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 August 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 October 9, 2018 was 7,479,810.

 

 

 


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 August 31, 2018 (unaudited) and February 28, 2018      3  
  Consolidated Statements of Operations for the three and six months ended August 31, 2018 (unaudited) and August 31, 2017 (unaudited)      4  
  Consolidated Schedules of Investments as of August 31, 2018 (unaudited) and February 28, 2018      5  
  Consolidated Statements of Changes in Net Assets for the six months ended August 31, 2018 (unaudited) and August 31, 2017 (unaudited)      7  
  Consolidated Statements of Cash Flows for the six months ended August 31, 2018 (unaudited) and August 31, 2017 (unaudited)      8  
  Notes to Consolidated Financial Statements as of August 31, 2018 (unaudited)      9  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      33  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      53  
Item 4.   Controls and Procedures      54  
PART II.   OTHER INFORMATION      55  
Item 1.   Legal Proceedings      55  
Item 1A.   Risk Factors      55  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      55  
Item 3.   Defaults Upon Senior Securities      55  
Item 4.   Mine Safety Disclosures      55  
Item 5.   Other Information      55  
Item 6.   Exhibits      56  
Signatures      58  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 

       August 31, 2018       February 28, 2018  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Non-control/Non-affiliate investments (amortized cost of $313,696,967 and $281,534,277, respectively)

   $ 317,441,955     $ 286,061,722  

Affiliate investments (amortized cost of $18,434,416 and $18,358,611, respectively)

     10,905,065       12,160,564  

Control investments (amortized cost of $59,263,490 and $39,797,229, respectively)

     64,540,473       44,471,767  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $391,394,873 and $339,690,117, respectively)

     392,887,493       342,694,053  

Cash and cash equivalents

     37,409,160       3,927,579  

Cash and cash equivalents, reserve accounts

     5,842,732       9,849,912  

Interest receivable (net of reserve of $367,870 and $1,768,021, respectively)

     4,193,153       3,047,125  

Management and incentive fee receivable

     171,676       233,024  

Other assets

     559,077       584,668  

Receivable from unsettled trades

     67,164       —    
  

 

 

   

 

 

 

Total assets

   $ 441,130,455     $ 360,336,361  
  

 

 

   

 

 

 

LIABILITIES

    

Revolving credit facility

   $ —       $ —    

Deferred debt financing costs, revolving credit facility

     (650,963     (697,497

SBA debentures payable

     150,000,000       137,660,000  

Deferred debt financing costs, SBA debentures payable

     (2,642,517     (2,611,120

2023 Notes payable

     74,450,500       74,450,500  

Deferred debt financing costs, 2023 notes payable

     (2,116,365     (2,316,370

2025 Notes payable

     40,000,000       —    

Deferred debt financing costs, 2025 notes payable

     (1,448,274     —    

Base management and incentive fees payable

     5,871,083       5,776,944  

Deferred tax liability

     179,458       —    

Accounts payable and accrued expenses

     1,213,953       924,312  

Interest and debt fees payable

     3,079,968       3,004,354  

Directors fees payable

     75,500       43,500  

Due to manager

     460,085       410,371  
  

 

 

   

 

 

 

Total liabilities

   $ 268,472,428     $ 216,644,994  
  

 

 

   

 

 

 

Commitments and contingencies (See Note 7)

    

NET ASSETS

    

Common stock, par value $.001, 100,000,000 common shares authorized, 7,453,947 and 6,257,029 common shares issued and outstanding, respectively

   $ 7,454     $ 6,257  

Capital in excess of par value

     217,354,149       188,975,590  

Distribution in excess of net investment income

     (25,188,494     (27,862,543

Accumulated net realized loss

     (20,219,702     (20,431,873

Net unrealized appreciation on investments, net of deferred taxes

     704,620       3,003,936  
  

 

 

   

 

 

 

Total net assets

     172,658,027       143,691,367  
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 441,130,455     $ 360,336,361  
  

 

 

   

 

 

 

NET ASSET VALUE PER SHARE

   $ 23.16     $ 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     For the six months ended  
     August 31, 2018     August 31, 2017     August 31, 2018     August 31, 2017  

INVESTMENT INCOME

        

Interest from investments

        

Interest income:

        

Non-control/Non-affiliate investments

   $ 8,046,730     $ 6,961,488     $ 15,452,639     $ 12,662,366  

Affiliate investments

     241,607       222,269       480,957       441,824  

Control investments

     1,251,573       1,496,080       2,398,238       2,831,466  

Payment-in-kind interest income:

        

Non-control/Non-affiliate investments

     145,012       282,003       361,022       505,276  

Affiliate investments

     35,482       16,954       69,629       16,954  

Control investments

     594,367       207,624       1,159,224       469,733  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest from investments

     10,314,771       9,186,418       19,921,709       16,927,619  

Interest from cash and cash equivalents

     11,455       6,493       27,748       13,574  

Management fee income

     363,962       375,957       749,156       751,638  

Incentive fee income

     147,061       162,358       346,244       267,653  

Other income

     565,525       522,440       845,935       1,000,630  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     11,402,774       10,253,666       21,890,792       18,961,114  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES

        

Interest and debt financing expenses

     2,866,414       2,962,844       5,589,206       5,486,450  

Base management fees

     1,645,653       1,481,788       3,178,121       2,872,815  

Incentive management fees

     807,521       1,709,636       1,880,133       1,885,732  

Professional fees

     468,253       407,372       1,011,050       791,703  

Administrator expenses

     458,333       395,833       895,833       770,833  

Insurance

     63,860       66,165       127,719       132,330  

Directors fees and expenses

     75,000       60,000       170,500       111,000  

General & administrative

     206,295       287,201       554,145       484,444  

Income tax benefit

     (341,232     —         (608,542     —    

Excise tax credit

     —         (14,738     (270     (14,738

Other expense

     8,449       6,514       21,021       45,045  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     6,258,546       7,362,615       12,818,916       12,565,614  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     5,144,228       2,891,051       9,071,876       6,395,500  
  

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

        

Net realized gain (loss) from investments:

        

Non-control/Non-affiliate investments

     163       (5,838,408     212,171       (5,742,819

Control investments

     —         63,554       —         63,554  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss) from investments

     163       (5,774,854     212,171       (5,679,265

Net change in unrealized appreciation (depreciation) on investments:

        

Non-control/Non-affiliate investments

     (1,086,162     6,451,921       (782,457     2,347,355  

Affiliate investments

     (855,742     677,861       (1,331,304     745,194  

Control investments

     (212,617     2,623,880       602,445       4,075,162  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investments

     (2,154,521     9,753,662       (1,511,316     7,167,711  

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

     152,546       —         (788,000     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss) on investments

     (2,001,812     3,978,808       (2,087,145     1,488,446  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 3,142,416     $ 6,869,859     $ 6,984,731     $ 7,883,946  
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.45     $ 1.15     $ 1.06     $ 1.33  

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED

     6,915,966       5,955,251       6,597,324       5,908,453  

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

August 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 - 183.9% (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      $ 14,878,520      $ 14,494,500        8.4
              

 

 

    

 

 

    

 

 

 
      Total Building Products            14,878,520        14,494,500        8.4
              

 

 

    

 

 

    

 

 

 

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        17,893,087        18,000,000        10.4

Avionte Holdings, LLC (h)

   Business
Services
   Common Stock      1/8/2014        100,000        100,000        592,709        0.3

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      $ 13,379,220        13,287,377        13,379,220        7.7

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      $ 5,070,846        5,027,076        5,070,846        2.9

Destiny Solutions Inc. (a)

   Business
Services
   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.50% Cash, 11/16/2023
     5/16/2018      $ 8,500,000        8,419,609        8,415,000        4.9

Destiny Solutions Inc. (a), (j)

   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        0.6

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        3,298,669        3,301,980        1.9

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

   Business
Services
   Warrant Membership Interests
Expires 12/28/2022                
     12/28/2012        49,318        400,000        462,109        0.3

Erwin, Inc. (d)

   Business
Services
   Second Lien Term Loan
(3M USD LIBOR+11.50%), 13.82% Cash/1.00% PIK, 8/28/2021
     2/29/2016      $ 15,811,685        15,705,323        15,811,685        9.2

FMG Suite Holdings, LLC

   Business
Services
   Second Lien Term Loan
(1M USD LIBOR+8.00%), 10.11% Cash, 11/16/2023
     5/16/2018      $ 15,000,000        14,892,308        14,887,500        8.6

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        14,440,281        14,500,000        8.4

GDS Holdings US, LLC (d)

   Business
Services
   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.32% Cash, 8/23/2023
     8/23/2018      $ 7,500,000        7,425,160        7,425,000        4.3

GDS Software Holdings, LLC (h)

   Business
Services
   Common Stock Class A Units      8/23/2018        250,000        250,000        250,000        0.1

Identity Automation Systems (h)

   Business
Services
   Common Stock Class A Units      8/25/2014        232,616        232,616        819,673        0.5

Identity Automation Systems (d)

   Business
Services
   First Lien Term Loan
(3M USD LIBOR+9.00%), 11.32% Cash, 3/31/2021
     8/25/2014      $ 24,150,000        24,010,830        24,089,625        14.0

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        22,219,828        22,288,730        12.9

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        17,867,620        18,000,000        10.4

National Waste Partners (d)

   Business
Services
   Second Lien Term Loan
10.00% Cash, 2/13/2022
     2/13/2017      $ 9,000,000        8,933,745        9,000,000        5.2

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        5,446,373        5,445,000        3.2

Omatic Software, LLC (j)

   Business
Services
   Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.32% Cash, 5/29/2023
     5/29/2018      $ —          —          —          0.0

Passageways, Inc.

   Business
Services
   First Lien Term Loan
(3M USD LIBOR+7.75%), 10.07% Cash, 7/5/2023
     7/5/2018      $ 5,000,000        4,950,000        4,950,000        2.9

Passageways, Inc. (h)

   Business
Services
   Series A Preferred Stock      7/5/2018        2,027,191        1,000,000        1,000,000        0.6

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      $ 10,409,272        10,407,718        10,409,272        6.0

Vector Controls Holding Co., LLC (h)

   Business
Services
   Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027                      5/31/2015        343        —          1,375,005        0.8
              

 

 

    

 

 

    

 

 

 
      Total Business Services            197,206,620        200,472,354        116.1
              

 

 

    

 

 

    

 

 

 

Targus Holdings, Inc. (h)

   Consumer
Products
   Common Stock      12/31/2009        210,456        1,791,242        560,831        0.3
              

 

 

    

 

 

    

 

 

 
      Total Consumer Products            1,791,242        560,831        0.3
              

 

 

    

 

 

    

 

 

 

My Alarm Center, LLC (h), (k)

   Consumer
Services
   Preferred Equity Class A Units
8.00% PIK
     7/14/2017        2,227        2,357,880        2,256,418        1.3

My Alarm Center, LLC (h)

   Consumer
Services
   Preferred Equity Class B Units      7/14/2017        1,797        1,796,880        423,435        0.3

My Alarm Center, LLC (h)

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

 

 

    

 

 

    

 

 

 
      Total Consumer Services            4,154,760        2,679,853        1.6
              

 

 

    

 

 

    

 

 

 

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        15,902,289        16,000,000        9.3

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), (k)

   Education    First Lien Term Loan
1.00% Cash, 3/31/2020
     8/10/2004      $ 2,315,090        1,189,177        6,260        0.0

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

   Education    Common Stock      12/2/2015        750,000        750,000        819,442        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        9,943,220        10,000,000        5.8
              

 

 

    

 

 

    

 

 

 
      Total Education            27,814,927        26,825,702        15.6
              

 

 

    

 

 

    

 

 

 

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

   Food and
Beverage
   Unsecured Term Loan
8.00% PIK, 9/01/2023
     3/1/2018      $ 2,216,427        2,216,427        2,152,151        1.2
              

 

 

    

 

 

    

 

 

 
      Total Food and Beverage            2,216,427        2,152,151        1.2
              

 

 

    

 

 

    

 

 

 

Axiom Parent Holdings, LLC (h)

   Healthcare
Services
   Common Stock Class A Units      6/19/2018        400,000        400,000        400,000        0.2

Axiom Purchaser, Inc. (d)

   Healthcare
Services
   First Lien Term Loan
(3M USD LIBOR+6.00%), 8.32% Cash, 6/19/2023
     6/19/2018      $ 10,000,000        9,915,177        9,912,500        5.7

Axiom Purchaser, Inc. (j)

   Healthcare
Services
   Delayed Draw First Lien Term Loan
(3M USD LIBOR+6.00%), 8.32% Cash, 6/19/2023
     6/19/2018      $ —          —          —          0.0

Censis Technologies, Inc.

   Healthcare
Services
   First Lien Term Loan B
(1M USD LIBOR+10.00%), 12.11% Cash, 7/24/2019
     7/25/2014      $ 9,900,000        9,855,881        9,900,000        5.7

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

   Healthcare
Services
   Limited Partner Interests      7/25/2014        999        999,000        2,083,420        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        14,883,587        14,879,502        8.6

Ohio Medical, LLC (h)

   Healthcare
Services
   Common Stock      1/15/2016        5,000        500,000        131,820        0.1

Ohio Medical, LLC

   Healthcare
Services
   Senior Subordinated Note
12.00% Cash, 7/15/2021
     1/15/2016      $ 7,300,000        7,256,569        6,308,660        3.7

Pathway Partners Vet Management Company LLC

   Healthcare
Services
   Second Lien Term Loan
(1M USD LIBOR+8.00%), 10.11% Cash, 10/10/2025
     10/20/2017      $ 2,848,958        2,822,253        2,820,468        1.6

Pathway Partners Vet Management Company LLC (j)

   Healthcare
Services
   Delayed Draw Term Loan
(1M USD LIBOR+8.00%), 10.11% Cash, 10/10/2025
     10/20/2017      $ 781,825        781,825        774,007        0.5

Roscoe Medical, Inc. (h)

   Healthcare
Services
   Common Stock      3/26/2014        5,081        508,077        203,282        0.1

Roscoe Medical, Inc.

   Healthcare
Services
   Second Lien Term Loan
11.25% Cash, 3/28/2021
     3/26/2014      $ 4,200,000        4,180,136        3,880,800        2.3
              

 

 

    

 

 

    

 

 

 
      Total Healthcare Services            52,102,505        51,294,459        29.7
              

 

 

    

 

 

    

 

 

 

HMN Holdco, LLC

   Media    First Lien Term Loan
12.00% Cash, 7/8/2021
     5/16/2014      $ 7,791,074        7,763,827        7,946,896        4.6

HMN Holdco, LLC

   Media    Delayed Draw First Lien Term Loan
12.00% Cash, 7/8/2021
     5/16/2014      $ 5,300,000        5,268,139        5,406,000        3.1

HMN Holdco, LLC (h)

   Media    Class A Series, Expires 1/16/2025      1/16/2015        4,264        61,647        299,162        0.2

HMN Holdco, LLC (h)

   Media    Class A Warrant, Expires 1/16/2025      1/16/2015        30,320        438,353        1,754,618        1.0

HMN Holdco, LLC (h)

   Media    Warrants to Purchase Limited Liability Company Interests (Common), Expires 5/16/2024      1/16/2015        57,872        —          3,069,531        1.8

HMN Holdco, LLC (h)

   Media    Warrants to Purchase Limited Liability Company Interests (Preferred), Expires 5/16/2024      1/16/2015        8,139        —          485,898        0.3
              

 

 

    

 

 

    

 

 

 
      Total Media            13,531,966        18,962,105        11.0
              

 

 

    

 

 

    

 

 

 

Sub Total Non-control/Non-affiliate investments

           313,696,967        317,441,955        183.9
           

 

 

    

 

 

    

 

 

 

Affiliate investments - 6.3% (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        6,950,522        7,100,100        4.1

GreyHeller LLC (f), (j)

   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        1,079,500        0.6
              

 

 

    

 

 

    

 

 

 
      Total Business Services            7,800,522        8,179,600        4.7
              

 

 

    

 

 

    

 

 

 

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

   Metals    Common Stock      7/30/2010        60,000        9,685,029        1,776,600        1.1

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

   Metals    Second Lien Term Loan
15.00% PIK, 8/10/2022
     7/30/2010      $ 948,865        948,865        948,865        0.5
              

 

 

    

 

 

    

 

 

 
      Total Metals            10,633,894        2,725,465        1.6
              

 

 

    

 

 

    

 

 

 

Sub Total Affiliate investments

           18,434,416        10,905,065        6.3
              

 

 

    

 

 

    

 

 

 

Control investments - 37.4% (b)

 

           

Easy Ice, LLC (g)

   Business
Services
   Preferred Equity
10.00% PIK
     2/3/2017        5,080,000        9,207,018        11,714,936        6.8

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      $ 18,018,326        17,947,266        17,870,576        10.3

Netreo Holdings, LLC (g)

   Business
Services
   First Lien Term Loan
(3M USD LIBOR +6.25%), 9.00% Cash/2.00% PIK,
7/3/2023
     7/3/2018      $ 5,016,402        4,966,863        4,966,238        2.9

Netreo Holdings, LLC (g), (h)

   Business
Services
   Common Stock Class A Unit      7/3/2018        3,150,000        3,150,000        3,150,000        1.8
              

 

 

    

 

 

    

 

 

 
      Total Business Services            35,271,147        37,701,750        21.8
              

 

 

    

 

 

    

 

 

 

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

   Structured
Finance
Securities
   Other/Structured Finance Securities
26.15%, 10/20/2025
     1/22/2008      $ 30,000,000        9,492,343        12,356,223        7.2

Saratoga Investment Corp. CLO 2013-1, Ltd. 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        4,495,500        2.6

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

   Structured
Finance
Securities
   Unsecured Loan
(3M USD LIBOR+7.50%), 9.82%, 2/7/2020
     8/7/2018      $ 10,000,000        10,000,000        9,987,000        5.8
              

 

 

    

 

 

    

 

 

 
      Total Structured Finance Securities            23,992,343        26,838,723        15.6
              

 

 

    

 

 

    

 

 

 

Sub Total Control investments

           59,263,490        64,540,473        37.4
              

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENTS - 227.6% (b)

         $ 391,394,873      $ 392,887,493        227.6
              

 

 

    

 

 

    

 

 

 
                      Number of
Shares
     Cost      Fair Value      % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 25.1% (b)

 

           

U.S. Bank Money Market (l)

        43,251,892      $ 43,251,892      $ 43,251,892        25.1
           

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     43,251,892      $ 43,251,892      $ 43,251,892        25.1
           

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 9.2% 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 $172,658,027 as of August 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 26.15% 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 six months ended August 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

   $             —        $       —       $     480,957      $ —        $ —        $ 325,897  

Elyria Foundry Company, L.L.C.

     —          —         69,629        —          —          (1,657,201
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —       $ 550,586      $ —        $ —        $ (1,331,304
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

(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 six months ended August 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

(Depreciation)
 

Easy Ice, LLC

   $ —        $ —       $ 1,657,241      $ —        $ —        $ 334,622  

Netreo Holdings, LLC

     8,100,000        —         94,905        —          —          (625

Saratoga Investment Corp. CLO 2013-1, Ltd.

     244,554        (48,083     1,523,126        1,095,400        —          285,048  

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F Note

     —          —         227,106        —          —          (3,600

Saratoga Investment Corp. CLO 2013-1 Warehouse, Ltd.

     10,000,000        —         55,084        —          —          (13,000
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,344,554      $ (48,083   $ 3,557,462      $ 1,095,400      $ —        $ 602,445  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(h)

Non-income producing at August 31, 2018.

(i)

Includes securities issued by an affiliate of the Company.

(j)

All or a portion of this investment has an unfunded commitment as of August 31, 2018. (see Note 7 to the consolidated financial statements).

(k)

As of August 31, 2018, the investment was on non-accrual status. The fair value of these investments was approximately $4.4 million, which represented 1.1% of the Company’s portfolio (see Note 2 to the consolidated financial statements).

(l)

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 August 31, 2018.

LIBOR - London Interbank Offered Rate

1M USD LIBOR - The 1 month USD LIBOR rate as of August 31, 2018 was 2.11%.

3M USD LIBOR - The 3 month USD LIBOR rate as of August 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 six months ended  
     August 31, 2018     August 31, 2017  

INCREASE FROM OPERATIONS:

    

Net investment income

   $ 9,071,876     $ 6,395,500  

Net realized gain (loss) from investments

     212,171       (5,679,265

Net change in unrealized appreciation (depreciation) on investments

     (1,511,316     7,167,711  

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

     (788,000     —    
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     6,984,731       7,883,946  
  

 

 

   

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

    

Distributions of investment income – net

     (6,332,527     (5,457,810
  

 

 

   

 

 

 

Net decrease in net assets from shareholder distributions

     (6,332,527     (5,457,810
  

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS:

    

Proceeds from issuance of common stock

     28,750,000       2,639,413  

Stock dividend distribution

     1,016,423       1,147,536  

Offering costs

     (1,386,667     (48,254
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     28,379,756       3,738,695  
  

 

 

   

 

 

 

Total increase in net assets

     29,031,960       6,164,831  

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

   $ 172,658,027     $ 133,459,608  
  

 

 

   

 

 

 

Net asset value per common share

   $ 23.16     $ 22.37  

Common shares outstanding at end of period

     7,453,947       5,967,272  

Distribution in excess of net investment income

   $ (25,188,494   $ (26,799,657

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

     For the six months ended  
     August 31, 2018     August 31, 2017  

Operating activities

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 6,984,731     $ 7,883,946  

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

     (1,604,326     (606,978

Net accretion of discount on investments

     (515,149     (335,240

Amortization of deferred debt financing costs

     516,653       491,135  

Net deferred income taxes

     (608,542     —    

Net realized (gain) loss from investments

     (212,171     5,679,265  

Net change in unrealized (appreciation) depreciation on investments

     1,511,316       (7,167,711

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

     788,000       —    

Proceeds from sales and repayments of investments

     37,556,821       43,784,914  

Purchase of investments

     (86,929,931     (81,662,750

(Increase) decrease in operating assets:

    

Interest receivable

     (1,146,028     (479,210

Management and incentive fee receivable

     61,348       (84,028

Other assets

     (133,505     (136,499

Receivable from unsettled trades

     (67,164     —    

Increase (decrease) in operating liabilities:

    

Base management and incentive fees payable

     94,139       (757,698

Accounts payable and accrued expenses

     289,641       390,245  

Interest and debt fees payable

     75,614       274,291  

Directors fees payable

     32,000       9,000  

Due to manager

     49,714       (44,119
  

 

 

   

 

 

 

NET CASH USED IN OPERATING ACTIVITIES

     (43,256,839     (32,761,437
  

 

 

   

 

 

 

Financing activities

    

Borrowings on debt

     26,840,000       46,500,000  

Paydowns on debt

     (14,500,000     (14,500,000

Issuance of notes

     40,000,000       —    

Payments of deferred debt financing costs

     (1,684,808     (1,204,517

Proceeds from issuance of common stock

     28,750,000       2,639,413  

Payments of offering costs

     (1,292,548     (39,614

Payments of cash dividends

     (5,316,104     (4,310,274
  

 

 

   

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

     72,796,540       29,085,008  
  

 

 

   

 

 

 

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

     29,474,401       (3,676,429

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

   $ 43,251,892     $ 18,411,539  
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid during the period

   $ 4,996,939     $ 4,721,025  

Cash paid for taxes

     56,562       69,345  

Supplemental non-cash information:

    

Payment-in-kind interest income

   $ 1,604,326     $ 606,978  

Net accretion of discount on investments

     515,149       335,240  

Amortization of deferred debt financing costs

     516,653       491,135  

Stock dividend distribution

     1,016,423       1,147,536  

See accompanying notes to consolidated financial statements.

 

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Table of Contents

SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 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 September 27, 2018, the SBA issued a “green light” letter inviting us to file a formal license application for a second SBIC license. If approved, the additional SBIC license would provide the Company with an incremental source of long-term capital by permitting us to issue, subject to SBA approval, up to $175.0 million of additional SBA-guaranteed debentures in addition to the $150.0 million already approved under the Company’s first license. Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license and the Company has received no assurance or indication from the SBA that it will receive an additional SBIC license, or of the timeframe in which it would receive an additional license, should one ultimately be granted.

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.

 

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Table of Contents

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 six months ended August 31, 2018.

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 August 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:

 

     August 31,
2018
     August 31,
2017
 

Cash and cash equivalents

   $ 37,409,160      $ 1,595,438  

Cash and cash equivalents, reserve accounts

     5,842,732        16,816,101  
  

 

 

    

 

 

 

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

   $ 43,251,892      $ 18,411,539  
  

 

 

    

 

 

 

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.

Investment Valuation

The Company accounts for its investments at fair value in accordance with the FASB ASC Topic 820, Fair Value Measurement (“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.

 

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Table of Contents

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 FASB 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.

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.

 

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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 August 31, 2018, certain investments in three portfolio companies, including preferred equity interests, were on non-accrual status with a fair value of approximately $4.4 million, or 1.1% 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.

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

 

     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 and six months ended August 31, 2018:

Consolidated Statement of Assets and Liabilities

 

     August 31, 2018  
     As Reported      Adjustments      Without
Adoption of ASC
606
 

Management and incentive fee receivable

   $ 171,676      $ 70,263      $ 241,939  

Total assets

     441,130,455        70,263        441,200,718  

Total net assets

     172,658,027        70,263        172,728,290  

NET ASSET VALUE PER SHARE

   $ 23.16      $ 0.01      $ 23.17  

Consolidated Statements of Operations

 

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

Incentive fee income

   $ 147,061      $ (22,689    $ 124,372  

Total investment income

     11,402,774        (22,689      11,380,085  

NET INVESTMENT INCOME

     5,144,228        (22,689      5,121,539  

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

     3,142,416        (22,689      3,119,727  

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.45      $ —        $ 0.45  
     For the Six Months Ended August 31, 2018  
     As Reported      Adjustments      Without
Adoption of
ASC 606
 

Incentive fee income

   $ 346,244      $ 4,963      $ 351,207  

Total investment income

     21,890,792        4,963        21,895,755  

NET INVESTMENT INCOME

     9,071,876        4,963        9,076,839  

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

     6,984,731        4,963        6,989,694  

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 1.06      $ —        $ 1.06  

 

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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.

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.

 

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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 total operating 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.

FASB ASC Topic 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 tax years for the Company remain subject to examination by the IRS. As of August 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 August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in ASU 2018-13 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt the removed or modified disclosures upon the issuance of ASU 2018-13 and may delay adoption of the additional disclosures, which are required for public companies only, until their effective date. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

 

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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.

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.

 

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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 August 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

   $ —        $ —        $ 227,887      $ 227,887  

Second lien term loans

     —          —          100,302        100,302  

Unsecured term loans

     —          —          12,139        12,139  

Structured finance securities

     —          —          16,852        16,852  

Equity interests

     —          —          35,707        35,707  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 392,887      $ 392,887  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 six months ended August 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     (619     (659     (77     281       (364     (1,511

Purchases and other adjustments to cost

     73       50,338       19,886       12,216       245       6,291       89,049  

Sales and repayments

     (4,106     (19,403     (14,000     —         (48     —         (37,557

Net realized gain from investments

     —         212       —         —         —         —         212  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of August 31, 2018

   $ —       $ 227,887     $ 100,302     $ 12,139     $ 16,852     $ 35,707     $ 392,887  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ —       $ (765   $ (568   $ (77   $ 281     $ (364   $ (1,493
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 six months ended August 31, 2018.

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended August 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

     (48     255       1,799       2,084       3,078       7,168  

Purchases and other adjustments to cost

     10       78,571       1,560       —         2,464       82,605  

Sales and repayments

     (751     (12,680     (25,954     (997     (3,403     (43,785

Net realized gain (loss) from investments

     (54     (8     (7,530     —         1,913       (5,679

Restructures in

     —         —         39,837       —         2,617       42,454  

Restructures out

     —         (42,454     —         —         —         (42,454
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of August 31, 2017

   $ 8,980     $ 182,781     $ 97,462     $ 16,537     $ 27,210     $ 332,970  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (48   $ 255     $ 1,928     $ 2,084     $ 3,731     $ 7,950  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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. Restructures in and out for the six months ended August 31, 2017 included a restructure of Easy Ice, LLC of approximately $26.7 million from a first lien term loan to a second lien term loan; a restructure of Mercury Funding, LLC’s first lien term loan of approximately $15.8 million to a second lien term loan; and a restructure of My Alarm Center, LLC’s second lien term loan of approximately $2.6 million to an equity interest.

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

 

     Fair Value      Valuation Technique    Unobservable Input    Range

First lien term loans

   $ 227,887      Market Comparables    Market Yield (%)    8.5% - 13.5%
         EBITDA Multiples (x)    3.0x

Second lien term loans

     100,302      Market Comparables    Market Yield (%)    10.0% - 18.2%
         EBITDA Multiples (x)    5.0x

Unsecured term loans

     12,139      Market Comparables    Market Yield (%)    9.7% - 11.9%
         EBITDA Multiples (x)    4.8x

Structured finance securities

     16,852      Discounted Cash Flow    Discount Rate (%)    8.5% - 13.5%

Equity interests

     35,707      Market Comparables    EBITDA Multiples (x)    4.0x - 14.0x
         Revenue Multiples (x)    0.5x - 41.9x

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%
         EBITDA Multiples (x)    5.0x
         Third-Party Bid (%)    100.0%

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
         Revenue Multiples (x)    0.6x - 39.6x

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 August 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

   $ 228,400        58.3   $ 227,887        58.0

Second lien term loans

     101,279        25.9       100,302        25.5  

Unsecured term loans

     12,217        3.1       12,139        3.1  

Structured finance securities

     13,992        3.6       16,852        4.3  

Equity interests

     35,507        9.1       35,707        9.1  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 391,395        100.0   $ 392,887        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 August 31, 2018. The significant inputs at August 31, 2018 for the valuation model include:

 

   

Default rate: 2.0%

 

   

Recovery rate: 70%

 

   

Discount rate: 13.5%

 

   

Prepayment rate: 20.0%

 

   

Reinvestment rate / price: L+340bps / $99.75

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 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%.

 

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Table of Contents

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 August 31, 2018 and August 31, 2017, we accrued $0.4 million and $0.4 million in management fee income, respectively, and $0.7 million and $0.6 million in interest income, respectively, from the Saratoga CLO. For the six months ended August 31, 2018 and August 31, 2017, we accrued $0.7 million and $0.8 million in management fee income, respectively, and $1.5 million and $1.0 million in interest income, respectively, from the Saratoga CLO. For the three months ended August 31, 2018 and August 31, 2017, we accrued $0.1 million and $0.2 million, respectively, related to the incentive management fee from Saratoga CLO. For the six months ended August 31, 2018 and August 31, 2017, we accrued $0.3 million and $0.3 million, respectively, related to the incentive management fee from Saratoga CLO.

As of August 31, 2018, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $12.4 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 August 31, 2018, Saratoga CLO had investments with a principal balance of $347.8 million and a weighted average spread over LIBOR of 4.0%, 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 August 31, 2018, the present value of the projected future cash flows of the subordinated notes was approximately $12.3 million, using a 13.5% discount rate. Saratoga Investment Corp. invested $32.8 million into the CLO since January 2008, and to date has since received distributions of $55.3 million, management fees of $18.7 million and incentive fees of $0.9 million.

On August 7, 2018, the Company entered into an unsecured loan agreement (“CLO 2013-1 Warehouse Loan”) with Saratoga Investment Corp. CLO 2013-1 Warehouse, Ltd (“CLO 2013-1 Warehouse”), a wholly-owned subsidiary of Saratoga CLO, pursuant to which CLO 2013-1 Warehouse may borrow from time to time up to $20 million from the Company in order to provide capital necessary to support warehouse activities. The CLO 2013-1 Warehouse Loan, which expires on February 7, 2020, bears interest at an annual rate of 3M USD LIBOR + 7.5%.

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 August 31, 2018 (unaudited) and February 28, 2018 and for the three and six months ended August 31, 2018 (unaudited) and August 31, 2017 (unaudited).

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities

 

     August 31, 2018     February 28, 2018  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Loans at fair value (amortized cost of $345,292,427 and $307,926,355, respectively)

   $ 342,639,347     $ 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 $348,823,645 and $311,457,573, respectively)

     342,645,946       305,830,303  

Cash and cash equivalents

     7,088,188       5,769,820  

Receivable from open trades

     2,996,250       12,395,571  

Interest receivable

     1,505,467       1,653,928  
  

 

 

   

 

 

 

Total assets

   $ 354,235,851     $ 325,649,622  
  

 

 

   

 

 

 

LIABILITIES

    

Interest payable

   $ 1,625,779     $ 1,190,428  

Payable from open trades

     21,777,656       24,471,358  

Accrued base management fee

     34,335       33,545  

Accrued subordinated management fee

     137,341       134,179  

Accrued incentive fee

     70,263       65,300  

Loan payable, related party

     10,000,000       —    

Loan payable, third party

     21,787,500       —    

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.

     (63,827     (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.

     (296,318     (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

     (951,011     (1,014,090

Subordinated notes

     30,000,000       30,000,000  
  

 

 

   

 

 

 

Total liabilities

   $ 366,521,718     $ 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)

     (1,040,548     1,728,457  
  

 

 

   

 

 

 

Total net assets

     (12,285,867     (11,245,319
  

 

 

   

 

 

 

Total liabilities and net assets

   $   354,235,851     $   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     For the six months ended  
     August 31, 2018     August 31, 2017     August 31, 2018     August 31, 2017  

INVESTMENT INCOME

        

Interest from investments

   $ 4,856,814     $ 4,150,598     $ 9,889,239     $ 8,128,469  

Interest from cash and cash equivalents

     4,074       4,343       8,089       9,426  

Other income

     30,214       84,556       173,171       245,170  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     4,891,102       4,239,497       10,070,499       8,383,065  
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Interest expense

     4,062,081       3,312,058       8,011,901       6,935,616  

Professional fees

     87,558       18,556       113,446       53,107  

Miscellaneous fee expense

     2,418       19,833       29,807       29,959  

Base management fee

     72,792       75,192       149,831       150,328  

Subordinated management fee

     291,170       300,765       599,325       601,310  

Incentive fees

     124,372       162,358       351,207       267,653  

Trustee expenses

     15,228       38,547       60,696       74,715  

Amortization expense

     44,357       44,357       88,713       88,714  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     4,699,976       3,971,666       9,404,926       8,201,402  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     191,126       267,831       665,573       181,663  
  

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

        

Net realized gain (loss) on investments

     2,237       475,486       (1,155,692     769,344  

Net change in unrealized depreciation on investments

     (440,254     (1,311,081     (550,429     (1,358,848
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized loss on investments

     (438,017     (835,595     (1,706,121     (589,504
  

 

 

   

 

 

   

 

 

   

 

 

 

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ (246,891   $ (567,764   $ (1,040,548   $ (407,841
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Schedule of Investments

August 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  

Cumulus Media Inc.

  Radio & Television   Common Stock —Class A   Equity   —       —         —         —         4,337     $ —       $ —    

Education Management II LLC

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

Education Management II LLC

  Leisure Goods/Activities/Movies   A-2 Preferred Shares   Equity   —       —         —         —         6,692       669,214       1,539  

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   1M USD LIBOR + 3.50%     0.00     5.61     5/30/2025     $ 2,000,000       1,990,121       2,015,000  

ABB Con-Cise Optical Group LLC

  Healthcare   Term Loan B   Loan   1M USD LIBOR + 5.00%     1.00     7.11     6/15/2023       1,963,941       1,944,824       1,966,396  

Acosta, Inc.

  Business Equipment & Services   Term Loan B (1st Lien)   Loan   1M USD LIBOR + 3.25%     1.00     5.36     9/26/2021       1,925,325       1,917,958       1,487,314  

ADMI Corp.

  Healthcare   Term Loan B   Loan   1M USD LIBOR + 3.25%     0.00     5.36     4/30/2025       2,000,000       1,990,214       2,006,880  

Advantage Sales & Marketing Inc.

  Business Equipment & Services   First Lien Term Loan   Loan   1M USD LIBOR + 3.25%     1.00     5.36     7/23/2021       2,408,668       2,407,020       2,244,590  

Advantage Sales & Marketing Inc.

  Business Equipment & Services   Term Loan B Incremental   Loan   1M USD LIBOR + 3.25%     1.00     5.36     7/23/2021       497,487       488,687       469,917  

Aegis Toxicology Sciences Corporation

  Healthcare   Term Loan   Loan   3M USD LIBOR + 5.50%     1.00     7.82     5/9/2025       4,000,000       3,947,103       3,885,000  

Agrofresh, Inc.

  Ecological Services & Equipment   Term Loan   Loan   2M USD LIBOR + 4.75%     1.00     6.96     7/30/2021       2,934,872       2,929,761       2,909,192  

AI Mistral (Luxembourg) Subco Sarl

  Surface Transport   Term Loan   Loan   1M USD LIBOR + 3.00%     1.00     5.11     3/11/2024       493,750       493,750       490,254  

AIS Holdco, LLC

  Insurance   Term Loan   Loan   3M USD LIBOR + 5.00%     0.00     7.32     8/15/2025       2,500,000       2,487,513       2,500,000  

Akorn, Inc.

  Drugs   Term Loan B   Loan   1M USD LIBOR + 4.75%     1.00     6.86     4/16/2021       398,056       397,352       385,119  

Albertson’s LLC

  Food Products   Term Loan B4 (5/17)   Loan   1M USD LIBOR + 2.75%     0.75     4.86     8/25/2021       2,640,977       2,629,287       2,635,483  

Alera Group Intermediate Holdings, Inc.

  Insurance   Term Loan B   Loan   1M USD LIBOR + 4.50%     0.00     6.61     8/1/2025       500,000       498,750       503,125  

Alion Science and Technology Corporation

  Conglomerates   Term Loan B (1st Lien)   Loan   1M USD LIBOR + 4.50%     1.00     6.61     8/19/2021       3,626,521       3,619,059       3,642,405  

Allen Media, LLC

  Telecommunications   Term Loan B   Loan   3M USD LIBOR + 6.50%     1.00     8.82     9/22/2023       3,000,000       2,925,000       2,932,500  

Alpha 3 B.V.

  Chemicals & Plastics   Term Loan B1   Loan   3M USD LIBOR + 3.00%     1.00     5.32     1/31/2024       247,500       246,961       248,119  

Altisource S.a r.l.

  Financial Intermediaries   Term Loan B (03/18)   Loan   3M USD LIBOR + 4.00%     1.00     6.32     4/3/2024       1,924,554       1,908,371       1,915,740  

American Greetings Corporation

  Publishing   Term Loan   Loan   1M USD LIBOR + 4.50%     1.00     6.61     4/5/2024       997,500       978,541       998,128  

American Residential Services LLC

  Building & Development   Term Loan B   Loan   1M USD LIBOR + 4.00%     1.00     6.11     6/30/2022       2,483,055       2,473,872       2,461,329  

Anastasia Parent LLC

  Retailers (Except Food & Drug)   Term Loan   Loan   1M USD LIBOR + 3.75%     0.00     5.86     8/1/2025       1,000,000       995,016       995,630  

Anchor Glass Container Corporation

  Containers & Glass Products   Term Loan (07/17)   Loan   1M USD LIBOR + 2.75%     1.00     4.86     12/7/2023       492,525       490,472       434,501  

AqGen Ascensus, Inc.

  Financial Intermediaries   Term Loan Incremental   Loan   2M USD LIBOR + 3.50%     1.00     5.71     12/5/2022       311,719       310,939       312,108  

AqGen Ascensus, Inc.

  Financial Intermediaries   Delayed Draw Term Loan Incremental   Loan   3M USD LIBOR + 3.50%     1.00     5.82     12/5/2022       72,500       72,500       72,591  

Aramark Services, Inc.

  Food Products   Term Loan B-2   Loan   3M USD LIBOR + 1.75%     0.00     4.07     3/28/2024       1,612,143       1,612,143       1,614,835  

Arctic Glacier U.S.A., Inc.

  Food Products   Term Loan (3/18)   Loan   1M USD LIBOR + 3.50%     1.00     5.61     3/20/2024       523,619       523,554       524,053  

ASG Technologies Group, Inc.

  Electronics/Electrical   Term Loan   Loan   1M USD LIBOR + 3.50%     1.00     5.61     7/31/2024       496,256       494,027       493,155  

Astoria Energy LLC

  Utilities   Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     6.11     12/24/2021       1,411,843       1,401,835       1,419,791  

Asurion, LLC

  Property & Casualty Insurance   Term Loan B-4 (Replacement)   Loan   1M USD LIBOR + 3.00%     0.00     5.11     8/4/2022       2,292,802       2,283,504       2,303,784  

Asurion, LLC

  Property & Casualty Insurance   Term Loan B6   Loan   1M USD LIBOR + 3.00%     0.00     5.11     11/3/2023       500,546       496,445       502,068  

ATS Consolidated, Inc.

  Building & Development   Term Loan   Loan   1M USD LIBOR + 3.75%     0.00     5.86     3/3/2025       498,750       496,302       500,151  

Avaya, Inc.

  Telecommunications   Term Loan B   Loan   1M USD LIBOR + 4.25%     0.00     6.36     12/16/2024       995,000       985,266       1,001,099  

Avolon TLB Borrower 1 US LLC

  Equipment Leasing   Term Loan B3   Loan   1M USD LIBOR + 2.00%     0.75     4.11     1/15/2025       992,500       987,710       991,170  

Ball Metalpack Finco, LLC

  Containers & Glass Products   Term Loan   Loan   1M USD LIBOR + 4.50%     0.00     6.61     7/31/2025       2,000,000       1,990,000       2,017,500  

Blackboard Inc.

  Conglomerates   Term Loan B4   Loan   3M USD LIBOR + 5.00%     1.00     7.32     6/30/2021       2,947,500       2,931,980       2,813,035  

Blount International, Inc.

  Forest Products   Term Loan B (10/17)   Loan   1M USD LIBOR + 4.25%     1.00     6.36     4/12/2023       497,500       496,437       499,679  

Blucora, Inc.

  Electronics/Electrical   Term Loan (11/17)   Loan   3M USD LIBOR + 3.00%     1.00     5.32     5/22/2024       706,667       703,544       710,200  

BMC Software Finance, Inc.

  Business Equipment & Services   Term Loan B (11/17)   Loan   1M USD LIBOR + 3.25%     0.00     5.36     9/12/2022       581,103       572,324       581,469  

BMC Software Finance, Inc.

  Business Equipment & Services   Term Loan   Loan   3M USD LIBOR + 4.25%     0.00     6.57     9/1/2025       2,500,000       2,475,012       2,500,750  

Bracket Intermediate Holding Corp.,

  Business Equipment & Services   Term Loan   Loan   3M USD LIBOR + 4.25%     0.00     6.57     8/15/2025       1,000,000       995,000       1,000,000  

Broadstreet Partners, Inc.

  Financial Intermediaries   Term Loan B2   Loan   1M USD LIBOR + 3.25%     1.00     5.36     11/8/2023       1,040,458       1,038,009       1,038,513  

Brookfield WEC Holdings Inc.

  Financial Intermediaries   Term Loan   Loan   1M USD LIBOR + 3.75%     0.75     5.86     8/1/2025       2,000,000       1,990,011       2,010,500  

Cable & Wireless Communications Limited

  Telecommunications   Term Loan B4   Loan   1M USD LIBOR + 3.25%     0.00     5.36     1/30/2026       2,500,000       2,496,875       2,499,475  

Cable One, Inc.

  Telecommunications   Term Loan B   Loan   3M USD LIBOR + 1.75%     0.00     4.07     5/1/2024       495,000       494,504       495,619  

California Cryobank LLC

  Healthcare   Term Loan   Loan   1M USD LIBOR + 4.00%     0.00     6.11     8/1/2025       2,500,000       2,487,578       2,506,250  

Canyon Valor Companies, Inc.

  Business Equipment & Services   Term Loan B   Loan   3M USD LIBOR + 3.25%     0.00     5.57     6/16/2023       953,853       951,468       956,476  

Capital Automotive L.P.

  Building & Development   First Lien Term Loan   Loan   1M USD LIBOR + 2.50%     1.00     4.61     3/25/2024       480,480       478,474       480,278  

Caraustar Industries Inc.

  Forest Products   Term Loan B (02/17)   Loan   3M USD LIBOR + 5.50%     1.00     7.82     3/14/2022       493,750       492,689       496,836  

CareerBuilder, LLC

  Business Equipment & Services   Term Loan   Loan   3M USD LIBOR + 6.75%     1.00     9.07     7/31/2023       1,845,559       1,800,248       1,845,559  

Casa Systems, Inc.

  Telecommunications   Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     6.11     12/20/2023       1,477,500       1,465,819       1,479,347  

Catalent Pharma Solutions Inc

  Drugs   Term Loan B (new)   Loan   1M USD LIBOR + 2.25%     1.00     4.36     5/20/2024       265,860       265,292       266,621  

Cengage Learning, Inc.

  Publishing   Term Loan   Loan   1M USD LIBOR + 4.25%     1.00     6.36     6/7/2023       1,464,371       1,451,057       1,355,275  

CenturyLink, Inc.

  Telecommunications   Term Loan B   Loan   1M USD LIBOR + 2.75%     0.00     4.86     1/31/2025       2,985,000       2,978,488       2,949,180  

CEOC, LLC

  Lodging & Casinos   Term Loan   Loan   1M USD LIBOR + 2.00%     0.00     4.11     10/4/2024       995,000       995,000       993,756  

Cetera Financial Group, Inc.

  Financial Intermediaries   Term Loan   Loan   3M USD LIBOR + 4.25%     0.00     6.57     8/15/2025       2,000,000       1,990,007       2,005,000  

CH Hold Corp.

  Automotive   Term Loan   Loan   1M USD LIBOR + 3.00%     1.00     5.11     2/1/2024       245,432       245,000       246,200  

Charter Communications Operating, LLC.

  Cable & Satellite Television   Term Loan (12/17)   Loan   1M USD LIBOR + 2.00%     0.00     4.11     4/30/2025       1,592,000       1,590,189       1,591,825  

Compuware Corporation

  Electronics/Electrical   Term Loan   Loan   1M USD LIBOR + 3.50%     0.00     5.61     8/25/2025       500,000       498,750       502,500  

Concordia Healthcare Corp.

  Drugs   Term Loan B   Loan   1M USD LIBOR + 4.25%     1.00     6.36     10/21/2021       1,905,000       1,844,746       1,717,148  

Consolidated Aerospace Manufacturing, LLC

  Aerospace & Defense   Term Loan (1st Lien)   Loan   1M USD LIBOR + 3.75%     1.00     5.86     8/11/2022       2,418,750       2,411,869       2,427,820  

Consolidated Communications, Inc.

  Telecommunications   Term Loan B   Loan   1M USD LIBOR + 3.00%     1.00     5.11     10/5/2023       495,621       493,451       487,156  

Covia Holdings Corporation

  Nonferrous Metals/Minerals   Term Loan   Loan   3M USD LIBOR + 3.75%     1.00     6.07     6/2/2025       1,000,000       1,000,000       987,080  

CPI Acquisition Inc

  Financial Intermediaries   Term Loan B (1st Lien)   Loan   6M USD LIBOR + 4.50%     1.00     7.04     8/17/2022       1,436,782       1,423,190       947,256  

CT Technologies Intermediate Hldgs, Inc

  Healthcare   New Term Loan   Loan   1M USD LIBOR + 4.25%     1.00     6.36     12/1/2021       1,447,725       1,439,894       1,351,813  

Cumulus Media New Holdings Inc.

  Radio & Television   Term Loan   Loan   1M USD LIBOR + 4.50%     1.00     6.61     5/13/2022       337,586       334,427       331,594  

Daseke Companies, Inc.

  Surface Transport   Replacement Term Loan   Loan   1M USD LIBOR + 5.00%     1.00     7.11     2/27/2024       1,985,629       1,974,367       1,995,557  

Dell International L.L.C.

  Electronics/Electrical   Term Loan B   Loan   1M USD LIBOR + 2.00%     0.75     4.11     9/7/2023       1,488,750       1,487,774       1,488,125  

Delta 2 (Lux) SARL

  Leisure Goods/Activities/Movies   Term Loan B   Loan   1M USD LIBOR + 2.50%     1.00     4.61     2/1/2024       1,318,289       1,314,658       1,307,743  

Dex Media, Inc.

  Publishing   Term Loan (07/16)   Loan   1M USD LIBOR + 10.00%     1.00     12.11     7/29/2021       20,872       20,872       21,246  

DHX Media Ltd.

  Leisure Goods/Activities/Movies   Term Loan   Loan   1M USD LIBOR + 3.75%     1.00     5.86     12/29/2023       332,042       330,406       332,042  

Digital Room Holdings, Inc.

  Publishing   Term Loan   Loan   1M USD LIBOR + 5.00%     1.00     7.11     12/29/2023       2,487,500       2,464,579       2,481,281  

Dole Food Company, Inc.

  Food Products   Term Loan B   Loan   1M USD LIBOR + 2.75%     1.00     4.86     4/8/2024       487,500       485,473       486,418  

Drew Marine Group Inc.

  Chemicals & Plastics   First Lien Term Loan   Loan   1M USD LIBOR + 3.25%     1.00     5.36     11/19/2020       2,855,993       2,840,446       2,841,713  

DTZ U.S. Borrower, LLC

  Building & Development   Term Loan B   Loan   1M USD LIBOR + 3.25%     0.00     5.36     8/21/2025       6,000,000       5,970,020       5,977,500  

Dynatrace LLC

  Electronics/Electrical   Term Loan   Loan   1M USD LIBOR + 3.25%     0.00     5.36     8/25/2025       1,000,000       1,000,000       1,002,920  

Eagletree-Carbide Acquisition Corp.

  Electronics/Electrical   Term Loan   Loan   3M USD LIBOR + 4.75%     1.00     7.07     8/28/2024       2,483,752       2,463,751       2,502,380  

Education Management II LLC (a)

  Leisure Goods/Activities/Movies   Term Loan A   Loan   Prime + 5.50%     1.00     10.50     7/2/2020       423,861       417,464       27,551  

Education Management II LLC (a)

  Leisure Goods/Activities/Movies   Term Loan B   Loan   Prime + 8.50%     1.00     13.50     7/2/2020       954,307       942,796       19,086  

EIG Investors Corp.

  Electronics/Electrical   Term Loan (06/18)   Loan   3M USD LIBOR + 3.75%     1.00     6.07     2/9/2023       458,213       457,067       459,931  

Emerald 2 Ltd.

  Ecological Services & Equipment   Term Loan   Loan   3M USD LIBOR + 4.00%     1.00     6.32     5/14/2021       991,629       987,379       992,849  

Emerald Performance Materials, LLC

  Chemicals & Plastics   Term Loan   Loan   1M USD LIBOR + 3.50%     1.00     5.61     7/30/2021       478,584       477,496       480,379  

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

  Drugs   Term Loan B (4/17)   Loan   1M USD LIBOR + 4.25%     0.75     6.36     4/29/2024       990,000       985,810       994,950  

Energy Acquisition LP

  Electronics/Electrical   Term Loan   Loan   3M USD LIBOR + 4.25%     0.00     6.57     6/26/2025       2,000,000       1,980,136       2,007,500  

Engility Corporation

  Aerospace & Defense   Term Loan B1   Loan   1M USD LIBOR + 2.25%     0.00     4.36     8/12/2020       137,989       137,645       137,816  

Equian, LLC

  Healthcare   Term Loan B   Loan   1M USD LIBOR + 3.25%     1.00     5.36     5/20/2024       1,980,000       1,971,108       1,978,772  

Evergreen AcqCo 1 LP

  Retailers (Except Food & Drug)   Term Loan C   Loan   3M USD LIBOR + 3.75%     1.25     6.07     7/9/2019       940,144       938,663       910,999  

EWT Holdings III Corp.

  Ecological Services & Equipment   Term Loan   Loan   1M USD LIBOR + 3.00%     1.00     5.11     12/20/2024       2,823,867       2,811,058       2,825,646  

Extreme Reach, Inc.

  Electronics/Electrical   Term Loan   Loan   1M USD LIBOR + 6.25%     1.00     8.36     2/7/2020       2,413,481       2,402,294       2,405,179  

Fastener Acquisition, Inc.

  Industrial Equipment   Term Loan B   Loan   3M USD LIBOR + 4.25%     1.00     6.57     3/28/2025       498,750       496,346       499,064  

FinCo I LLC

  Financial Intermediaries   2018 Term Loan B   Loan   1M USD LIBOR + 2.00%     0.00     4.11     12/27/2022       415,800       414,796       417,014  

First Data Corporation

  Financial Intermediaries   2024A New Dollar Term Loan   Loan   1M USD LIBOR + 2.00%     0.00     4.11     4/26/2024       1,741,492       1,667,873       1,738,496  

First Eagle Holdings, Inc.

  Financial Intermediaries   Term Loan B (10/17)   Loan   3M USD LIBOR + 3.00%     0.75     5.32     12/1/2022       1,463,956       1,456,120       1,468,992  

Fitness International, LLC

  Leisure Goods/Activities/Movies   Term Loan B (4/18)   Loan   1M USD LIBOR + 3.25%     0.00     5.36     4/18/2025       1,290,165       1,268,770       1,292,745  

Flex Acquisition Company Inc

  Containers & Glass Products   Term Loan B   Loan   3M USD LIBOR + 3.25%     0.00     5.57     6/30/2025       1,000,000       997,554       998,750  

Franklin Square Holdings, L.P.

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 2.50%     0.00     4.61     8/1/2025       500,000       497,505       500,940  

Fusion Connect, Inc.

  Telecommunications   Term Loan B   Loan   3M USD LIBOR + 7.50%     1.00     9.82     5/4/2023       1,975,000       1,898,861       1,891,063  

GBT Group Services B.V.

  Leisure Goods/Activities/Movies   Term Loan   Loan   3M USD LIBOR + 2.50%     0.00     4.82     8/13/2025       500,000       498,753       501,875  

GC EOS Buyer, Inc.

  Automotive   Term Loan B   Loan   1M USD LIBOR + 4.50%     0.00     6.61     8/1/2025       3,000,000       2,970,015       2,992,500  

General Nutrition Centers, Inc.

  Retailers (Except Food & Drug)   Term Loan B2   Loan   1M USD LIBOR + 8.75%     0.00     10.86     3/4/2021       1,416,921       1,416,504       1,357,410  

General Nutrition Centers, Inc.

  Retailers (Except Food & Drug)   FILO Term Loan   Loan   1M USD LIBOR + 7.00%     0.00     9.11     1/3/2023       585,849       585,849       599,909  

GI Revelation Acquisition LLC

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 5.00%     0.00     7.11     4/16/2025       1,000,000       995,039       999,380  

Gigamon Inc.

  Business Equipment & Services   Term Loan B   Loan   3M USD LIBOR + 4.50%     1.00     6.82     12/27/2024       1,990,000       1,971,547       1,990,000  

Global Tel*Link Corporation

  Telecommunications   Term Loan   Loan   3M USD LIBOR + 4.00%     1.25     6.32     5/26/2020       3,079,437       3,074,613       3,093,880  

Go Wireless, Inc.

  Telecommunications   Term Loan   Loan   1M USD LIBOR + 6.50%     1.00     8.61     12/22/2024       1,950,000       1,931,876       1,862,250  

Goodyear Tire & Rubber Company, The

  Chemicals & Plastics   Second Lien Term Loan   Loan   1M USD LIBOR + 2.00%     0.00     4.11     3/7/2025       2,000,000       2,000,000       1,996,260  

Grosvenor Capital Management Holdings, LLLP

  Property & Casualty Insurance   Term Loan B   Loan   1M USD LIBOR + 2.75%     1.00     4.86     3/28/2025       989,962       985,136       988,725  

Guidehouse LLP

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 3.25%     0.00     5.36     5/1/2025       2,000,000       1,995,029       2,005,000  

Hargray Communications Group, Inc.

  Cable & Satellite Television   Term Loan B   Loan   1M USD LIBOR + 3.00%     1.00     5.11     5/16/2024       990,000       987,885       992,475  

Harland Clarke Holdings Corp.

  Publishing   Term Loan   Loan   3M USD LIBOR + 4.75%     1.00     7.07     11/3/2023       1,888,331       1,877,774       1,775,032  

HD Supply Waterworks, Ltd.

  Industrial Equipment   Term Loan   Loan   6M USD LIBOR + 3.00%     1.00     5.54     8/1/2024       496,250       495,095       497,803  

Helix Gen Funding, LLC

  Utilities   Term Loan B (02/17)   Loan   1M USD LIBOR + 3.75%     1.00     5.86     6/3/2024       265,522       264,735       254,737  

Hemisphere Media Holdings, LLC

  Cable & Satellite Television   Term Loan (2/17)   Loan   1M USD LIBOR + 3.50%     0.00     5.61     2/14/2024       2,450,006       2,460,151       2,428,568  

HLF Financing SaRL, LLC

  Retailers (Except Food & Drug)   Term Loan B (08/18)   Loan   1M USD LIBOR + 3.25%     0.00     5.36     8/18/2025       1,000,000       997,500       1,002,860  

Hoffmaster Group, Inc.

  Containers & Glass Products   Term Loan B1   Loan   1M USD LIBOR + 4.00%     1.00     6.11     11/21/2023       1,079,872       1,083,008       1,083,921  

Hostess Brands, LLC

  Food Products   Cov-Lite Term Loan B   Loan   1M USD LIBOR + 2.25%     0.75     4.36     8/3/2022       1,475,147       1,472,016       1,469,615  

Hudson River Trading LLC

  Financial Intermediaries   Term Loan B   Loan   1M USD LIBOR + 4.25%     0.00     6.36     4/3/2025       1,995,000       1,975,791       1,999,988  

Hyland Software, Inc.

  Business Equipment & Services   First Lien Term Loan (New)   Loan   1M USD LIBOR + 3.25%     0.75     5.36     7/1/2022       1,092,965       1,090,830       1,098,703  

Hyperion Refinance S.a.r.l.

  Insurance   Tem Loan (12/17)   Loan   1M USD LIBOR + 3.50%     1.00     5.61     12/20/2024       1,990,000       1,980,979       1,996,965  

Idera, Inc.

  Business Equipment & Services   Term Loan B   Loan   1M USD LIBOR + 4.50%     1.00     6.61     6/28/2024       1,674,000       1,658,706       1,680,278  

IG Investments Holdings, LLC

  Business Equipment & Services   Term Loan   Loan   1M USD LIBOR + 3.50%     1.00     5.61     5/23/2025       3,415,333       3,396,055       3,426,706  

Inmar, Inc.

  Business Equipment & Services   Term Loan B   Loan   1M USD LIBOR + 3.50%     1.00     5.61     5/1/2024       495,000       490,779       496,445  

IRB Holding Corp.

  Food Service   Term Loan B   Loan   1M USD LIBOR + 3.25%     1.00     5.36     2/5/2025       498,750       497,656       500,890  

Isagenix International LLC

  Food/Drug Retailers   Term Loan   Loan   3M USD LIBOR + 5.75%     1.00     8.07     6/16/2025       2,000,000       1,980,410       2,005,000  

J. Crew Group, Inc.

  Retailers (Except Food & Drug)   Term Loan (7/17)   Loan   3M USD LIBOR + 3.22%     1.00     5.54     3/5/2021       825,597       825,597       741,205  

Jill Holdings LLC

  Retailers (Except Food & Drug)   Term Loan (1st Lien)   Loan   3M USD LIBOR + 5.00%     1.00     7.32     5/9/2022       867,147       864,598       852,692  

Kettle Cuisine, LLC

  Food Products   Term Loan   Loan   3M USD LIBOR + 3.75%     1.00     6.07     8/22/2025       2,000,000       1,990,000       2,000,000  

Kinetic Concepts, Inc.

  Healthcare   1/17 USD Term Loan   Loan   3M USD LIBOR + 3.25%     1.00     5.57     2/2/2024       2,376,000       2,366,866       2,383,223  

Lakeland Tours, LLC

  Business Equipment & Services   Term Loan B   Loan   3M USD LIBOR + 4.00%     1.00     6.32     12/16/2024       2,495,000       2,485,410       2,505,404  

Lannett Company, Inc.

  Drugs   Term Loan B   Loan   1M USD LIBOR + 5.38%     1.00     7.49     11/25/2022       2,623,409       2,585,303       2,180,709  

Learfield Communications LLC

  Telecommunications   Initial Term Loan (A-L Parent)   Loan   1M USD LIBOR + 3.25%     1.00     5.36     12/1/2023       492,500       490,641       496,194  

Legalzoom.com, Inc.

  Business Equipment & Services   Term Loan B   Loan   1M USD LIBOR + 4.25%     1.00     6.36     11/21/2024       994,947       986,004       997,434  

Lighthouse Network, LLC

  Financial Intermediaries   Term Loan B   Loan   3M USD LIBOR + 4.50%     1.00     6.82     12/2/2024       995,000       990,472       999,149  

Lightstone Holdco LLC

  Utilities   Term Loan B   Loan   1M USD LIBOR + 3.75%     1.00     5.86     1/30/2024       1,388,814       1,386,441       1,381,008  

Lightstone Holdco LLC

  Utilities   Term Loan C   Loan   1M USD LIBOR + 3.75%     1.00     5.86     1/30/2024       74,592       74,465       74,173  

Lindblad Expeditions, Inc.

  Leisure Goods/Activities/Movies   US 2018 Term Loan   Loan   3M USD LIBOR + 3.50%     0.00     5.82     3/27/2025       400,000       399,015       403,500  

Lindblad Expeditions, Inc.

  Leisure Goods/Activities/Movies   Cayman Term Loan   Loan   3M USD LIBOR + 3.50%     0.00     5.82     3/27/2025       100,000       99,754       100,875  

Liquidnet Holdings, Inc.

  Financial Intermediaries   Term Loan B   Loan   1M USD LIBOR + 3.75%     1.00     5.86     7/15/2024       475,000       470,847       475,000  

LPL Holdings, Inc.

  Financial Intermediaries   Incremental Term Loan B   Loan   1M USD LIBOR + 2.25%     0.00     4.36     9/23/2024       1,732,533       1,728,811       1,732,100  

Mayfield Agency Borrower Inc.

  Financial Intermediaries   Term Loan   Loan   1M USD LIBOR + 4.50%     0.00     6.61     2/28/2025       500,000       497,594       503,125  

McAfee, LLC

  Electronics/Electrical   Term Loan B   Loan   1M USD LIBOR + 4.50%     1.00     6.61     9/30/2024       2,233,747       2,215,437       2,250,969  

McDermott International, Inc.

  Building & Development   Term Loan B   Loan   1M USD LIBOR + 5.00%     1.00     7.11     5/12/2025       1,995,000       1,956,183       2,014,631  

McGraw-Hill Global Education Holdings, LLC

  Publishing   Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     6.11     5/4/2022       979,920       976,906       933,864  

MedPlast Holdings, Inc.

  Healthcare   Term Loan   Loan   3M USD LIBOR + 3.75%     0.00     6.07     7/2/2025       500,000       497,516       503,750  

Meredith Corporation

  Publishing   Term Loan B   Loan   1M USD LIBOR + 3.00%     0.00     5.11     1/31/2025       941,944       939,865       944,036  

Michaels Stores, Inc.

  Retailers (Except Food & Drug)   Term Loan B   Loan   1M USD LIBOR + 2.50%     1.00     4.61     1/30/2023       2,644,428       2,631,670       2,632,528  

Midas Intermediate Holdco II, LLC

  Automotive   Term Loan   Loan   3M USD LIBOR + 2.75%     1.00     5.07     8/18/2021       240,709       240,121       227,771  

Midwest Physician Administrative Services LLC

  Healthcare   Term Loan (2/18)   Loan   1M USD LIBOR + 2.75%     0.75     4.86     8/15/2024       977,985       973,581       962,709  

Milk Specialties Company

  Food Products   Term Loan (2/17)   Loan   1M USD LIBOR + 4.00%     1.00     6.11     8/16/2023       982,500       974,804       981,891  

Mister Car Wash Holdings, Inc.

  Automotive   Term Loan   Loan   6M USD LIBOR + 3.25%     1.00     5.79     8/20/2021       1,575,327       1,571,289       1,578,604  

MLN US HoldCo LLC

  Electronics/Electrical   Term Loan   Loan   3M USD LIBOR + 4.50%     0.00     6.82     7/11/2025       1,000,000       997,502       1,003,750  

MRC Global (US) Inc.

  Nonferrous Metals/Minerals   Term Loan B2   Loan   1M USD LIBOR + 3.00%     0.00     5.11     9/20/2024       497,500       496,274       500,609  

NAI Entertainment Holdings LLC

  Leisure Goods/Activities/Movies   Term Loan B   Loan   1M USD LIBOR + 2.50%     1.00     4.61     5/8/2025       1,000,000       997,534       998,750  

Navistar Financial Corporation

  Financial Intermediaries   Term Loan   Loan   1M USD LIBOR + 3.75%     0.00     5.86     7/30/2025       2,000,000       1,990,018       2,002,500  

Navistar, Inc.

  Automotive   Term Loan B (10/17)   Loan   1M USD LIBOR + 3.50%     0.00     5.61     11/6/2024       1,990,000       1,981,345       1,994,139  

NCI Building Systems, Inc.

  Building & Development   Term Loan   Loan   1M USD LIBOR + 2.00%     0.00     4.11     2/7/2025       498,750       497,627       498,336  

New Media Holdings II LLC

  Radio & Television   Term Loan   Loan   1M USD LIBOR + 6.25%     1.00     8.36     7/14/2022       5,602,895       5,582,393       5,641,443  

NMI Holdings, Inc.

  Insurance   Term Loan   Loan   1M USD LIBOR + 4.75%     1.00     6.86     5/23/2023       500,000       497,568       503,750  

Novetta Solutions, LLC

  Aerospace & Defense   Term Loan   Loan   1M USD LIBOR + 5.00%     1.00     7.11     10/17/2022       1,949,870       1,937,364       1,871,875  

Novetta Solutions, LLC

  Aerospace & Defense   Second Lien Term Loan   Loan   1M USD LIBOR + 8.50%     1.00     10.61     10/16/2023       1,000,000       992,787       895,000  

NPC International, Inc.

  Food Service   Term Loan   Loan   1M USD LIBOR + 3.50%     1.00     5.61     4/19/2024       495,000       494,477       497,787  

Ocean Bidco, Inc.

  Financial Intermediaries   Term Loan B   Loan   3M USD LIBOR + 5.00%     1.00     7.32     3/21/2025       496,250       493,848       497,803  

Office Depot, Inc.

  Retailers (Except Food & Drug)   Term Loan B   Loan   1M USD LIBOR + 7.00%     1.00     9.11     11/8/2022       2,375,000       2,306,884       2,432,903  

Onex Carestream Finance LP

  Healthcare   Term Loan   Loan   1M USD LIBOR + 4.00%     1.00     6.11     6/7/2019       3,037,274       3,034,908       3,030,318  

Owens & Minor Distribution, Inc.

  Healthcare   Term Loan B   Loan   1M USD LIBOR + 4.50%     0.00     6.61     4/30/2025       500,000       490,234       485,625  

P.F. Chang’s China Bistro, Inc.

  Food Service   Term Loan B   Loan   6M USD LIBOR + 5.00%     1.00     7.54     9/1/2022       1,985,000       1,970,741       1,981,685  

P2 Upstream Acquisition Co.

  Electronics/Electrical   Term Loan   Loan   3M USD LIBOR + 4.00%     1.00     6.32     10/30/2020       950,558       948,677       938,676  

Peraton Corp.

  Aerospace & Defense   Term Loan   Loan   3M USD LIBOR + 5.25%     1.00     7.57     4/29/2024       1,980,000       1,971,523       1,975,050  

PetSmart, Inc.

  Retailers (Except Food & Drug)   Term Loan B-2   Loan   1M USD LIBOR + 3.00%     1.00     5.11     3/11/2022       967,500       964,230       832,050  

PGX