

1M USD LIBOR - The 1 month USD LIBOR rate as of February 28, 2018 was 1.67%.

3M USD LIBOR - The 3 month USD LIBOR rate as of February 28, 2018 was 2.02%.

PIK - Payment-in-Kind (see Note 2 to the consolidated financial statements).

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Changes in Net Assets

(unaudited)

 

     For the three months ended  
     May 31, 2018     May 31, 2017  

INCREASE FROM OPERATIONS:

    

Net investment income

   $ 3,927,648     $ 3,504,449  

Net realized gain from investments

     212,008       95,589  

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 increase in net assets resulting from operations

     3,842,315       1,014,087  
  

 

 

   

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

    

Distributions of investment income – net

     (3,128,513     (2,665,516
  

 

 

   

 

 

 

Net decrease in net assets from shareholder distributions

     (3,128,513     (2,665,516
  

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS:

    

Proceeds from issuance of common stock

     —         1,367,168  

Stock dividend distribution

     504,878       622,088  

Offering costs

     —         (23,951
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     504,878       1,965,305  
  

 

 

   

 

 

 

Total increase in net assets

     1,218,680       313,876  

Net assets at beginning of period, as reported

     143,691,367       127,294,777  

Cumulative effect of the adoption of ASC 606 (See Note 2)

     (65,300     —    
  

 

 

   

 

 

 

Net assets at beginning of period, as adjusted

     143,626,067       127,294,777  
  

 

 

   

 

 

 

Net assets at end of period

   $ 144,844,747     $ 127,608,653  
  

 

 

   

 

 

 

Net asset value per common share

   $ 23.06     $ 21.69  
    

Common shares outstanding at end of period

     6,282,384       5,884,475  

Distribution in excess of net investment income

   $ (27,128,708   $ (26,898,415

See accompanying notes to consolidated financial statements.

 

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Saratoga Investment Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

     For the three months ended  
     May 31, 2018     May 31, 2017  

Operating activities

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 3,842,315     $ 1,014,087  

ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:

    

Payment-in-kind interest income

     (758,415     (261,677

Net accretion of discount on investments

     (380,862     (168,970

Amortization of deferred debt financing costs

     254,601       236,124  

Net realized gain from investments

     (212,008     (95,589

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       —    

Proceeds from sales and repayments of investments

     36,540,803       5,876,640  

Purchase of investments

     (35,203,552     (44,964,990

(Increase) decrease in operating assets:

    

Interest receivable

     (733,644     (358,485

Management and incentive fee receivable

     49,099       (105,378

Other assets

     40,331       1,938  

Deferred tax asset

     (267,310     —    

Receivable from unsettled trades

     (159,271     —    

Increase (decrease) in operating liabilities:

    

Base management and incentive fees payable

     173,779       (1,821,732

Accounts payable and accrued expenses

     135,183       64,171  

Interest and debt fees payable

     (1,036,724     (958,745

Directors fees payable

     43,000       —    

Due to manager

     17,589       (52,200
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     2,642,255       (39,008,855
  

 

 

   

 

 

 

Financing activities

    

Borrowings on debt

     —         46,500,000  

Payments of deferred debt financing costs

     —         (1,108,645

Proceeds from issuance of common stock

     —         1,367,168  

Payments of offering costs

     —         (20,504

Payments of cash dividends

     (2,623,635     (2,043,428
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     (2,623,635     44,694,591  
  

 

 

   

 

 

 

Cumulative effect of the adoption of ASC 606 (See Note 2)

     (65,300     —    

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND CASH AND CASH AND CASH EQUIVALENTS, RESERVE ACCOUNTS

     (46,680     5,685,736  

CASH AND CASH EQUIVALENTS AND CASH AND CASH EQUIVALENTS, RESERVE ACCOUNTS, BEGINNING OF PERIOD

     13,777,491       22,087,968  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AND CASH AND CASH EQUIVALENTS, RESERVE ACCOUNTS, END OF PERIOD

   $ 13,730,811     $ 27,773,704  
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid during the period

   $ 3,504,914     $ 3,246,228  

Cash paid for taxes

     14,070       54,084  

Supplemental non-cash information:

    

Payment-in-kind interest income

   $ 758,415     $ 261,677  

Net accretion of discount on investments

     380,862       168,970  

Amortization of deferred debt financing costs

     254,601       236,124  

Stock dividend distribution

     504,878       622,088  

See accompanying notes to consolidated financial statements.

 

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Table of Contents

SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2018

(unaudited)

Note 1. Organization

Saratoga Investment Corp. (the “Company”, “we”, “our” and “us”) is a non-diversified closed end management investment company incorporated in Maryland that has elected to be treated and is regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). The Company commenced operations on March 23, 2007 as GSC Investment Corp. and completed the initial public offering (“IPO”) on March 28, 2007. The Company has elected to be treated as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code (the “Code”). The Company expects to continue to qualify and to elect to be treated, for tax purposes, as a RIC. The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation from its investments.

GSC Investment, LLC (the “LLC”) was organized in May 2006 as a Maryland limited liability company. As of February 28, 2007, the LLC had not yet commenced its operations and investment activities.

On March 21, 2007, the Company was incorporated and concurrently therewith the LLC was merged with and into the Company, with the Company as the surviving entity, in accordance with the procedure for such merger in the LLC’s limited liability company agreement and Maryland law. In connection with such merger, each outstanding limited liability company interest of the LLC was converted into a share of common stock of the Company.

On July 30, 2010, the Company changed its name from “GSC Investment Corp.” to “Saratoga Investment Corp.” in connection with the consummation of a recapitalization transaction.

The Company is externally managed and advised by the investment adviser, Saratoga Investment Advisors, LLC (the “Manager”), pursuant to a management agreement (the “Management Agreement”). Prior to July 30, 2010, the Company was managed and advised by GSCP (NJ), L.P.

The Company has established wholly-owned subsidiaries, SIA Avionte, Inc., SIA Bush Franklin, Inc., SIA Easy Ice, LLC, SIA GH, Inc., SIA MAC, Inc., SIA TT, Inc., and SIA Vector, Inc., which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass through entities). Tax blockers are consolidated for accounting purposes, but are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.

On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP (“SBIC LP”), received a Small Business Investment Company (“SBIC”) license from the Small Business Administration (“SBA”).

On April 2, 2015, the SBA issued a “green light” letter inviting the Company to continue the application process to obtain a license to form and operate its second SBIC subsidiary. On September 27, 2016, the SBA informed us that as part of their continued review of our application for a second license, and in order to ensure that they were reviewing the most current information available, we would need to update all previously submitted materials and invited us to reapply. As a result of this request, with which we are in the process of complying, the existing “green light” letter that the SBA issued to us has expired. If approved in the future, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue up to $150.0 million of additional SBA-guaranteed debentures in addition to the $150.0 million already approved under the first license.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), are stated in U.S. Dollars and include the accounts of the Company and its special purpose financing subsidiaries, Saratoga Investment Funding, LLC (previously known as GSC Investment Funding LLC), SBIC LP, SIA Avionte, Inc., SIA Bush Franklin, Inc., SIA Easy Ice, LLC, SIA GH, Inc., SIA MAC, Inc., SIA TT, Inc., and SIA Vector, Inc. All intercompany accounts and transactions have been eliminated in consolidation. All references made to the “Company,” “we,” and “us” herein include Saratoga Investment Corp. and its consolidated subsidiaries, except as stated otherwise.

The Company and SBIC LP are both considered to be investment companies for financial reporting purposes and have applied the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services — Investment Companies” (“ASC 946”). There have been no changes to the Company or SBIC LP’s status as investment companies during the three months ended May 31, 2018.

 

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Table of Contents

Use of Estimates in the Preparation of Financial Statements

The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and income, gains (losses) and expenses during the period reported. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value. Per section 12(d)(1)(A) of the 1940 Act, the Company may not invest in another registered investment company such as, a money market fund if such investment would cause the Company to exceed any of the following limitations:

 

    we were to own more than 3.0% of the total outstanding voting stock of the money market fund;

 

    we were to hold securities in the money market fund having an aggregate value in excess of 5.0% of the value of our total assets, except as allowed pursuant to Rule 12d1-1 of Section 12(d)(1) of the 1940 Act which is designed to permit “cash sweep” arrangements rather than investments directly in short-term instruments; or

 

    we were to hold securities in money market funds and other registered investment companies and BDCs having an aggregate value in excess of 10.0% of the value of our total assets.

As of May 31, 2018, the Company did not exceed any of these limitations.

Cash and Cash Equivalents, Reserve Accounts

Cash and cash equivalents, reserve accounts include amounts held in designated bank accounts in the form of cash and short-term liquid investments in money market funds, representing payments received on secured investments or other reserved amounts associated with the Company’s $45.0 million senior secured revolving credit facility with Madison Capital Funding LLC. The Company is required to use these amounts to pay interest expense, reduce borrowings, or pay other amounts in accordance with the terms of the senior secured revolving credit facility.

In addition, cash and cash equivalents, reserve accounts also include amounts held in designated bank accounts, in the form of cash and short-term liquid investments in money market funds, within our wholly-owned subsidiary, SBIC LP.

The statements of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts.

The following table provides a reconciliation of cash and cash equivalents and cash and cash equivalents, reserve accounts reported within the consolidated statements of assets and liabilities that sum to the total of the same such amounts shown in the consolidated statements of cash flows:

 

     May 31,
2018
     May 31,
2017
 

Cash and cash equivalents

   $ 3,313,448      $ 1,246,815  

Cash and cash equivalents, reserve accounts

     10,417,363        26,526,889  
  

 

 

    

 

 

 

Total cash and cash equivalents and cash and cash equivalents, reserve accounts

   $ 13,730,811      $ 27,773,704  
  

 

 

    

 

 

 

Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which we own more than 25.0% of the voting securities or maintain greater than 50.0% of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which we own between 5.0% and 25.0% of the voting securities. Under the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.

 

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Table of Contents

Investment Valuation

The Company accounts for its investments at fair value in accordance with the FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that its investments are to be sold at the balance sheet date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from our Manager, the audit committee of our board of directors and a third party independent valuation firm. Determinations of fair value may involve subjective judgments and estimates. The types of factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow and other relevant factors.

The Company undertakes a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

 

    Each investment is initially valued by the responsible investment professionals of Saratoga Investment Advisors and preliminary valuation conclusions are documented and discussed with our senior management; and

 

    An independent valuation firm engaged by our board of directors independently reviews a selection of these preliminary valuations each quarter so that the valuation of each investment for which market quotes are not readily available is reviewed by the independent valuation firm at least once each fiscal year.

In addition, all our investments are subject to the following valuation process:

 

    The audit committee of our board of directors reviews and approves each preliminary valuation and our Manager and independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee; and

 

    Our board of directors discusses the valuations and approves the fair value of each investment, in good faith, based on the input of our Manager, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

The Company’s investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”) is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by our Manager and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. The Company uses the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flow analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO.

Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed. The Company’s net asset value could be materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal of such investments.

Derivative Financial Instruments

The Company accounts for derivative financial instruments in accordance with ASC Topic 815, Derivatives and Hedging (“ASC

815”). ASC 815 requires recognizing all derivative instruments as either assets or liabilities on the consolidated statements of assets and liabilities at fair value. The Company values derivative contracts at the closing fair value provided by the counterparty. Changes in the values of derivative contracts are included in the consolidated statements of operations.

 

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Table of Contents

Investment Transactions and Income Recognition

Purchases and sales of investments and the related realized gains or losses are recorded on a trade-date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on its investments when it is determined that interest is no longer collectible. Discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums on investments.

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as a reduction in principal depending upon management’s judgment regarding collectability. 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, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At May 31, 2018, certain investments in two portfolio companies were on non-accrual status with a fair value of approximately $2.2 million, or 0.6% of the fair value of our portfolio. At February 28, 2018, certain investments in two portfolio companies were on non-accrual status with a fair value of approximately $9.5 million, or 2.8% of the fair value of our portfolio.

Interest income on our investment in Saratoga CLO is recorded using the effective interest method in accordance with the provisions of ASC Topic 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, (“ASC 325-40”), based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

Adoption of ASC 606

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), which supersedes the revenue recognition requirements in Revenue Recognition (ASC 605). In May 2016, ASU 2016-12 amended ASU 2014-09 and deferred the effective period for annual periods beginning after December 15, 2017.

Under the new guidance, the Company recognizes revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Under this standard, revenue is based on a contract with a determinable transaction price and distinct performance obligations with probable collectability. Revenues cannot be recognized until the performance obligation(s) are satisfied and control is transferred to the customer. The Company’s adoption of ASC 606 impacted the timing and recognition of incentive fee income in the Company’s consolidated statements of operations. The adoption of ASC 606 did not have an impact on the Company’s management fee income.

The Company adopted ASC 606 to all applicable contracts under the modified retrospective approach using the practical expedient provided for within paragraph 606-10-65-1(f)(3); therefore, the presentation of prior year periods has not been adjusted. The Company recognized the cumulative effect of initially adopting ASC 606 as an adjustment to the opening balance of components of equity as of March 1, 2018.

Incentive Fee Income

Incentive fee income is recognized based on the performance of Saratoga CLO during the period, subject to the achievement of minimum return levels in accordance with the terms set out in the investment management agreement between the Company and Saratoga CLO. Incentive fee income is realized in cash on a quarterly basis. Once realized, such fees are no longer subject to reversal.

Upon the adoption of ASC 606, the Company will recognize incentive fee income only when the amount is realized and no longer subject to reversal. Therefore, the Company will no longer recognize unrealized incentive fee income in the consolidated financial statements. The adoption of ASC 606 results in the delayed recognition of unrealized incentive fee income in the consolidated financial statements until they become realized at the end of the measurement period and all uncertainties are eliminated, which is typically quarterly.

The Company adopted ASC 606 for incentive fee income using the modified retrospective approach with an effective date of March 1, 2018. The cumulative effect of the adoption resulted in the reversal of $0.07 million of unrealized incentive fee income and is presented as a reduction to the opening balances of components of equity as of March 1, 2018.

 

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Table of Contents

The following table presents the impact of incentive fees on the consolidated statement of assets and liabilities upon the adoption of ASC 606 effective March 1, 2018:

Consolidated Statement of Assets and Liabilities

 

     As of February 28, 2018  
     As Reported      Adjustments(1)      As Adjusted for
Adoption of ASC
606
 

Management and incentive fee receivable

   $ 233,024      $ (65,300    $ 167,724  

Total assets

     360,336,361        (65,300      360,271,061  

Cumulative effect adjustment for Adoption of ASC 606

     —          (65,300      (65,300

Total net assets

     143,691,367        (65,300      143,626,067  

NET ASSET VALUE PER SHARE

   $ 22.96      $ (0.01    $ 22.95  

 

(1) Unrealized incentive fees receivable balance as of February 28, 2018.

In accordance with the ASC 606 disclosure requirements, the following tables present the adjustments made by the Company to remove the effects of adopting ASC 606 on the consolidated financial statements as of and for the three months ended May 31, 2018:

Consolidated Statement of Assets and Liabilities

 

     As of May 31, 2018  
     As Reported      Adjustments(1)      Without
Adoption of ASC
606
 

Management and incentive fee receivable

   $ 183,925      $ 92,952      $ 276,877  

Total assets

     362,017,715        92,952        362,110,667  

Total net assets

     144,844,747        92,952        144,937,699  

NET ASSET VALUE PER SHARE

   $ 23.06      $ 0.01      $ 23.07  

 

(1) Unrealized incentive fees receivable balance as of May 31, 2018.

Consolidated Statement of Operations

 

     For the Three Months Ended May 31, 2018  
     As Reported      Adjustments      Without
Adoption of
ASC 606
 

Incentive fee income

   $ 199,183      $ 27,652      $ 226,835  

Total investment income

     10,488,018        27,652        10,515,670  

NET INVESTMENT INCOME

     3,927,648        27,652        3,955,300  

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

     3,842,315        27,652        3,869,967  

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.61      $ 0.01      $ 0.62  

Other Income

Other income includes dividends received, origination fees, structuring fees and advisory fees, and is recorded in the consolidated statements of operations when earned.

Payment-in-Kind Interest

The Company holds debt and preferred equity investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We stop accruing PIK interest if we do not expect the issuer to be able to pay all principal and interest when due.

 

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Deferred Debt Financing Costs

Financing costs incurred in connection with our credit facility and notes are deferred and amortized using the straight line method over the life of the respective facility and debt securities. Financing costs incurred in connection with our SBA debentures are deferred and amortized using the effective yield method over the life of the debentures.

The Company presents deferred debt financing costs on the balance sheet as a contra- liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.

Contingencies

In the ordinary course of business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote. Therefore, the Company has not accrued any liabilities in connection with such indemnifications.

In the ordinary course of business, the Company may directly or indirectly be a defendant or plaintiff in legal actions with respect to bankruptcy, insolvency or other types of proceedings. Such lawsuits may involve claims that could adversely affect the value of certain financial instruments owned by the Company.

Income Taxes

The Company has elected to be treated for tax purposes as a RIC under the Code and, among other things, intends to make the requisite distributions to its stockholders which will relieve the Company from federal income taxes. Therefore, no provision has been recorded for federal income taxes.

In order to qualify as a RIC, among other requirements, the Company is required to timely distribute to its stockholders at least 90.0% of its investment company taxable income, as defined by the Code, for each fiscal tax year. The Company will be subject to a nondeductible U.S. federal excise tax of 4.0% on undistributed income if it does not distribute at least 98.0% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31.

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4.0% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.

In accordance with certain applicable U.S. Treasury regulations and private letter rulings issued by the Internal Revenue Service (“IRS”), a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC subject to a limitation on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20.0% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash will receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20.0% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock.

The Company may utilize wholly owned holding companies taxed under Subchapter C of the Code (“Taxable Blockers”) when making equity investments in portfolio companies taxed as pass-through entities to meet its source-of-income requirements as a RIC. Taxable Blockers are consolidated in the Company’s GAAP financial statements and may result in current and deferred federal and state income tax expense with respect to income derived from those investments. Such income, net of applicable income taxes, is not included in the Company’s tax-basis net investment income until distributed by the Taxable Blocker, which may result in timing and character differences between the Company’s GAAP and tax-basis net investment income and realized gains and losses. Income tax expense or benefit from Taxable Blockers related to net investment income are included in general and administrative expenses, while any expense or benefit related to federal or state income tax originated for capital gains and losses are included together with the applicable net realized or unrealized gain or loss line item. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely than-not that some portion or all of the deferred tax assets will not be realized.

ASC 740, Income Taxes, (“ASC 740”), provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense on the consolidated statements of operations. During the fiscal year ended February 28, 2018, the Company did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. The 2015, 2016 and 2017 federal

 

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tax years for the Company remain subject to examination by the IRS. As of May 31, 2018 and February 28, 2018, there were no uncertain tax positions. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly in the next 12 months.

Dividends

Dividends to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the board of directors. Net realized capital gains, if any, are generally distributed at least annually, although we may decide to retain such capital gains for reinvestment.

We have adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of our dividend distributions on behalf of our stockholders unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of the DRIP by the dividend record date will have their cash dividends automatically reinvested into additional shares of our common stock, rather than receiving the cash dividends. We have the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator.

Capital Gains Incentive Fee

The Company records an expense accrual on the consolidated statements of operations, relating to the capital gains incentive fee payable on the consolidated statements of assets and liabilities, by the Company to its Investment Adviser when the net realized and unrealized gain on its investments exceed all net realized and unrealized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the Investment Adviser if the Company were to liquidate its investment portfolio at such time. The actual incentive fee payable to the Company’s Investment Adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains net of realized and unrealized losses for the period.

Regulatory Matters

In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. Management has adopted the amendments to Regulation S-X and included required disclosures in the Company’s consolidated financial statements and related disclosures.

New Accounting Pronouncements

In March 2017, the FASB issued ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. ASU 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Management has assessed these changes and does not believe they would have a material impact on the Company’s consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Amendments to the Leases (“ASU Topic 842”), which will require for all operating leases the recognition of a right-of-use asset and a lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. This guidance is effective for annual and interim periods beginning after December 15, 2018. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

Risk Management

In the ordinary course of its business, the Company manages a variety of risks, including market risk and credit risk. Market risk is the risk of potential adverse changes to the value of investments because of changes in market conditions such as interest rate movements and volatility in investment prices.

Credit risk is the risk of default or non-performance by portfolio companies, equivalent to the investment’s carrying amount.

The Company is also exposed to credit risk related to maintaining all of its cash and cash equivalents, including those in reserve accounts, at a major financial institution and credit risk related to any of its derivative counterparties.

The Company has investments in lower rated and comparable quality unrated high yield bonds and bank loans. Investments in high yield investments are accompanied by a greater degree of credit risk. The risk of loss due to default by the issuer is significantly greater for holders of high yield securities, because such investments are generally unsecured and are often subordinated to other creditors of the issuer.

 

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Note 3. Investments

As noted above, the Company values all investments in accordance with ASC 820. ASC 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC 820, fair value is the price 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.

ASC 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

 

    Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

    Level 2—Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.

 

    Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs used in the determination of fair value may require significant management judgment or estimation. Such information may be the result of consensus pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by a disclaimer would result in classification as a Level 3 asset, assuming no additional corroborating evidence.

In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors that is consistent with ASC 820 and the 1940 Act (see Note 2). Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value.

The following table presents fair value measurements of investments, by major class, as of May 31, 2018 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
        Level 1            Level 2         Level 3      Total  

First lien term loans

   $ —      $ —      $ 195,768      $ 195,768  

Second lien term loans

     —        —        97,073        97,073  

Unsecured term loans

     —        —        2,150        2,150  

Structured finance securities

     —        —        16,456        16,456  

Equity interests

     —        —        31,904        31,904  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —      $ —        $ 343,351      $ 343,351  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table presents fair value measurements of investments, by major class, as of February 28, 2018 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
        Level 1            Level 2         Level 3      Total  

Syndicated loans

   $ —        $ —        $ 4,106      $ 4,106  

First lien term loans

     —          —          197,359        197,359  

Second lien term loans

     —          —          95,075        95,075  

Structured finance securities

     —          —          16,374        16,374  

Equity interests

     —          —          29,780        29,780  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 342,694      $ 342,694  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended May 31, 2018 (dollars in thousands)

 

     Syndicated
loans
    First lien
term loans
    Second
lien
term loans
    Unsecured
term loans
    Structured
finance
securities
    Equity
interests
     Total  

Balance as of February 28, 2018

   $ 4,106     $ 197,359     $ 95,075     $ —       $ 16,374     $ 29,780      $ 342,694  

Net change in unrealized appreciation (depreciation) on investments

     (73     (22     (186     (66     130       860        643  

Purchases and other adjustments to cost

     73       16,606       16,184       2,216       —         1,264        36,343  

Sales and repayments

     (4,106     (18,387     (14,000     —         (48     —          (36,541

Net realized gain from investments

     —         212       —         —         —         —          212  

Restructures in

     —         —         —         —         —         —          —    

Restructures out

     —         —         —         —         —         —          —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance as of May 31, 2018

   $ —       $ 195,768     $ 97,073     $ 2,150     $ 16,456     $ 31,904      $ 343,351  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net change in unrealized appreciation (depreciation) for the period relating to those Level 3 assets that were still held by the Company at the end of the period

   $ —       $ (167   $ (93   $ (66   $ 130     $ 860      $ 664  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK.

Sales and repayments represent net proceeds received from investments sold, and principal paydowns received during the period.

Transfers and restructurings, if any, are recognized at the beginning of the period in which they occur. There were no restructures in or out for the three months ended May 31, 2018.

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended May 31, 2017 (dollars in thousands):

 

     Syndicated
loans
    First lien
term loans
    Second
lien
term loans
    Structured
finance
securities
    Equity
interests
    Total  

Balance as of February 28, 2017

   $ 9,823     $ 159,097     $ 87,750     $ 15,450     $ 20,541     $ 292,661  

Net change in unrealized appreciation (depreciation) on investments

     21       387       (5,855     1,460       1,401       (2,586

Purchases and other adjustments to cost

     6       43,738       1,073       —         579       45,396  

Sales and repayments

     (728     (1,440     (2,786     (799     (124     (5,877

Net realized gain (loss) from investments

     (54     7       19       —         124       96  

Restructures in

     —         —         15,774       —         —         15,774  

Restructures out

     —         (15,774     —         —         —         (15,774
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of May 31, 2017

   $ 9,068     $ 186,015     $ 95,975     $ 16,111     $ 22,521     $ 329,690  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) for the period relating to those Level 3 assets that were still held by the Company at the end of the period

   $ 21   $ 387   $ (5,855 )   $ 1,460   $ 1,401   $ (2,586 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfers and restructurings, if any, are recognized at the beginning of the period in which they occur. Restructures in and out for the three months ended May 31, 2017 included a restructure of Mercury Funding, LLC of approximately $15.8 million from a first lien term loan to a second lien term loan.

Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK.

Sales and repayments represent net proceeds received from investments sold, and principal paydowns received, during the period.

Transfers and restructurings, if any, are recognized at the beginning of the period in which they occur.

 

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The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of May 31, 2018 were as follows (dollars in thousands)

 

     Fair Value      Valuation Technique    Unobservable Input    Range

First lien term loans

   $ 195,768      Market Comparables    Market Yield (%)    9.4% - 13.4%
         EBITDA Multiples (x)    3.0x

Second lien term loans

     97,073      Market Comparables    Market Yield (%)    10.0% - 17.3%
         EBITDA Multiples (x)    5.0x

Unsecured term loans

     2,150      Market Comparables    Market Yield (%)    9.7%
         EBITDA Multiples (x)    4.8x

Structured finance securities

     16,456      Discounted Cash Flow    Discount Rate (%)    8.5% - 15.0%

Equity interests

     31,904      Market Comparables    EBITDA Multiples (x)    4.0x - 14.0x

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of February 28, 2018 were as follows (dollars in thousands):

 

     Fair Value      Valuation Technique    Unobservable Input    Range

Syndicated loans

   $ 4,106      Market Comparables    Third-Party Bid (%)    100.0%

First lien term loans

     197,359      Market Comparables    Market Yield (%)    7.3% - 13.4%
         EBITDA Multiples (x)    3.0x
         Third-Party Bid (%)    97.6% - 100.1%

Second lien term loans

     95,075      Market Comparables    Market Yield (%)    10.0% - 16.5%
         Third-Party Bid (%)    100.0% - 100.0%
         EBITDA Multiples (x)    5.0x

Structured finance securities

     16,374      Discounted Cash Flow    Discount Rate (%)    8.5% - 15.0%

Equity interests

     29,780      Market Comparables    EBITDA Multiples (x)    4.0x - 14.0x

For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the earnings before interest, tax, depreciation and amortization (“EBITDA”) or revenue valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing a market quote in deriving a value, a significant increase (decrease) in the market quote, in isolation, would result in a significantly higher (lower) fair value measurement.

 

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The composition of our investments as of May 31, 2018, at amortized cost and fair value was as follows (dollars in thousands):

 

     Investments at
Amortized Cost
     Amortized Cost
Percentage of
Total Portfolio
    Investments at
Fair Value
     Fair Value
Percentage of
Total Portfolio
 

First lien term loans

   $ 195,684        57.6   $ 195,768        57.0

Second lien term loans

     97,576        28.7       97,073        28.3  

Unsecured term loans

     2,216        0.7       2,150        0.6  

Structured finance securities

     13,748        4.0       16,456        4.8  

Equity interests

     30,480        9.0       31,904        9.3  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 339,704        100.0   $ 343,351        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The composition of our investments as of February 28, 2018, at amortized cost and fair value was as follows (dollars in thousands):

 

     Investments at
Amortized Cost
     Amortized Cost
Percentage of
Total Portfolio
    Investments at
Fair Value
     Fair Value
Percentage of
Total Portfolio
 

Syndicated loans

   $ 4,033        1.2   $ 4,106        1.2

First lien term loans

     197,253        58.1       197,359        57.6  

Second lien term loans

     95,392        28.1       95,075        27.7  

Structured finance securities

     13,796        4.0       16,374        4.8  

Equity interests

     29,216        8.6       29,780        8.7  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 339,690        100.0   $ 342,694        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

For loans and debt securities for which market quotations are not available, we determine their fair value based on third party indicative broker quotes, where available, or the assumptions that a hypothetical market participant would use to value the security in a current hypothetical sale using a market yield valuation methodology. In applying the market yield valuation methodology, we determine the fair value based on such factors as market participant assumptions including synthetic credit ratings, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date. If, in our judgment, the market yield methodology is not sufficient or appropriate, we may use additional methodologies such as an asset liquidation or expected recovery model.

For equity securities of portfolio companies and partnership interests, we determine the fair value based on the market approach with value then attributed to equity or equity like securities using the enterprise value waterfall valuation methodology. Under the enterprise value waterfall valuation methodology, we determine the enterprise fair value of the portfolio company and then waterfall the enterprise value over the portfolio company’s securities in order of their preference relative to one another. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities. We also take into account historical and anticipated financial results.

Our investment in Saratoga CLO is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by our Manager and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. In connection with the refinancing of the Saratoga CLO liabilities, we ran Intex models based on assumptions about the refinanced Saratoga CLO’s structure, including capital structure, cost of liabilities and reinvestment period. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flow analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO at May 31, 2018. The significant inputs at May 31, 2018 for the valuation model include:

 

    Default rate: 2.0%

 

    Recovery rate: 35-70%

 

    Discount rate: 15.0%

 

    Prepayment rate: 20.0%

 

    Reinvestment rate / price: L+330bps / $99.875

 

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Note 4. Investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”)

On January 22, 2008, the Company invested $30.0 million in all of the outstanding subordinated notes of GSC Investment Corp. CLO 2007, Ltd., a collateralized loan obligation fund managed by the Company that invests primarily in senior secured loans. Additionally, the Company entered into a collateral management agreement with GSC Investment Corp. CLO 2007, Ltd. pursuant to which we act as collateral manager to it. The Saratoga CLO was initially refinanced in October 2013 and its reinvestment period ended in October 2016. On November 15, 2016, the Company completed the second refinancing of the Saratoga CLO. The Saratoga CLO refinancing, among other things, extended its reinvestment period to October 2018, and extended its legal maturity date to October 2025. Following the refinancing, the Saratoga CLO portfolio remained at the same size and with a similar capital structure of approximately $300.0 million in aggregate principal amount of predominantly senior secured first lien term loans. In addition to refinancing its liabilities, we also purchased $4.5 million in aggregate principal amount of the Class F notes tranche of the Saratoga CLO at par, with a coupon of LIBOR plus 8.5%.

The Saratoga CLO remains 100.0% owned and managed by Saratoga Investment Corp. Following the refinancing, the Company receives a base management fee of 0.10% and a subordinated management fee of 0.40% of the fee basis amount at the beginning of the collection period, paid quarterly to the extent of available proceeds. The Company is also entitled to an incentive management fee equal to 20.0% of excess cash flow to the extent the Saratoga CLO subordinated notes receive an internal rate of return paid in cash equal to or greater than 12.0%. For the three months ended May 31, 2018 and May 31, 2017, we accrued $0.4 million and $0.4 million in management fee income, respectively, and $0.8 million and $0.5 million in interest income, respectively, from Saratoga CLO. For the three months ended May 31, 2018 and May 31, 2017, we accrued $0.2 million and $0.1 million, respectively, related to the incentive management fee from Saratoga CLO.

As of May 31, 2018, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $12.0 million. The Company determines the fair value of its investment in the subordinated notes of Saratoga CLO based on the present value of the projected future cash flows of the subordinated notes over the life of Saratoga CLO. As of May 31, 2018, Saratoga CLO had investments with a principal balance of $309.7 million and a weighted average spread over LIBOR of 3.9%, and had debt with a principal balance outstanding of $282.4 million with a weighted average spread over LIBOR of 2.4%. As a result, Saratoga CLO earns a “spread” between the interest income it receives on its investments and the interest expense it pays on its debt and other operating expenses, which is distributed quarterly to the Company as the holder of its subordinated notes. At May 31, 2018, the present value of the projected future cash flows of the subordinated notes was approximately $12.3 million, using a 15.0% discount rate. Saratoga Investment Corp. invested $32.8 million into the CLO since January 2008, and to date has since received distributions of $54.7 million, management fees of $18.4 million and incentive fees of $0.7 million.

As of February 28, 2018, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $11.9 million. The Company determines the fair value of its investment in the subordinated notes of Saratoga CLO based on the present value of the projected future cash flows of the subordinated notes over the life of Saratoga CLO. At February 28, 2018, Saratoga CLO had investments with a principal balance of $310.4 million and a weighted average spread over LIBOR of 3.9%, and had debt with a principal balance outstanding of $282.4 million with a weighted average spread over LIBOR of 2.4%. As a result, Saratoga CLO earns a “spread” between the interest income it receives on its investments and the interest expense it pays on its debt and other operating expenses, which is distributed quarterly to the Company as the holder of its subordinated notes. At February 28, 2018, the present value of the projected future cash flows of the subordinated notes, was approximately $12.2 million, using a 15.0% discount rate.

Below is certain financial information from the separate financial statements of Saratoga CLO as of May 31, 2018 (unaudited) and February 28, 2018 and for the three months ended May 31, 2018 (unaudited) and May 31, 2017 (unaudited).

 

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Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities

 

     As of  
     May 31, 2018     February 28, 2018  
     (unaudited)        

ASSETS

    

Investments

    

Loans at fair value (amortized cost of $307,443,676 and $307,926,355, respectively)

   $ 305,230,848     $ 305,823,704  

Equities at fair value (amortized cost of $3,531,218 and $3,531,218, respectively)

     6,599       6,599  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $310,974,894 and $311,457,573, respectively)

     305,237,447       305,830,303  

Cash and cash equivalents

     8,913,646       5,769,820  

Receivable from open trades

     4,874,864       12,395,571  

Interest receivable

     1,431,653       1,653,928  
  

 

 

   

 

 

 

Total assets

   $ 320,457,610     $ 325,649,622  
  

 

 

   

 

 

 

LIABILITIES

    

Interest payable

   $ 1,515,076     $ 1,190,428  

Payable from open trades

     19,660,146       24,471,358  

Accrued base management fee

     36,785       33,545  

Accrued subordinated management fee

     147,140       134,179  

Accrued incentive fee

     92,952       65,300  

Class A-1 Notes - SIC CLO 2013-1, Ltd.

     170,000,000       170,000,000  

Class A-2 Notes - SIC CLO 2013-1, Ltd.

     20,000,000       20,000,000  

Class B Notes - SIC CLO 2013-1, Ltd.

     44,800,000       44,800,000  

Class C Notes - SIC CLO 2013-1, Ltd.

     16,000,000       16,000,000  

Discount on Class C Notes - SIC CLO 2013-1, Ltd.

     (66,099     (68,370

Class D Notes - SIC CLO 2013-1, Ltd.

     14,000,000       14,000,000  

Discount on Class D Notes - SIC CLO 2013-1, Ltd.

     (306,863     (317,409

Class E Notes - SIC CLO 2013-1, Ltd.

     13,100,000       13,100,000  

Class F Notes - SIC CLO 2013-1, Ltd.

     4,500,000       4,500,000  

Deferred debt financing costs, SIC CLO 2013-1, Ltd. Notes

     (982,551     (1,014,090

Subordinated Notes

     30,000,000       30,000,000  
  

 

 

   

 

 

 

Total liabilities

   $ 332,496,586     $ 336,894,941  
  

 

 

   

 

 

 

Commitments and contingencies

    

NET ASSETS

    

Ordinary equity, par value $1.00, 250 ordinary shares authorized, 250 and 250 issued and outstanding, respectively

   $ 250     $ 250  

Accumulated loss

     (11,245,569     (12,974,026

Net gain (loss)

     (793,657     1,728,457  
  

 

 

   

 

 

 

Total net assets

     (12,038,976     (11,245,319
  

 

 

   

 

 

 

Total liabilities and net assets

   $   320,457,610     $   325,649,622  
  

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Operations

(unaudited)

 

     For the three months ended  
     May 31, 2018     May 31, 2017  

INVESTMENT INCOME

    

Interest from investments

   $ 5,032,427     $ 3,977,871  

Interest from cash and cash equivalents

     4,015       5,083  

Other income

     142,957       160,614  
  

 

 

   

 

 

 

Total investment income

     5,179,399       4,143,568  
  

 

 

   

 

 

 

EXPENSES

    

Interest expense

     3,949,820       3,623,558  

Professional fees

     25,888       34,551  

Miscellaneous fee expense

     27,389       10,126  

Base management fee

     77,039       75,136  

Subordinated management fee

     308,155       300,545  

Incentive fees

     226,835       105,295  

Trustee expenses

     45,468       36,168  

Amortization expense

     44,356       44,357  
  

 

 

   

 

 

 

Total expenses

     4,704,950       4,229,736  
  

 

 

   

 

 

 

NET INVESTMENT INCOME (LOSS)

     474,449       (86,168
  

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

    

Net realized gain (loss) from investments

     (1,157,929     293,858  

Net change in unrealized depreciation on investments

     (110,177     (47,767
  

 

 

   

 

 

 

Net realized and unrealized gain (loss) on investments

     (1,268,106     246,091  
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ (793,657   $ 159,923  
  

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Schedule of Investments

May 31, 2018

(unaudited)

 

Issuer Name

 

Industry

 

Asset Name

 

Asset
Type

 

Reference Rate/Spread

  LIBOR
Floor
    Current
Rate
(All In)
    Maturity
Date
    Principal/
Number of
Shares
    Cost     Fair Value  

Education Management II LLC

  Leisure Goods/Activities/Movies   A-1 Preferred Shares   Equity   —       —         —         —         6,692     $ 669,214     $ 1,539  

Education Management II LLC

  Leisure Goods/Activities/Movies   A-2 Preferred Shares   Equity   —       —         —         —         18,975       1,897,538       4,364  

New Millennium Holdco, Inc.

  Healthcare   Common Stock   Equity   —       —         —         —         14,813       964,466       696  

24 Hour Fitness Worldwide, Inc.

  Leisure Goods/Activities/Movies   Term Loan (5/18)   Loan   3M USD LIBOR + 3.50%     0.00     5.86     5/30/2025     $ 2,000,000       1,990,000       1,997,500  

ABB Con-Cise Optical Group LLC

  Healthcare   Term Loan B   Loan   3M USD LIBOR + 5.00%     1.00     6.94     6/15/2023       1,963,941       1,944,777       1,973,761  

Acosta, Inc.

  Business Equipment & Services   Term Loan B (1st Lien)   Loan   1M USD LIBOR + 3.25%     1.00     5.23     9/26/2021       1,930,300       1,922,347       1,527,562  

ADMI Corp.

  Healthcare   Term Loan B   Loan   1M USD LIBOR + 3.25%     0.00     5.23     4/30/2025       2,000,000       1,990,068       2,003,120  

Advantage Sales & Marketing Inc.

  Business Equipment & Services   First Lien Term Loan   Loan   1M USD LIBOR + 3.25%     1.00     5.23     7/23/2021       2,414,925       2,413,133       2,295,386  

Advantage Sales & Marketing Inc.

  Business Equipment & Services   Term Loan B Incremental   Loan   1M USD LIBOR + 3.25%     1.00     5.23     7/23/2021       498,744       489,210       474,804  

Aegis Toxicology Sciences Corporation

  Healthcare   Term Loan   Loan   3M USD LIBOR + 5.50%     1.00     7.87     5/9/2025       4,000,000       3,940,000       3,960,000  

Agrofresh, Inc.

  Ecological Services & Equipment   Term Loan   Loan   3M USD LIBOR + 4.75%     1.00     7.11     7/30/2021       2,942,436       2,937,033       2,921,603  

AI Mistral (Luxembourg) Subco Sarl

  Surface Transport   Term Loan   Loan   1M USD LIBOR + 3.00%     1.00     4.98     3/11/2024       495,000       495,000       492,525  

Akorn, Inc.

  Drugs   Term Loan B   Loan   1M USD LIBOR + 4.25%     1.00     6.25     4/16/2021       398,056       397,285       387,110  

Albertsons Companies, LLC

  Food Products   FILO Term Loan   Loan   3M USD LIBOR + 3.00%     0.00     5.36     5/3/2023       250,000       248,750       250,188  

Albertson’s LLC

  Food Products   Term Loan B4 (5/17)   Loan   1M USD LIBOR + 2.75%     0.75     4.73     8/25/2021       2,647,646       2,635,181       2,618,151  

Alion Science and Technology Corporation

  Conglomerates   Term Loan B (1st Lien)   Loan   1M USD LIBOR + 4.50%     1.00     6.48     8/19/2021       2,826,521       2,818,464       2,837,121  

Alpha 3 B.V.

  Chemicals & Plastics   Term Loan B1   Loan   3M USD LIBOR + 3.00%     1.00     5.30     1/31/2024       248,125       247,598       247,428  

Altisource S.a r.l.

  Financial Intermediaries   Term Loan B (03/18)   Loan   3M USD LIBOR + 4.00%     1.00     6.31     4/3/2024       2,000,000       1,981,642       1,983,340  

American Greetings Corporation

  Publishing   Term Loan   Loan   1M USD LIBOR + 4.50%     1.00     6.48     4/5/2024       1,000,000       980,351       1,007,500  

Anchor Glass Container Corporation

  Containers & Glass Products   Term Loan (07/17)   Loan   1M USD LIBOR + 2.75%     1.00     4.69     12/7/2023       493,769       491,665       458,282  

APCO Holdings, Inc.

  Automotive   Term Loan   Loan   1M USD LIBOR + 6.00%     1.00     7.98     1/31/2022       1,820,865       1,786,386       1,761,687  

Aramark Services, Inc.

  Food Products   Term Loan B-2   Loan   1M USD LIBOR + 1.75%     0.00     3.72     3/28/2024       1,612,143       1,612,143       1,617,189  

Arctic Glacier U.S.A., Inc.

  Food Products   Term Loan (3/18)   Loan   1M USD LIBOR + 3.50%     1.00     5.48     3/20/2024       524,934       524,866       528,436  

ASG Technologies Group, Inc.

  Electronics/Electrical   Term Loan   Loan   1M USD LIBOR + 3.50%     1.00     5.48     7/31/2024       497,503       495,240       497,817  

Astoria Energy LLC

  Utilities   Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     5.99     12/24/2021       1,436,736       1,425,778       1,445,270  

Asurion, LLC

  Property & Casualty Insurance   Term Loan B-4 (Replacement)   Loan   1M USD LIBOR + 2.75%     0.00     4.73     8/4/2022       2,298,766       2,289,094       2,306,237  

Asurion, LLC

  Property & Casualty Insurance   Term Loan B6   Loan   1M USD LIBOR + 2.75%     0.00     4.73     11/3/2023       501,842       497,574       503,724  

ATS Consolidated, Inc.

  Building & Development   Term Loan   Loan   1M USD LIBOR + 3.75%     0.00     5.66     3/3/2025       500,000       497,521       503,750  

Avaya, Inc.

  Telecommunications   Exit Term Loan   Loan   1M USD LIBOR + 4.75%     1.00     6.68     12/16/2024       997,500       988,247       1,002,627  

Avolon TLB Borrower 1 US LLC

  Equipment Leasing   Term Loan B3   Loan   1M USD LIBOR + 2.00%     0.75     3.95     1/15/2025       992,500       987,573       983,131  

Blackboard Inc.

  Conglomerates   Term Loan B4   Loan   3M USD LIBOR + 5.00%     1.00     7.36     6/30/2021       2,955,000       2,938,192       2,677,969  

Blount International, Inc.

  Forest Products   Term Loan B (10/17)   Loan   1M USD LIBOR + 4.25%     1.00     6.16     4/12/2023       498,750       497,677       504,361  

Blucora, Inc.

  Electronics/Electrical   Term Loan (11/17)   Loan   2M USD LIBOR + 3.00%     1.00     5.06     5/22/2024       706,667       703,489       708,433  

BMC Software Finance, Inc.

  Business Equipment & Services   Term Loan B (11/17)   Loan   1M USD LIBOR + 3.25%     0.00     5.23     9/12/2022       582,567       573,335       583,074  

Brightview Landscapes, LLC

  Building & Development   Term Loan   Loan   1M USD LIBOR + 3.00%     1.00     4.96     12/18/2020       1,416,677       1,409,199       1,423,406  

Broadstreet Partners, Inc.

  Financial Intermediaries   Term Loan B2   Loan   1M USD LIBOR + 3.25%     1.00     5.23     11/8/2023       1,043,099       1,040,612       1,043,099  

Cable & Wireless Communications Limited

  Telecommunications   Term Loan B4   Loan   1M USD LIBOR + 3.25%     0.00     5.23     1/30/2026       2,500,000       2,496,875       2,512,500  

Cable One, Inc.

  Telecommunications   Term Loan B   Loan   3M USD LIBOR + 1.75%     0.00     4.06     5/1/2024       496,250       495,732       498,523  

Canyon Valor Companies, Inc.

  Business Equipment & Services   Term Loan B   Loan   2M USD LIBOR + 3.25%     0.00     5.31     6/16/2023       966,014       963,599       971,569  

Capital Automotive L.P.

  Building & Development   First Lien Term Loan   Loan   1M USD LIBOR + 2.50%     1.00     4.49     3/25/2024       481,693       479,630       481,240  

Caraustar Industries Inc.

  Forest Products   Term Loan B (02/17)   Loan   3M USD LIBOR + 5.50%     1.00     7.80     3/14/2022       495,000       493,936       499,341  

CareerBuilder, LLC

  Business Equipment & Services   Term Loan   Loan   3M USD LIBOR + 6.75%     1.00     9.05     7/31/2023       1,925,590       1,876,449       1,922,374  

Casa Systems, Inc.

  Telecommunications   Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     5.98     12/20/2023       1,481,250       1,469,057       1,490,508  

Catalent Pharma Solutions Inc

  Drugs   Term Loan B (new)   Loan   1M USD LIBOR + 2.25%     1.00     4.23     5/20/2024       418,513       417,541       419,936  

Cengage Learning, Inc.

  Publishing   Term Loan   Loan   1M USD LIBOR + 4.25%     1.00     6.18     6/7/2023       1,464,371       1,450,353       1,310,978  

CenturyLink, Inc.

  Telecommunications   Term Loan B   Loan   1M USD LIBOR + 2.75%     0.00     4.73     1/31/2025       2,992,500       2,985,901       2,953,598  

CEOC, LLC

  Lodging & Casinos   Term Loan   Loan   1M USD LIBOR + 2.00%     0.00     3.98     10/4/2024       997,500       997,500       996,882  

CH Hold Corp.

  Automotive   Term Loan   Loan   1M USD LIBOR + 3.00%     1.00     4.98     2/1/2024       246,053       245,620       246,668  

Charter Communications Operating, LLC.

  Cable & Satellite Television   Term Loan (12/17)   Loan   1M USD LIBOR + 2.00%     0.00     3.99     4/30/2025       1,596,000       1,594,219       1,597,995  

CHS/Community Health Systems, Inc.

  Healthcare   Term Loan G   Loan   3M USD LIBOR + 3.00%     1.00     5.31     12/31/2019       612,172       604,984       608,652  

CHS/Community Health Systems, Inc.

  Healthcare   Term Loan H   Loan   3M USD LIBOR + 3.25%     1.00     5.56     1/27/2021       1,133,925       1,107,546       1,103,173  

Concordia Healthcare Corp.

  Drugs   Term Loan B   Loan   1M USD LIBOR + 4.25%     1.00     6.23     10/21/2021       1,917,500       1,852,480       1,725,213  

Consolidated Aerospace Manufacturing, LLC

  Aerospace & Defense   Term Loan (1st Lien)   Loan   1M USD LIBOR + 3.75%     1.00     5.73     8/11/2022       1,418,750       1,414,082       1,420,523  

Consolidated Communications, Inc.

  Telecommunications   Term Loan B   Loan   1M USD LIBOR + 3.00%     1.00     4.99     10/5/2023       496,875       494,667       493,770  

Covia Holdings Corporation

  Nonferrous Metals/Minerals   Term Loan   Loan   3M USD LIBOR + 3.75%     1.00     6.11     6/1/2025       1,000,000       1,000,000       1,000,000  

CPI Acquisition Inc

  Financial Intermediaries   Term Loan B (1st Lien)   Loan   6M USD LIBOR + 4.50%     1.00     6.36     8/17/2022       1,436,782       1,422,424       894,914  

CT Technologies Intermediate Hldgs, Inc

  Healthcare   New Term Loan   Loan   1M USD LIBOR + 4.25%     1.00     6.23     12/1/2021       1,451,456       1,443,051       1,407,913  

Cumulus Media Holdings Inc.

  Radio & Television   Term Loan   Loan   Prime 2.25%     1.00     7.00     12/23/2020       448,889       444,403       388,850  

Daseke Companies, Inc.

  Surface Transport   Replacement Term Loan   Loan   1M USD LIBOR + 5.00%     1.00     6.98     2/27/2024       1,990,618       1,979,125       2,003,059  

Dell International L.L.C.

  Electronics/Electrical   Term Loan B   Loan   1M USD LIBOR + 2.00%     0.75     3.99     9/7/2023       1,492,500       1,491,539       1,490,485  

Delta 2 (Lux) SARL

  Leisure Goods/Activities/Movies   Term Loan B   Loan   1M USD LIBOR + 2.50%     1.00     4.48     2/1/2024       1,318,289       1,314,444       1,308,956  

Dex Media, Inc.

  Publishing   Term Loan (07/16)   Loan   1M USD LIBOR + 10.00%     1.00     11.99     7/29/2021       27,601       27,601       28,199  

DHX Media Ltd.

  Leisure Goods/Activities/Movies   Term Loan   Loan   1M USD LIBOR + 3.75%     1.00     5.73     12/29/2023       496,250       494,073       495,009  

Digital Room Holdings, Inc.

  Publishing   Term Loan   Loan   1M USD LIBOR + 5.00%     1.00     6.99     12/29/2023       2,493,750       2,469,995       2,475,047  

Dole Food Company, Inc.

  Food Products   Term Loan B   Loan   Prime 1.75%     1.00     4.71     4/8/2024       490,625       488,532       490,713  

Drew Marine Group Inc.

  Chemicals & Plastics   First Lien Term Loan   Loan   1M USD LIBOR + 3.25%     1.00     5.23     11/19/2020       2,863,470       2,846,294       2,856,311  

DTZ U.S. Borrower, LLC

  Building & Development   Term Loan B   Loan   3M USD LIBOR + 3.25%     1.00     5.57     11/4/2021       2,935,087       2,921,470       2,932,886  

Eagletree-Carbide Acquisition Corp.

  Electronics/Electrical   Term Loan   Loan   3M USD LIBOR + 4.75%     1.00     7.05     8/28/2024       2,490,000       2,469,560       2,514,900  

Education Management II LLC

  Leisure Goods/Activities/Movies   Term Loan A   Loan   Prime 5.50%     1.00     10.25     7/2/2020       423,861       416,668       84,772  

Education Management II LLC

  Leisure Goods/Activities/Movies   Term Loan B   Loan   Prime 8.50%     1.00     13.25     7/2/2020       954,307       941,303       4,772  

EIG Investors Corp.

  Electronics/Electrical   Term Loan   Loan   3M USD LIBOR + 4.00%     1.00     6.32     2/9/2023       465,548       464,432       467,294  

Emerald 2 Ltd. (Eagle US / Emerald Newco / ERM Canada / ERM US)

  Ecological Services & Equipment   Term Loan   Loan   3M USD LIBOR + 4.00%     1.00     6.45     5/14/2021       991,629       986,902       989,775  

Emerald Performance Materials, LLC

  Chemicals & Plastics   Term Loan   Loan   1M USD LIBOR + 3.50%     1.00     5.48     7/30/2021       479,988       478,808       481,586  

Endo Luxembourg Finance Company I S.a.r.l.

  Drugs   Term Loan B (4/17)   Loan   1M USD LIBOR + 4.25%     0.75     6.25     4/29/2024       992,500       988,246       980,977  

Engility Corporation

  Aerospace & Defense   Term Loan B1   Loan   1M USD LIBOR + 2.25%     0.00     4.23     8/12/2020       145,655       145,252       145,837  

Equian, LLC

  Healthcare   Term Loan B   Loan   1M USD LIBOR + 3.25%     1.00     5.20     5/20/2024       1,985,000       1,975,865       1,994,925  

Evergreen AcqCo 1 LP

  Retailers (Except Food & Drug)   Term Loan C   Loan   3M USD LIBOR + 3.75%     1.25     6.11     7/9/2019       942,637       940,769       906,110  

EWT Holdings III Corp.

  Ecological Services & Equipment   Term Loan   Loan   3M USD LIBOR + 3.00%     1.00     5.30     12/20/2024       2,830,980       2,817,931       2,846,919  

Extreme Reach, Inc.

  Electronics/Electrical   Term Loan   Loan   1M USD LIBOR + 6.25%     1.00     8.24     2/7/2020       2,469,731       2,456,273       2,467,682  

Fastener Acquisition, Inc.

  Industrial Equipment   Term Loan B   Loan   3M USD LIBOR + 4.25%     1.00     6.42     3/28/2025       500,000       497,543       501,250  

FinCo I LLC

  Financial Intermediaries   Term Loan B   Loan   1M USD LIBOR + 2.50%     0.00     4.40     12/27/2022       497,796       496,785       498,572  

First Data Corporation

  Financial Intermediaries   2024A New Dollar Term Loan   Loan   1M USD LIBOR + 2.00%     0.00     3.97     4/26/2024       1,741,492       1,665,132       1,740,255  

First Eagle Holdings, Inc.

  Financial Intermediaries   Term Loan B (10/17)   Loan   3M USD LIBOR + 3.00%     0.75     5.30     12/1/2022       1,467,653       1,459,377       1,476,826  

Fitness International, LLC

  Leisure Goods/Activities/Movies   Term Loan B (4/18)   Loan   6M USD LIBOR + 3.25%     0.00     5.53     4/18/2025       1,290,165       1,268,618       1,296,344  

Fusion Connect, Inc.

  Telecommunications   Term Loan B   Loan   3M USD LIBOR + 7.50%     1.00     8.50     5/4/2023       2,000,000       1,920,000       1,920,000  

General Nutrition Centers, Inc.

  Retailers (Except Food & Drug)   FILO Term Loan   Loan   1M USD LIBOR + 7.00%     0.00     8.99     1/3/2023       585,849       585,139       603,131  

General Nutrition Centers, Inc.

  Retailers (Except Food & Drug)   Term Loan B2   Loan   1M USD LIBOR + 8.75%     0.00     10.74     3/4/2021       1,439,121       1,435,218       1,360,688  

GI Revelation Acquisition LLC

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 5.00%     0.00     6.93     4/16/2025       1,000,000       995,000       1,010,630  

Gigamon Inc.

  Business Equipment & Services   Term Loan B   Loan   3M USD LIBOR + 4.50%     1.00     6.80     12/27/2024       1,995,000       1,976,052       2,004,975  

Global Tel*Link Corporation

  Telecommunications   Term Loan   Loan   3M USD LIBOR + 4.00%     1.25     6.30     5/26/2020       3,088,419       3,083,412       3,105,406  

GlobalLogic Holdings Inc.

  Business Equipment & Services   (2/17) Term Loan B   Loan   3M USD LIBOR + 3.75%     1.00     6.05     6/20/2022       496,250       492,654       497,491  

Go Wireless, Inc.

  Telecommunications   Term Loan   Loan   1M USD LIBOR + 6.50%     1.00     8.48     12/22/2024       1,975,000       1,956,403       1,960,188  

Goodyear Tire & Rubber Company, The

  Chemicals & Plastics   Second Lien Term Loan   Loan   1M USD LIBOR + 2.00%     0.00     3.93     3/7/2025       2,000,000       2,000,000       2,003,760  

Grosvenor Capital Management Holdings, LLLP

  Property & Casualty Insurance   Term Loan B   Loan   1M USD LIBOR + 2.75%     1.00     4.73     3/28/2025       992,443       987,496       996,165  

Guidehouse LLP

  Business Equipment & Services   Term Loan   Loan   3M USD LIBOR + 3.25%     0.00     5.16     5/1/2025       2,000,000       1,995,000       2,010,000  

Hampton Rubber Company

  Industrial Equipment   First Lien Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     5.98     3/26/2021       960,000       957,846       916,800  

Hargray Communications Group, Inc.

  Cable & Satellite Television   Term Loan B   Loan   1M USD LIBOR + 3.00%     1.00     4.98     5/16/2024       992,500       990,329       994,981  

Harland Clarke Holdings Corp.

  Publishing   Term Loan   Loan   3M USD LIBOR + 4.75%     1.00     7.05     11/3/2023       1,915,875       1,904,627       1,886,102  

HD Supply Waterworks, Ltd.

  Industrial Equipment   Term Loan   Loan   6M USD LIBOR + 3.00%     1.00     5.12     8/1/2024       497,500       496,327       499,779  

Heartland Dental, LLC

  Healthcare   Term Loan (04/18)   Loan   1M USD LIBOR + 3.75%     0.00     5.73     4/30/2025       1,739,130       1,730,536       1,740,765  

Helix Gen Funding, LLC

  Utilities   Term Loan B (02/17)   Loan   1M USD LIBOR + 3.75%     1.00     5.73     6/3/2024       460,746       459,199       461,769  

Hemisphere Media Holdings, LLC

  Cable & Satellite Television   Term Loan (2/17)   Loan   1M USD LIBOR + 3.50%     0.00     5.48     2/14/2024       2,450,006       2,460,643       2,431,630  

HLF Financing US, LLC

  Food/Drug Retailers   Term Loan B (HLF Financing)   Loan   1M USD LIBOR + 5.50%     0.75     7.48     2/15/2023       1,850,000       1,840,316       1,865,263  

Hoffmaster Group, Inc.

  Containers & Glass Products   Initial Term Loan   Loan   3M USD LIBOR + 4.50%     1.00     6.80     11/21/2023       987,500       990,746       990,788  

Hostess Brands, LLC

  Food Products   Cov-Lite Term Loan B   Loan   1M USD LIBOR + 2.25%     0.75     4.23     8/3/2022       1,478,853       1,475,643       1,482,550  

Hudson River Trading LLC

  Financial Intermediaries   Term Loan B   Loan   1M USD LIBOR + 4.25%     0.00     6.23     4/3/2025       2,000,000       1,980,297       2,005,000  

Hyland Software, Inc.

  Business Equipment & Services   First Lien Term Loan (New)   Loan   1M USD LIBOR + 3.25%     0.75     5.23     7/1/2022       1,095,732       1,093,539       1,103,172  

Hyperion Refinance S.a.r.l.

  Insurance   Tem Loan (12/17)   Loan   1M USD LIBOR + 3.50%     1.00     5.50     12/20/2024       1,995,000       1,985,862       1,998,990  

Idera, Inc.

  Business Equipment & Services   Term Loan B   Loan   1M USD LIBOR + 4.50%     1.00     6.49     6/28/2024       1,678,227       1,662,232       1,699,205  

IG Investments Holdings, LLC

  Business Equipment & Services   Term Loan   Loan   2M USD LIBOR + 3.50%     1.00     5.61     5/23/2025       3,415,333       3,395,832       3,423,871  

Inmar, Inc.

  Business Equipment & Services   Term Loan B   Loan   1M USD LIBOR + 3.50%     1.00     5.48     5/1/2024       496,250       491,901       498,424  

IRB Holding Corp.

  Food Service   Term Loan B   Loan   2M USD LIBOR + 3.25%     1.00     5.21     2/5/2025       500,000       498,918       501,770  

Isagenix International LLC

  Food/Drug Retailers   Term Loan   Loan   3M USD LIBOR + 5.75%     1.00     8.06     4/25/2025       2,000,000       1,980,000       1,997,500  

J. Crew Group, Inc.

  Retailers (Except Food & Drug)   Term Loan (7/17)   Loan   3M USD LIBOR + 3.22%     1.00     5.39     3/5/2021       827,941       827,941       696,157  

Jill Holdings LLC

  Retailers (Except Food & Drug)   Term Loan (1st Lien)   Loan   3M USD LIBOR + 5.00%     1.00     7.36     5/9/2022       869,606       866,893       852,214  

Kinetic Concepts, Inc.

  Healthcare   1/17 USD Term Loan   Loan   3M USD LIBOR + 3.25%     1.00     5.55     2/2/2024       2,382,000       2,372,663       2,394,506  

Lakeland Tours, LLC

  Business Equipment & Services   Term Loan B   Loan   3M USD LIBOR + 4.00%     1.00     6.12     12/16/2024       1,847,826       1,843,697       1,853,610  

Lannett Company, Inc.

  Drugs   Term Loan B   Loan   1M USD LIBOR + 5.38%     1.00     7.36     11/25/2022       2,661,922       2,620,976       2,650,237  

Learfield Communications LLC

  Telecommunications   Initial Term Loan (A-L Parent)   Loan   1M USD LIBOR + 3.25%     1.00     5.24     12/1/2023       493,750       491,851       496,530  

Legalzoom.com, Inc.

  Business Equipment & Services   Term Loan B   Loan   1M USD LIBOR + 4.50%     1.00     6.45     11/21/2024       997,500       988,354       1,004,981  

Lighthouse Network, LLC

  Financial Intermediaries   Term Loan B   Loan   1M USD LIBOR + 4.50%     1.00     6.48     12/2/2024       997,500       992,800       1,003,734  

Lightstone Holdco LLC

  Utilities   Term Loan B   Loan   1M USD LIBOR + 3.75%     1.00     5.73     1/30/2024       905,435       905,435       908,405  

Lightstone Holdco LLC

  Utilities   Term Loan C   Loan   1M USD LIBOR + 3.75%     1.00     5.73     1/30/2024       57,971       57,971       58,161  

Lindblad Expeditions, Inc.

  Leisure Goods/Activities/Movies   Cayman Term Loan   Loan   3M USD LIBOR + 3.50%     0.00     5.95     3/27/2025       100,000       99,752       101,000  

Lindblad Expeditions, Inc.

  Leisure Goods/Activities/Movies   US 2018 Term Loan   Loan   3M USD LIBOR + 3.50%     0.00     5.95     3/27/2025       400,000       399,008       404,000  

Liquidnet Holdings, Inc.

  Financial Intermediaries   Term Loan B   Loan   1M USD LIBOR + 3.75%     1.00     5.73     7/15/2024       481,250       476,946       482,453  

LPL Holdings, Inc.

  Financial Intermediaries   Incremental Term Loan B   Loan   6M USD LIBOR + 2.25%     0.00     4.56     9/23/2024       1,736,897       1,733,099       1,736,897  

Mayfield Agency Borrower Inc.

  Financial Intermediaries   Term Loan   Loan   1M USD LIBOR + 4.50%     0.00     6.48     2/28/2025       500,000       497,560       500,625  

McAfee, LLC

  Electronics/Electrical   Term Loan B   Loan   1M USD LIBOR + 4.50%     1.00     6.47     9/30/2024       2,239,373       2,220,495       2,253,997  

McDermott International, Inc.

  Building & Development   Term Loan B   Loan   1M USD LIBOR + 5.00%     1.00     6.91     5/12/2025       2,000,000       1,960,098       2,015,460  

McGraw-Hill Global Education Holdings, LLC

  Publishing   Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     5.98     5/4/2022       982,420       979,210       955,404  

Meredith Corporation

  Publishing   Term Loan B   Loan   1M USD LIBOR + 3.00%     0.00     4.98     1/31/2025       1,000,000       997,750       1,003,380  

Michaels Stores, Inc.

  Retailers (Except Food & Drug)   Term Loan B   Loan   1M USD LIBOR + 2.50%     1.00     4.46     1/30/2023       2,651,055       2,637,744       2,647,264  

Micro Holding Corp.

  Electronics/Electrical   First Lien Term Loan   Loan   1M USD LIBOR + 3.75%     0.00     5.68     9/13/2024       1,667,804       1,662,003       1,667,804  

Midas Intermediate Holdco II, LLC

  Automotive   Term Loan   Loan   3M USD LIBOR + 2.75%     1.00     5.05     8/18/2021       241,320       240,683       237,700  

Midwest Physician Administrative Services LLC

  Healthcare   Term Loan (2/18)   Loan   1M USD LIBOR + 2.75%     0.75     4.71     8/15/2024       977,985       973,504       970,631  

Milk Specialties Company

  Food Products   Term Loan (2/17)   Loan   3M USD LIBOR + 4.00%     1.00     6.30     8/16/2023       985,000       977,047       985,621  

Mister Car Wash Holdings, Inc.

  Automotive   Term Loan   Loan   6M USD LIBOR + 3.25%     1.00     5.70     8/20/2021       1,579,428       1,575,137       1,584,371  

MRC Global (US) Inc.

  Nonferrous Metals/Minerals   Term Loan B2   Loan   1M USD LIBOR + 3.00%     0.00     4.98     9/20/2024       498,750       497,510       499,997  

NAI Entertainment Holdings LLC

  Leisure Goods/Activities/Movies   Term Loan B   Loan   1M USD LIBOR + 2.50%     1.00     4.43     5/8/2025       1,000,000       997,500       997,500  

Navistar, Inc.

  Automotive   Term Loan B (10/17)   Loan   1M USD LIBOR + 3.50%     0.00     5.43     11/6/2024       1,995,000       1,986,126       2,003,319  

NCI Building Systems, Inc.

  Building & Development   Term Loan   Loan   1M USD LIBOR + 2.00%     0.00     3.98     2/7/2025       500,000       498,853       499,845  

New Media Holdings II LLC

  Radio & Television   Term Loan   Loan   1M USD LIBOR + 6.25%     1.00     8.23     7/14/2022       5,617,044       5,594,624       5,655,689  

NMI Holdings, Inc.

  Insurance   Term Loan   Loan   1M USD LIBOR + 5.00%     1.00     6.92     5/23/2023       500,000       497,500       501,250  

Novetta Solutions, LLC

  Aerospace & Defense   Second Lien Term Loan   Loan   1M USD LIBOR + 8.50%     1.00     10.41     10/16/2023       1,000,000       992,510       890,000  

Novetta Solutions, LLC

  Aerospace & Defense   Term Loan   Loan   1M USD LIBOR + 5.00%     1.00     6.99     10/17/2022       1,954,870       1,941,654       1,891,337  

NPC International, Inc.

  Food Service   Term Loan   Loan   1M USD LIBOR + 3.50%     1.00     5.48     4/19/2024       496,250       495,745       500,905  

NXT Capital, LLC

  Financial Intermediaries   Term Loan (New)   Loan   1M USD LIBOR + 3.50%     1.00     5.49     11/23/2022       1,234,994       1,230,982       1,241,169  

Office Depot, Inc.

  Retailers (Except Food & Drug)   Term Loan B   Loan   3M USD LIBOR + 7.00%     1.00     8.94     11/8/2022       2,437,500       2,374,681       2,504,531  

Onex Carestream Finance LP

  Healthcare   Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     5.98     6/7/2019       3,037,274       3,034,442       3,038,519  

Openlink International Holdings, Inc.

  Financial Intermediaries   Term Loan B (02/18)   Loan   3M USD LIBOR + 5.00%     1.00     7.22     3/21/2025       500,000       497,540       502,500  

Owens & Minor Distribution, Inc.

  Healthcare   Term Loan B   Loan   1M USD LIBOR + 4.50%     0.00     6.48     4/30/2025       500,000       490,000       488,335  

P.F. Chang’s China Bistro, Inc.

  Food Service   Term Loan B   Loan   6M USD LIBOR + 5.00%     1.00     6.52     9/1/2022       1,990,000       1,974,829       1,976,727  

P2 Upstream Acquisition Co.

  Electronics/Electrical   Term Loan   Loan   3M USD LIBOR + 4.00%     1.00     6.37     10/30/2020       953,058       950,975       945,910  

Peraton Corp.

  Aerospace & Defense   Term Loan   Loan   3M USD LIBOR + 5.25%     1.00     7.56     4/29/2024       1,985,000       1,976,440       1,992,444  

PetSmart, Inc.

  Retailers (Except Food & Drug)   Term Loan B-2   Loan   1M USD LIBOR + 3.00%     1.00     4.92     3/11/2022       970,000       966,567       755,611  

PGX Holdings, Inc.

  Financial Intermediaries   Term Loan   Loan   1M USD LIBOR + 5.25%     1.00     7.24     9/29/2020       2,734,264       2,724,677       2,665,907  

PI UK Holdco II Limited

  Financial Intermediaries   Term Loan (PI UK Holdco II)   Loan   1M USD LIBOR + 3.50%     1.00     5.48     1/3/2025       1,500,000       1,491,476       1,485,000  

Ping Identity Corporation

  Business Equipment & Services   Term Loan B   Loan   1M USD LIBOR + 3.75%     1.00     5.72     1/24/2025       500,000       497,730       501,250  

Planet Fitness Holdings, LLC

  Leisure Goods/Activities/Movies   Term Loan B   Loan   3M USD LIBOR + 2.75%     0.75     4.79     3/31/2021       2,362,362       2,357,602       2,375,166  

Plastipak Packaging, Inc

  Containers & Glass Products   Term Loan B (04/18)   Loan   1M USD LIBOR + 2.50%     0.00     4.49     10/15/2024       995,000       990,097       996,552  

Polycom, Inc.

  Telecommunications   Term Loan   Loan   1M USD LIBOR + 5.25%     1.00     7.21     9/27/2023       1,495,667       1,480,858       1,499,406  

Presidio, Inc.

  Electronics/Electrical   Term Loan B 2017   Loan   3M USD LIBOR + 2.75%     1.00     5.05     2/2/2024       1,817,288       1,775,570       1,820,014  

Prestige Brands, Inc.

  Drugs   Term Loan B4   Loan   1M USD LIBOR + 2.00%     0.00     3.98     1/26/2024       345,001       344,342       346,208  

Prime Security Services Borrower, LLC

  Electronics/Electrical   Refi Term Loan B-1   Loan   1M USD LIBOR + 2.75%     1.00     4.73     5/2/2022       1,965,212       1,957,200       1,958,727  

Project Accelerate Parent, LLC

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 4.25%     1.00     6.16     1/2/2025       2,000,000       1,990,695       1,999,960  

Project Leopard Holdings, Inc.

  Business Equipment & Services   2018 Repricing Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     5.98     7/7/2023       497,503       496,330       503,722  

Prometric Holdings Inc.

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 3.00%     1.00     4.99     1/29/2025       500,000       497,652       502,500  

Rackspace Hosting, Inc.

  Telecommunications   Term Loan B   Loan   3M USD LIBOR + 3.00%     1.00     5.36     11/3/2023       497,494       496,353       493,608  

Radio Systems Corporation

  Leisure Goods/Activities/Movies   Term Loan   Loan   1M USD LIBOR + 2.75%     1.00     4.73     5/2/2024       1,488,750       1,488,750       1,493,708  

Ranpak Corp.

  Business Equipment & Services   Term Loan B-1   Loan   1M USD LIBOR + 3.25%     1.00     5.23     10/1/2021       904,393       902,132       906,654  

Red Ventures, LLC

  Electronics/Electrical   Term Loan   Loan   1M USD LIBOR + 4.00%     0.00     5.98     11/8/2024       995,000       985,871       1,006,731  

Research Now Group, Inc.

  Electronics/Electrical   Term Loan   Loan   6M USD LIBOR + 5.50%     1.00     7.86     12/20/2024       2,992,500       2,850,458       2,907,722  

Resolute Investment Managers, Inc.

  Financial Intermediaries   Term Loan (10/17)   Loan   3M USD LIBOR + 3.25%     1.00     5.55     4/29/2022       720,812       720,812       722,614  

Reynolds Group Holdings Inc.

  Industrial Equipment   Term Loan (01/17)   Loan   1M USD LIBOR + 2.75%     0.00     4.72     2/6/2023       1,739,120       1,739,120       1,741,955  

RGIS Services, LLC

  Business Equipment & Services   Term Loan   Loan   6M USD LIBOR + 7.50%     1.00     9.47     3/31/2023       486,033       479,545       447,456  

Robertshaw US Holding Corp.

  Industrial Equipment   Term Loan B   Loan   1M USD LIBOR + 3.50%     1.00     5.50     2/28/2025       1,000,000       997,514       1,001,880  

Rovi Solutions Corporation

  Electronics/Electrical   Term Loan B   Loan   1M USD LIBOR + 2.50%     0.75     4.49     7/2/2021       1,443,750       1,440,347       1,445,555  

Russell Investments US Institutional Holdco, Inc.

  Financial Intermediaries   Term Loan B   Loan   3M USD LIBOR + 3.25%     1.00     5.55     6/1/2023       2,211,859       2,119,436       2,220,707  

Sahara Parent, Inc.

  Business Equipment & Services   Term Loan B   Loan   1M USD LIBOR + 5.00%     1.00     6.98     8/16/2024       1,990,000       1,972,221       1,985,503  

Sally Holdings, LLC

  Retailers (Except Food & Drug)   Term Loan   Loan   Fixed     0.00     4.50     7/5/2024       1,000,000       995,599       951,250  

Sally Holdings, LLC

  Retailers (Except Food & Drug)   Term Loan B   Loan   1M USD LIBOR + 2.25%     0.00     4.24     7/5/2024       995,000       990,162       976,344  

SCS Holdings I Inc.

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 4.25%     1.00     6.23     10/31/2022       2,223,146       2,195,580       2,234,261  

Seadrill Operating LP

  Oil & Gas   Term Loan B   Loan   3M USD LIBOR + 6.00%     1.00     8.30     2/21/2021       964,736       926,502       839,619  

SG Acquisition, Inc.

  Insurance   Term Loan (Safe-Guard)   Loan   3M USD LIBOR + 5.00%     1.00     7.30     3/29/2024       1,830,000       1,814,320       1,830,000  

Shearer’s Foods, LLC

  Food Products   Term Loan   Loan   3M USD LIBOR + 4.25%     1.00     6.55     6/30/2021       2,965,000       2,953,864       2,935,350  

Sitel Worldwide Corporation

  Telecommunications   Term Loan B1   Loan   3M USD LIBOR + 5.50%     1.00     7.88     9/20/2021       1,950,000       1,938,604       1,960,979  

SMB Shipping Logistics, LLC

  Surface Transport   Term Loan B   Loan   6M USD LIBOR + 4.00%     1.00     6.25     2/2/2024       1,984,975       1,983,632       1,987,456  

Sonneborn, LLC

  Chemicals & Plastics   Initial Term Loan   Loan   1M USD LIBOR + 3.75%     1.00     5.73     12/10/2020       1,127,032       1,125,756       1,139,711  

Sonneborn, LLC

  Chemicals & Plastics   Term Loan BV   Loan   1M USD LIBOR + 3.75%     1.00     5.73     12/10/2020       198,889       198,663       201,126  

Sophia, L.P.

  Conglomerates   Term Loan B   Loan   3M USD LIBOR + 3.25%     1.00     5.55     9/30/2022       1,900,652       1,893,460       1,902,001  

SRAM, LLC

  Industrial Equipment   Term Loan   Loan   Prime 1.75%     1.00     4.84     3/15/2024       2,346,854       2,327,566       2,352,720  

SS&C Technologies, Inc.

  Business Equipment & Services   Term Loan B3   Loan   1M USD LIBOR + 2.50%     0.00     4.48     4/16/2025       698,137       696,394       701,627  

SS&C Technologies, Inc.

  Business Equipment & Services   Term Loan B4   Loan   1M USD LIBOR + 2.50%     0.00     4.48     4/16/2025       261,382       260,730       262,689  

Staples, Inc.

  Retailers (Except Food & Drug)   Term Loan B (07/17)   Loan   3M USD LIBOR + 4.00%     1.00     6.36     9/12/2024       1,990,000       1,985,867       1,947,713  

Steak N Shake Operations, Inc.

  Food Service   Term Loan   Loan   1M USD LIBOR + 3.75%     1.00     5.74     3/19/2021       842,491       838,771       724,542  

Sybil Software LLC

  Electronics/Electrical   Term Loan B (4/18)   Loan   1M USD LIBOR + 2.50%     1.00     4.49     9/29/2023       703,741       700,245       706,479  

Ten-X, LLC

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     5.98     9/30/2024       1,995,000       1,992,947       1,973,812  

Townsquare Media, Inc.

  Radio & Television   Term Loan B (02/17)   Loan   1M USD LIBOR + 3.00%     1.00     4.98     4/1/2022       881,975       878,668       881,975  

Transdigm, Inc.

  Aerospace & Defense   Term Loan G   Loan   3M USD LIBOR + 2.50%     0.00     4.73     8/22/2024       4,179,620       4,187,143       4,167,666  

Travel Leaders Group, LLC

  Leisure Goods/Activities/Movies   Term Loan B (08/17)   Loan   6M USD LIBOR + 4.50%     0.00     7.00     1/25/2024       1,980,038       1,972,175       1,996,531  

TRC Companies, Inc.

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 3.50%     1.00     5.48     6/21/2024       2,985,000       2,971,652       3,007,388  

Trico Group LLC

  Containers & Glass Products   Term Loan   Loan   3M USD LIBOR + 6.50%     1.00     8.81     2/2/2024       3,000,000       2,941,062       3,015,000  

Truck Hero, Inc.

  Surface Transport   First Lien Term Loan   Loan   3M USD LIBOR + 3.75%     1.00     5.97     4/22/2024       2,979,987       2,958,104       2,983,711  

Trugreen Limited Partnership

  Chemicals & Plastics   Term Loan B (07/17)   Loan   1M USD LIBOR + 4.00%     1.00     5.93     4/13/2023       492,525       486,056       497,450  

Twin River Management Group, Inc.

  Lodging & Casinos   Term Loan   Loan   3M USD LIBOR + 3.50%     1.00     5.80     7/10/2020       720,915       721,697       722,717  

Uniti Group Inc.

  Telecommunications   Term Loan (10/16)   Loan   1M USD LIBOR + 3.00%     1.00     4.98     10/24/2022       1,945,437       1,936,402       1,889,505  

Univar USA Inc.

  Chemicals & Plastics   Term Loan B3 (11/17)   Loan   1M USD LIBOR + 2.50%     0.00     4.48     7/1/2024       2,327,749       2,317,100       2,337,944  

Univision Communications Inc.

  Radio & Television   Term Loan   Loan   1M USD LIBOR + 2.75%     1.00     4.73     3/15/2024       2,846,973       2,831,834       2,743,770  

UOS, LLC

  Equipment Leasing   Term Loan B   Loan   1M USD LIBOR + 5.50%     1.00     7.48     4/18/2023       595,749