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 November 30, 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 every Interactive Data File required to be submitted 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 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 January 08, 2019 was 7,540,258.

 

 

 


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 November 30, 2018 (unaudited) and February 28, 2018      3  
  Consolidated Statements of Operations for the three and nine months ended November 30, 2018 (unaudited) and November 30, 2017 (unaudited)      4  
  Consolidated Schedules of Investments as of November 30, 2018 (unaudited) and February 28, 2018      5  
  Consolidated Statements of Changes in Net Assets for the nine months ended November 30, 2018 (unaudited) and November 30, 2017 (unaudited)      7  
  Consolidated Statements of Cash Flows for the nine months ended November 30, 2018 (unaudited) and November 30, 2017 (unaudited)      8  
  Notes to Consolidated Financial Statements as of November 30, 2018 (unaudited)      9  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      34  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      55  

Item 4.

  Controls and Procedures      55  

PART II.

  OTHER INFORMATION      56  

Item 1.

  Legal Proceedings      56  

Item 1A.

  Risk Factors      56  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      56  

Item 3.

  Defaults Upon Senior Securities      56  

Item 4.

  Mine Safety Disclosures      56  

Item 5.

  Other Information      56  

Item 6.

  Exhibits      57  

Signatures

     59  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 

     November 30, 2018     February 28, 2018  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Non-control/Non-affiliate investments (amortized cost of $349,141,826 and $281,534,277, respectively)

   $ 351,241,148     $ 286,061,722  

Affiliate investments (amortized cost of $18,474,051 and $18,358,611, respectively)

     11,150,764       12,160,564  

Control investments (amortized cost of $75,734,853 and $39,797,229, respectively)

     81,420,325       44,471,767  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $443,350,730 and $339,690,117, respectively)

     443,812,237       342,694,053  

Cash and cash equivalents

     322,116       3,927,579  

Cash and cash equivalents, reserve accounts

     3,920,828       9,849,912  

Interest receivable (net of reserve of $468,234 and $1,768,021, respectively)

     4,701,574       3,047,125  

Management and incentive fee receivable

     167,218       233,024  

Other assets

     669,747       584,668  

Deferred tax asset

     444,497       —    

Receivable from unsettled trades

     6,463       —    
  

 

 

   

 

 

 

Total assets

   $ 454,044,680     $ 360,336,361  
  

 

 

   

 

 

 

LIABILITIES

    

Revolving credit facility

   $ 11,750,000     $ —    

Deferred debt financing costs, revolving credit facility

     (627,950     (697,497

SBA debentures payable

     150,000,000       137,660,000  

Deferred debt financing costs, SBA debentures payable

     (2,516,343     (2,611,120

2023 Notes payable

     74,450,500       74,450,500  

Deferred debt financing costs, 2023 notes payable

     (2,017,449     (2,316,370

2025 Notes payable

     40,000,000       —    

Deferred debt financing costs, 2025 notes payable

     (1,559,505     —    

Base management and incentive fees payable

     5,807,662       5,776,944  

Deferred tax liability

     919,557       —    

Accounts payable and accrued expenses

     1,493,944       924,312  

Interest and debt fees payable

     2,690,078       3,004,354  

Directors fees payable

     2,000       43,500  

Due to manager

     383,095       410,371  
  

 

 

   

 

 

 

Total liabilities

   $ 280,775,589     $ 216,644,994  
  

 

 

   

 

 

 

Commitments and contingencies (See Note 7)

    

NET ASSETS

    

Common stock, par value $.001, 100,000,000 common shares authorized, 7,490,183 and 6,257,029 common shares issued and outstanding, respectively

   $ 7,490     $ 6,257  

Capital in excess of par value

     218,172,144       188,975,590  

Total distributable earnings (loss)

     (44,910,543     (45,290,480
  

 

 

   

 

 

 

Total net assets

     173,269,091       143,691,367  
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 454,044,680     $ 360,336,361  
  

 

 

   

 

 

 

NET ASSET VALUE PER SHARE

   $ 23.13     $ 22.96  
  

 

 

   

 

 

 

Certain prior year numbers have been adjusted to conform with the SEC final rules on disclosure updates and simplification effective November 5, 2018. See Note 2.

 

 

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 nine months ended  
     November 30, 2018     November 30, 2017     November 30, 2018     November 30, 2017  

INVESTMENT INCOME

        

Interest from investments

        

Interest income:

        

Non-control/Non-affiliate investments

   $ 9,248,664     $ 6,817,026     $ 24,701,303     $ 19,479,392  

Affiliate investments

     239,781       221,291       720,738       663,115  

Control investments

     941,942       1,017,821       3,340,180       3,849,287  

Payment-in-kind interest income:

        

Non-control/Non-affiliate investments

     260,440       268,306       621,462       773,582  

Affiliate investments

     41,269       31,333       110,898       48,287  

Control investments

     1,112,135       535,031       2,271,359       1,004,764  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest from investments

     11,844,231       8,890,808       31,765,940       25,818,427  

Interest from cash and cash equivalents

     13,657       6,777       41,405       20,351  

Management fee income

     380,765       376,446       1,129,921       1,128,084  

Incentive fee income

     147,602       209,434       493,846       477,087  

Other income

     446,758       42,265       1,292,693       1,042,895  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     12,833,013       9,525,730       34,723,805       28,486,844  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES

        

Interest and debt financing expenses

     3,613,531       2,758,900       9,202,737       8,245,350  

Base management fees

     1,849,220       1,485,415       5,027,341       4,358,230  

Incentive management fees

     923,651       1,054,618       2,803,784       2,940,350  

Professional fees

     407,422       388,210       1,418,472       1,179,913  

Administrator expenses

     500,000       437,500       1,395,833       1,208,333  

Insurance

     62,197       64,577       189,916       196,907  

Directors fees and expenses

     60,000       43,000       230,500       154,000  

General & administrative

     354,029       299,627       908,174       784,071  

Income tax benefit

     (75,978     —         (684,520     —    

Excise tax credit

     —         —         (270     (14,738

Other expense

     —         (21,628     21,021       23,417  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     7,694,072       6,510,219       20,512,988       19,075,833  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     5,138,941       3,015,511       14,210,817       9,411,011  
  

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

        

Net realized gain (loss) from investments:

        

Non-control/Non-affiliate investments

     (67,164     20,770       145,007       (5,722,049

Control investments

     —         166       —         63,720  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain (loss) from investments

     (67,164     20,936       145,007       (5,658,329

Net change in unrealized appreciation (depreciation) on investments:

        

Non-control/Non-affiliate investments

     (1,645,666     2,429,168       (2,428,123     4,776,523  

Affiliate investments

     206,064       (804,483     (1,125,240     (59,289

Control investments

     408,489       (398,142     1,010,934       3,677,020  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investments

     (1,031,113     1,226,543       (2,542,429     8,394,254  

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

     (371,581     —         (1,159,581     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss) on investments

     (1,469,858     1,247,479       (3,557,003     2,735,925  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 3,669,083     $
 
 
4,262,990
 
 
  $
 
 
10,653,814
 
 
  $
 
 
12,146,936
 
 
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.49     $ 0.71     $ 1.55     $ 2.04  

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED

     7,480,134       6,040,311       6,887,544       5,952,086  

 

 

See accompanying notes to consolidated financial statements.

4


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

November 30, 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—202.7% (b)

                    

Tile Redi Holdings, LLC (d)

   Building Products    First Lien Term Loan
(3M USD LIBOR+10.00%), 12.74% Cash, 6/16/2022
     6/16/2017      $ 15,000,000      $ 14,885,127      $ 14,508,000        8.4
              

 

 

    

 

 

    

 

 

 
      Total Building Products            14,885,127        14,508,000        8.4
              

 

 

    

 

 

    

 

 

 

Apex Holdings Software Technologies, LLC

   Business Services    First Lien Term Loan
(3M USD LIBOR+8.00%), 10.74% Cash, 9/21/2021
     9/21/2016      $ 18,000,000        17,908,051        18,000,000        10.4

Apex Holdings Software Technologies, LLC (j)

   Business Services    Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.74% Cash, 9/21/2021
     10/1/2018      $ 600,000        595,060        600,000        0.3

Avionte Holdings, LLC

   Business Services    Class A Units
8.00% PIK
     1/8/2014        100,000        135,856        633,164        0.4

CLEO Communications Holding, LLC

   Business Services    First Lien Term Loan
(3M USD LIBOR+8.00%), 10.74% Cash/2.00% PIK, 3/31/2022
     3/31/2017      $ 13,424,599        13,342,090        13,424,599        7.7

CLEO Communications Holding, LLC

   Business Services    Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.74% Cash/2.00% PIK, 3/31/2022
     3/31/2017      $ 7,088,045        7,027,298        7,088,045        4.1

Destiny Solutions Inc. (a)

   Business Services    First Lien Term Loan
(3M USD LIBOR+7.00%), 9.74% Cash, 5/16/2023
     5/16/2018      $ 8,500,000        8,423,014        8,440,500        4.9

Destiny Solutions Inc. (a), (j)

   Business Services    Delayed Draw First Lien Term Loan
(3M USD LIBOR+7.00%), 9.74% Cash, 5/16/2023
     5/16/2018      $ —          —          —          0.0

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

   Business Services    Limited Partner Interests      5/16/2018        999,000        999,000        1,051,947        0.6

Emily Street Enterprises, L.L.C.

   Business Services    Senior Secured Note
(3M USD LIBOR+8.50%), 11.24% Cash, 1/23/2020
     12/28/2012      $ 3,300,000        3,298,896        3,287,130        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        484,302        0.3

Erwin, Inc. (d)

   Business Services    Second Lien Term Loan
(3M USD LIBOR+11.50%), 14.24% Cash/1.00% PIK, 8/28/2021
     2/29/2016      $ 15,848,042        15,748,888        15,848,042        9.1

FMG Suite Holdings, LLC (d)

   Business Services    Second Lien Term Loan
(1M USD LIBOR+8.00%), 10.35% Cash, 11/16/2023
     5/16/2018      $ 23,000,000        22,837,901        23,000,000        13.3

FranConnect LLC (d)

   Business Services    First Lien Term Loan
(3M USD LIBOR+6.25%), 8.99% Cash, 5/26/2022
     5/26/2017      $ 14,500,000        14,445,720        14,500,000        8.4

GDS Holdings US, LLC (d)

   Business Services    First Lien Term Loan
(3M USD LIBOR+7.00%), 9.74% Cash, 8/23/2023
     8/23/2018      $ 7,500,000        7,427,612        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        628,293        0.4

Identity Automation Systems (d)

   Business Services    First Lien Term Loan
(3M USD LIBOR+9.00%), 11.74% Cash, 3/31/2021
     8/25/2014      $ 24,125,000        24,003,106        23,970,600        13.8

Knowland Group, LLC

   Business Services    Second Lien Term Loan
(3M USD LIBOR+8.00%), 10.74% Cash, 5/9/2024
     11/9/2018      $ 15,000,000        15,000,000        15,000,000        8.7

Microsystems Company

   Business Services    Second Lien Term Loan
(3M USD LIBOR+8.25%), 10.99% Cash, 7/1/2022
     7/1/2016      $ 18,000,000        17,877,182        17,843,400        10.3

National Waste Partners (d)

   Business Services    Second Lien Term Loan
10.00% Cash, 2/13/2022
     2/13/2017      $ 9,000,000        8,938,076        8,847,900        5.1

Omatic Software, LLC

   Business Services    First Lien Term Loan
(3M USD LIBOR+8.00%), 10.74% Cash, 5/29/2023
     5/29/2018      $ 5,500,000        5,448,445        5,430,150        3.1

Omatic Software, LLC (j)

   Business Services    Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.74% Cash, 5/29/2023
     5/29/2018      $ —          —          —          0.0

Passageways, Inc.

   Business Services    First Lien Term Loan
(3M USD LIBOR+7.75%), 10.49% Cash, 7/5/2023
     7/5/2018      $ 5,000,000        4,953,216        4,950,000        2.9

Passageways, Inc. (h)

   Business Services    Series A Preferred Stock      7/5/2018        2,027,191        1,000,000        1,112,113        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      $ 9,731,538        9,730,168        9,745,162        5.6

Vector Controls Holding Co., LLC (h)

   Business Services    Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027      5/31/2015        343        —          1,838,926        1.1
              

 

 

    

 

 

    

 

 

 
      Total Business Services            200,022,195        203,399,273        117.4
              

 

 

    

 

 

    

 

 

 

Targus Holdings, Inc. (h)

   Consumer Products    Common Stock      12/31/2009        210,456        1,791,242        634,618        0.4
              

 

 

    

 

 

    

 

 

 
      Total Consumer Products            1,791,242        634,618        0.4
              

 

 

    

 

 

    

 

 

 

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

   Consumer Services    Preferred Equity Class A Units
8.00% PIK
     7/14/2017        2,227        2,357,879        2,029,309        1.2

My Alarm Center, LLC (h)

   Consumer Services    Preferred Equity Class B Units      7/14/2017        1,797        1,796,880        260,494        0.1

My Alarm Center, LLC

   Consumer Services    Preferred Equity Class Z Units
25.00% PIK
     9/12/2018        676        655,987        742,957        0.4

My Alarm Center, LLC (h)

   Consumer Services    Common Stock      7/14/2017        96,224        —          —          0.0
      Total Consumer Services            4,810,746        3,032,760        1.7
              

 

 

    

 

 

    

 

 

 

C2 Educational Systems (d)

   Education    First Lien Term Loan
(3M USD LIBOR+7.00%), 9.74% Cash, 5/31/2020
     5/31/2017      $ 16,000,000        15,915,846        16,000,000        9.2

Kev Software Inc. (a)

   Education    First Lien Term Loan
(1M USD LIBOR+8.63%), 10.98% Cash, 9/13/2023
     9/13/2018      $ 21,500,681        21,317,421        21,312,550        12.3

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        760,073        0.4

Texas Teachers of Tomorrow, LLC

   Education    Second Lien Term Loan
(3M USD LIBOR+9.75%), 12.49% Cash, 6/2/2021
     12/2/2015      $ 10,000,000        9,947,706        9,803,000        5.7
              

 

 

    

 

 

    

 

 

 
      Total Education            49,150,391        47,881,883        27.6
              

 

 

    

 

 

    

 

 

 

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        2,081,004        1.2
              

 

 

    

 

 

    

 

 

 
      Total Food and Beverage            2,216,427        2,081,004        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%), 8.74% Cash, 6/19/2023
     6/19/2018      $ 10,000,000        9,918,976        9,913,000        5.7

Axiom Purchaser, Inc. (j)

   Healthcare Services    Delayed Draw First Lien Term Loan
(3M USD LIBOR+6.00%), 8.74% Cash, 6/19/2023
     6/19/2018      $ —                        0.0

Censis Technologies, Inc.

   Healthcare Services    First Lien Term Loan B
(1M USD LIBOR+8.30%), 10.65% Cash, 9/27/2023
     7/25/2014      $ 20,000,000        19,884,618        19,926,000        11.5

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

   Healthcare Services    Limited Partner Interests      7/25/2014        999        999,000        2,176,377        1.3

ComForCare Health Care

   Healthcare Services    First Lien Term Loan
(3M USD LIBOR+8.00%), 10.74% Cash, 1/31/2022
     1/31/2017      $ 15,000,000        14,891,257        14,883,000        8.6

Ohio Medical, LLC (h)

   Healthcare Services    Common Stock      1/15/2016        5,000        500,000        115,417        0.1

Ohio Medical, LLC

   Healthcare Services    Senior Subordinated Note
12.00% Cash, 7/15/2021
     1/15/2016      $ 7,300,000        7,259,822        6,241,006        3.6

Pathway Partners Vet Management Company LLC

   Healthcare Services    Second Lien Term Loan
(1M USD LIBOR+8.00%), 10.35% Cash, 10/10/2025
     10/20/2017      $ 2,848,958        2,830,209        2,820,468        1.6

Pathway Partners Vet Management Company LLC (j)

   Healthcare Services    Delayed Draw Term Loan
(1M USD LIBOR+8.00%), 10.35% Cash, 10/10/2025
     10/20/2017      $ 1,461,792        1,461,792        1,447,174        0.8

Roscoe Medical, Inc. (h)

   Healthcare Services    Common Stock      3/26/2014        5,081        508,077        99,786        0.1

Roscoe Medical, Inc.

   Healthcare Services    Second Lien Term Loan
11.25% Cash, 3/28/2021
     3/26/2014      $ 4,200,000        4,184,579        3,501,960        2.0
              

 

 

    

 

 

    

 

 

 
      Total Healthcare Services            62,838,330        61,524,188        35.5
              

 

 

    

 

 

    

 

 

 

HMN Holdco, LLC

   Media    First Lien Term Loan
12.00% Cash, 7/8/2021
     5/16/2014      $ 7,672,199        7,654,694        7,672,199        4.4

HMN Holdco, LLC

   Media    Delayed Draw First Lien Term Loan
12.00% Cash, 7/8/2021
     5/16/2014      $ 5,300,000        5,272,674        5,300,000        3.1

HMN Holdco, LLC (h)

   Media    Class A Series, Expires 1/16/2025      1/16/2015        4,264        61,647        277,730        0.2

HMN Holdco, LLC (h)

   Media    Class A Warrant, Expires 1/16/2025      1/16/2015        30,320        438,353        1,629,029        0.9

HMN Holdco, LLC (h)

   Media    Warrants to Purchase Limited Liability Company Interests (Common), Expires 5/16/2024      1/16/2015        57,872               2,849,384        1.6

HMN Holdco, LLC (h)

   Media    Warrants to Purchase Limited Liability Company Interests (Preferred), Expires 5/16/2024      1/16/2015        8,139               451,080        0.3
              

 

 

    

 

 

    

 

 

 
      Total Media            13,427,368        18,179,422        10.5
              

 

 

    

 

 

    

 

 

 

Sub Total Non-control/Non-affiliate investments

                 349,141,826        351,241,148        202.7
           

 

 

    

 

 

    

 

 

 

Affiliate investments—6.4% (b)

                    

GreyHeller LLC (f)

   Business Services    First Lien Term Loan
(3M USD LIBOR+11.00%), 13.74% Cash, 11/16/2021
     11/17/2016      $ 7,000,000        6,953,723        7,090,300        4.1

GreyHeller LLC (f), (h)

   Business Services    Series A Preferred Units      11/17/2016        850,000        850,000        1,278,036        0.7
              

 

 

    

 

 

    

 

 

 
      Total Business Services            7,803,723        8,368,336        4.8
              

 

 

    

 

 

    

 

 

 

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

   Metals    Common Stock      7/30/2010        60,000        9,685,028        1,797,128        1.0

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

   Metals    Second Lien Term Loan
15.00% PIK, 8/10/2022
     7/30/2010      $ 985,300        985,300        985,300        0.6
              

 

 

    

 

 

    

 

 

 
      Total Metals            10,670,328        2,782,428        1.6
              

 

 

    

 

 

    

 

 

 

Sub Total Affiliate investments

                 18,474,051        11,150,764        6.4
              

 

 

    

 

 

    

 

 

 

Control investments—47.0% (b)

                    

Easy Ice, LLC (g)

   Business Services    Preferred Equity
10.00% PIK
     2/3/2017        5,080,000        9,442,309        13,084,271        7.6

Easy Ice, LLC (d), (g)

   Business Services    Second Lien Term Loan
7.03% Cash/5.97% PIK, 2/28/2023
     3/29/2013      $ 20,545,755        20,470,986        20,463,573        11.8

Easy Ice Masters, LLC (d), (g)

   Business Services    Second Lien Term Loan
7.03% Cash/5.97% PIK, 2/28/2023
     10/31/2018      $ 3,689,617        3,655,441        3,674,858        2.1

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      $ 5,041,806        4,993,558        5,030,714        2.9

Netreo Holdings, LLC (g), (h)

   Business Services    Common Stock Class A Unit      7/3/2018        3,150,000        3,150,000        3,853,042        2.2
              

 

 

    

 

 

    

 

 

 
      Total Business Services            41,712,294        46,106,458        26.6
              

 

 

    

 

 

    

 

 

 

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

   Structured Finance Securities    Other/Structured Finance Securities
16.07%, 10/20/2025
     1/22/2008      $ 30,000,000        9,522,559        10,813,867        6.2

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F Note (a), (g)

   Structured Finance Securities    Other/Structured Finance Securities
(3M USD LIBOR+8.50%), 11.24%, 10/20/2025
     10/17/2013      $ 4,500,000        4,500,000        4,500,000        2.6

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

   Structured Finance Securities    Unsecured Loan
(3M USD LIBOR+7.50%), 10.24%, 2/7/2020
     8/7/2018      $ 20,000,000        20,000,000        20,000,000        11.6
              

 

 

    

 

 

    

 

 

 
      Total Structured Finance Securities            34,022,559        35,313,867        20.4
              

 

 

    

 

 

    

 

 

 

Sub Total Control investments

                 75,734,853        81,420,325        47.0
              

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENTS—256.1% (b)

            $ 443,350,730      $ 443,812,237        256.1
              

 

 

    

 

 

    

 

 

 
                      Number of
Shares
     Cost      Fair Value      % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts—2.4% (b)

 

           

U.S. Bank Money Market (l)

              4,242,944      $ 4,242,944      $ 4,242,944        2.4
           

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     4,242,944      $ 4,242,944      $ 4,242,944        2.4
        

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)

Represents a non-qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940, as amended. As of November 30, 2018, non-qualifying assets represent 14.9% 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 $173,269,091 as of November 30, 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 16.07% 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 nine months ended November 30, 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

   $ —        $ —        $ 720,738      $ —        $ —        $ 511,432  

Elyria Foundry Company, L.L.C.

     —          —          110,898        —          —          (1,636,672
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 831,636      $ —        $ —        $ (1,125,240
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 nine months ended November 30, 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

   $ 1,684,448      $ —       $ 2,503,380      $ —        $ —        $ 1,537,943  

Easy Ice Masters, LLC

     3,629,682        —         40,085        —          —          19,417  

Netreo Holdings, LLC

     8,100,000        —         233,224        —          —          740,198  

Saratoga Investment Corp. CLO 2013-1, Ltd.

     274,771        (48,083     2,035,336        1,623,767        —          (1,287,524

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

     —          —         350,496        —          —          900  

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

     20,000,000        —         449,018        —          —          —    
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 33,688,901      $ (48,083   $ 5,611,539      $ 1,623,767      $ —        $ 1,010,934  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(h)

Non-income producing at November 30, 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 November 30, 2018. (see Note 7 to the consolidated financial statements).    

 

(k)

As of November 30, 2018, the investment was on non-accrual status. The fair value of these investments was approximately $4.1 million, which represented 0.9% 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 November 30, 2018.    

LIBOR—London Interbank Offered Rate

1M USD LIBOR—The 1 month USD LIBOR rate as of November 30, 2018 was 2.35%.    

3M USD LIBOR—The 3 month USD LIBOR rate as of November 30, 2018 was 2.74%.    

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 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 nine months ended  
     November 30, 2018     November 30, 2017  

INCREASE FROM OPERATIONS:

    

Net investment income

   $ 14,210,817     $ 9,411,011  

Net realized gain (loss) from investments

     145,007       (5,658,329

Net change in unrealized appreciation (depreciation) on investments

     (2,542,429     8,394,254  

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

     (1,159,581     —    
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     10,653,814       12,146,936  
  

 

 

   

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

    

Total distributions to shareholders

     (10,208,577     (8,323,545
  

 

 

   

 

 

 

Net decrease in net assets from shareholder distributions

     (10,208,577     (8,323,545
  

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS:

    

Proceeds from issuance of common stock

     28,991,238       5,985,282  

Stock dividend distribution

     1,594,506       1,825,036  

Offering costs

     (1,387,957     (82,263
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     29,197,787       7,728,055  
  

 

 

   

 

 

 

Total increase in net assets

     29,643,024       11,551,446  

Net assets at beginning of period, as previously 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

   $ 173,269,091     $ 138,846,223  
  

 

 

   

 

 

 

Net asset value per common share

   $ 23.13     $ 22.58  

Common shares outstanding at end of period

     7,490,183       6,149,582  

See accompanying notes to consolidated financial statements.

 

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Saratoga investment Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

     For the nine months ended  
     November 30, 2018     November 30, 2017  

Operating activities

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 10,653,814     $ 12,146,936  

ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS RESULTING FROM

    

OPERATIONS TO NET CASH USED IN OPERATING ACTIVITIES:

    

Payment-in-kind interest income

     (2,914,989     (1,637,083

Net accretion of discount on investments

     (793,588     (481,356

Amortization of deferred debt financing costs

     820,836       741,195  

Net deferred income taxes

     (684,520     —    

Net realized (gain) loss from investments

     (145,007     5,658,329  

Net change in unrealized (appreciation) depreciation on investments

     2,542,429       (8,394,254

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

     1,159,581       —    

Proceeds from sales and repayments of investments

     60,854,504       45,554,971  

Purchase of investments

     (160,661,533     (86,876,981

(Increase) decrease in operating assets:

    

Interest receivable

     (1,654,449     5,490  

Management and incentive fee receivable

     65,806       (94,899

Other assets

     (155,841     (389,811

Receivable from unsettled trades

     (6,463     156,000  

Increase (decrease) in operating liabilities:

    

Base management and incentive fees payable

     30,718       (619,847

Accounts payable and accrued expenses

     569,632       491,660  

Interest and debt fees payable

     (314,276     (781,890

Directors fees payable

     (41,500     (51,500

Due to manager

     (27,276     (16,735
  

 

 

   

 

 

 

NET CASH USED IN OPERATING ACTIVITIES

     (90,702,122     (34,589,775
  

 

 

   

 

 

 

Financing activities

    

Borrowings on debt

     45,590,000       46,500,000  

Paydowns on debt

     (21,500,000     (23,500,000

Issuance of notes

     40,000,000        

Payments of deferred debt financing costs

     (1,940,910     (1,204,517

Proceeds from issuance of common stock

     28,991,238       5,985,282  

Payments of offering costs

     (1,293,382     (62,669

Payments of cash dividends

     (8,614,071     (6,498,509
  

 

 

   

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

     81,232,875       21,219,587  
  

 

 

   

 

 

 

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 EQUIVALENTS, RESERVE ACCOUNTS

     (9,534,547     (13,370,188

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

   $ 4,242,944     $ 8,717,780  
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid during the period

   $ 8,696,177     $ 8,286,045  

Cash paid for taxes

     61,569       69,502  

Supplemental non-cash information:

    

Payment-in-kind interest income

   $ 2,914,989     $ 1,637,083  

Net accretion of discount on investments

     793,588       481,356  

Amortization of deferred debt financing costs

     820,836       741,195  

Stock dividend distribution

     1,594,506       1,825,036  

See accompanying notes to consolidated financial statements.

 

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Table of Contents

SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

November 30, 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 nine months ended November 30, 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 November 30, 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:

 

     November 30,
2018
     November 30,
2017
 

Cash and cash equivalents

   $ 322,116      $ 680,065  

Cash and cash equivalents, reserve accounts

     3,920,828        8,037,715  
  

 

 

    

 

 

 

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

   $ 4,242,944      $ 8,717,780  
  

 

 

    

 

 

 

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 November 30, 2018, certain investments in three portfolio companies, including preferred equity interests, were on non-accrual status with a fair value of approximately $4.1 million, or 0.9% 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.

 

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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 nine months ended November 30, 2018:

Consolidated Statement of Assets and Liabilities

 

     November 30, 2018  
     As Reported      Adjustments      Without
Adoption of

ASC 606
 

Management and incentive fee receivable

   $ 167,218      $ 68,881      $ 236,099  

Total assets

     454,044,680        68,881        454,113,561  

Total net assets

     173,269,091        68,881        173,337,972  

NET ASSET VALUE PER SHARE

   $ 23.13      $ 0.01      $ 23.14  

Consolidated Statements of Operations

 

     For the Three Months Ended November 30, 2018  
     As Reported      Adjustments      Without
Adoption of
ASC 606
 

Incentive fee income

   $ 147,602      $ (1,382    $ 146,220  

Total investment income

     12,833,013        (1,382      12,831,631  

NET INVESTMENT INCOME

     5,138,941        (1,382      5,137,559  

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

     3,669,083        (1,382      3,667,701  

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.49      $ —        $ 0.49  
     For the Nine Months Ended November 30, 2018  
     As Reported      Adjustments      Without
Adoption of
ASC 606
 

Incentive fee income

   $ 493,846      $ 3,581      $ 497,427  

Total investment income

     34,723,805        3,581        34,727,386  

NET INVESTMENT INCOME

     14,210,817        3,581        14,214,398  

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

     10,653,814        3,581        10,657,395  

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 1.55      $ —        $ 1.55  

 

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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 November 30, 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 August 2018, the SEC issued Final Rule Release No.33-10532, Disclosure Update and Simplification, which in part amends certain disclosure requirements of Regulation S-X that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, U.S. GAAP or changes in the information environment. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. The effective date for these disclosures was November 5, 2018, effective for the first quarter that begins after the effective date. Management has adopted these amendments as currently required and these are reflected in the Company’s consolidated financial statements and related disclosures. Certain prior year information has been adjusted to conform with these amendments.

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.

 

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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.

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.

 

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

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

The following table presents fair value measurements of investments, by major class, as of November 30, 2018 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

First lien term loans

   $ —        $ —        $ 238,503      $ 238,503  

Second lien term loans

     —          —          129,477        129,477  

Unsecured term loans

     —          —          22,081        22,081  

Structured finance securities

     —          —          15,314        15,314  

Equity interests

     —          —          38,437        38,437  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 443,812      $ 443,812  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 nine months ended November 30, 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     (1,082     (1,404     (135     (1,287     1,439        (2,542

Purchases and other adjustments to cost

     73       84,782       49,806       22,216       275       7,218        164,370  

Sales and repayments

     (4,106     (42,701     (14,000     —         (48     —          (60,855

Net realized gain from investments

     —         145       —         —         —         —          145  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance as of November 30, 2018

   $ —       $ 238,503     $ 129,477     $ 22,081     $ 15,314     $ 38,437      $ 443,812  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

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

   $ —       $ (1,154   $ (1,312   $ (135   $ (1,287   $ 1,439      $ (2,449
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

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 nine months ended November 30, 2018.

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine months ended November 30, 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

     (9     315       2,250       1,991       3,847       8,394  

Purchases and other adjustments to cost

     14       81,918       4,143       —         2,921       88,996  

Sales and repayments

     (773     (13,228     (27,023     (1,128     (3,403     (45,555

Net realized gain (loss) from investments

     (54     13       (7,530     —         1,913       (5,658

Restructures in

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

Restructures out

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of November 30, 2017

   $ 9,001     $ 185,661     $ 99,427     $ 16,313     $ 28,436     $ 338,838  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (9   $ 452     $ 81     $ 1,991     $ 4,500     $ 7,015  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 nine months ended November 30, 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 November 30, 2018 were as follows (dollars in thousands):

 

     Fair Value     

Valuation Technique

  

Unobservable Input

   Range

First lien term loans

   $ 238,503      Market Comparables    Market Yield (%) EBITDA Multiples (x)    9.0% - 15.1%
3.0x

Second lien term loans

     129,477      Market Comparables    Market Yield (%) EBITDA Multiples (x)    10.3% - 20.4%
5.0x

Unsecured term loans

     22,081      Market Comparables    Market Yield (%) EBITDA Multiples (x)    9.6% - 9.9%
4.8x

Structured finance securities

     15,314      Discounted Cash Flow    Discount Rate (%)      8.8% - 13.0%  

Equity interests

     38,437      Market Comparables    EBITDA Multiples (x) Revenue Multiples (x)    4.0x - 14.8x
0.4x - 39.4x

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 (%) EBITDA Multiples (x) Third-Party Bid (%)    7.3% - 13.4%
3.0x
97.6% - 100.1%

Second lien term loans

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

5.0x

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) Revenue Multiples (x)    4.0x - 14.0x
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

 

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(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.

The composition of our investments as of November 30, 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

   $ 239,480        54.0   $ 238,503        53.6

Second lien term loans

     131,198        29.6       129,477        29.2  

Unsecured term loans

     22,216        5.0       22,081        5.0  

Structured finance securities

     14,023        3.2       15,314        3.5  

Equity interests

     36,434        8.2       38,437        8.7  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 443,351        100.0   $ 443,812        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 November 30, 2018. The significant inputs at November 30, 2018 for the valuation model include:

 

   

Default rate: 2.0%

 

   

Recovery rate: 35-70%

 

   

Discount rate: 13.0%

 

   

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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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 November 30, 2018 and November 30, 2017, we accrued $0.4 million and $0.4 million in management fee income, respectively, and $0.5 million and $0.7 million in interest income, respectively, from the Saratoga CLO. For the nine months ended November 30, 2018 and November 30, 2017, we accrued $1.1 million and $1.1 million in management fee income, respectively, and $2.0 million and $1.7 million in interest income, respectively, from the Saratoga CLO. For the three months ended November 30, 2018 and November 30, 2017, we accrued $0.1 million and $0.2 million, respectively, related to the incentive management fee from Saratoga CLO. For the nine months ended November 30, 2018 and November 30, 2017, we accrued $0.5 million and $0.5 million, respectively, related to the incentive management fee from Saratoga CLO.

As of November 30, 2018, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $10.8 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 November 30, 2018, Saratoga CLO had investments with a principal balance of $392.9 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 November 30, 2018, the present value of the projected future cash flows of the subordinated notes was approximately $11.0 million, using 13.0% discount rate. Saratoga Investment Corp. invested $32.8 million into the CLO since January 2008, and to date has since received distributions of $55.9 million, management fees of $19.1 million and incentive fees of $1.0 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 November 30, 2018, the outstanding amount of this unsecured loan was $20.0 million.

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

Below is certain financial information from the separate financial statements of Saratoga CLO as of November 30, 2018 (unaudited) and February 28, 2018 and for the three and nine months ended November 30, 2018 (unaudited) and November 30, 2017 (unaudited).

 

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Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities

 

     November 30, 2018     February 28, 2018  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Loans at fair value (amortized cost of $390,237,582 and $307,926,355, respectively)

   $  383,068,753     $  305,823,704  

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

     55,075       6,599  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $393,768,800 and $311,457,573, respectively)

     383,123,828       305,830,303  

Cash and cash equivalents

     9,192,717       5,769,820  

Receivable from open trades

     752,497       12,395,571  

Interest receivable

     1,870,351       1,653,928  
  

 

 

   

 

 

 

Total assets

   $ 394,939,393     $ 325,649,622  
  

 

 

   

 

 

 

LIABILITIES

    

Interest payable

   $ 2,351,542     $ 1,190,428  

Payable from open trades

     11,748,259       24,471,358  

Accrued base management fee

     33,443       33,545  

Accrued subordinated management fee

     133,773       134,179  

Accrued incentive fee

     68,881       65,300  

Loan payable, related party

     20,000,000       —    

Loan payable, third party

     65,739,500       —    

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.

     (61,580     (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.

     (285,886     (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

     (919,472     (1,014,090

Subordinated notes

     30,000,000       30,000,000  
  

 

 

   

 

 

 

Total liabilities

   $ 411,208,460     $ 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)

     (5,023,748     1,728,457  
  

 

 

   

 

 

 

Total net assets

     (16,269,067     (11,245,319
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 394,939,393     $ 325,649,622  
  

 

 

   

 

 

 

 

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Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Operations

(unaudited)

 

     For the three months ended     For the nine months ended  
     November 30, 2018     November 30, 2017     November 30, 2018     November 30, 2017  

INVESTMENT INCOME

        

Interest from investments

   $ 5,797,031     $  4,178,651     $  15,686,270     $  12,307,120  

Interest from cash and cash equivalents

     4,502       3,113       12,591       12,539  

Other income

     182,243       117,791       355,414       362,961  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     5,983,776       4,299,555       16,054,275       12,682,620  
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Interest expense

     4,781,948       3,461,049       12,793,849       10,396,665  

Professional fees

     136,219       78,048       249,665       131,155  

Miscellaneous fee expense

     6,885       36,350       36,692       66,309  

Base management fee

     76,153       75,289       225,984       225,617  

Subordinated management fee

     304,612       301,158       903,937       902,468  

Incentive fees

     146,220       209,434       497,427       477,087  

Trustee expenses

     15,396       41,025       76,092       115,740  

Amortization expense

     44,218       44,218       132,931       132,932  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     5,511,651       4,246,571       14,916,577       12,447,973  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     472,125       52,984       1,137,698       234,647  
  

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

        

Net realized gain (loss) on investments

     11,948       260,872       (1,143,744     1,030,216  

Net change in unrealized depreciation on investments

     (4,467,273     (202,856     (5,017,702     (1,561,704
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss) on investments

     (4,455,325     58,016       (6,161,446     (531,488
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $  (3,983,200   $ 111,000     $  (5,023,748   $ (296,841
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Saratoga Investment Corp. CLO 2013-1, Ltd.

Schedule of Investments

November 30, 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.

  Media: Broadcasting & Subscription   Class A Common Stock     Equity       —           —         —         —         3,737     $ —       $ 54,186  

Education Management II LLC

  Services: Consumer   A-2 Preferred Shares     Equity       —           —         —         —         18,975       1,897,538       —    

Education Management II LLC

  Services: Consumer   A-1 Preferred Shares     Equity       —           —         —         —         6,692       669,214       —    

New Millennium Holdco, Inc.

  Healthcare & Pharmaceuticals   Common Stock     Equity       —           —         —         —         14,813       964,466       889  

24 Hour Fitness Worldwide Inc.

  Services: Consumer   Term Loan (5/18)     Loan       1M USD LIBOR+       3.50     0.00     5.85     5/30/2025     $ 1,995,000       1,985,355       1,978,162  

ABB Con-Cise Optical Group LLC

  Healthcare & Pharmaceuticals   Term Loan B     Loan       1M USD LIBOR+       5.00     1.00     7.35     6/15/2023       1,960,000       1,941,002       1,960,000  

Achilles Acquisition LLC

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       4.00     0.00     6.35     10/13/2025       6,000,000       5,985,142       5,970,000  

Acosta Inc.

  Media: Advertising Printing & Publishing   Term Loan B (1st Lien)     Loan       1M USD LIBOR+       3.25     1.00     5.60     9/26/2021       1,920,350       1,913,567       1,328,402  

ADMI Corp.

  Services: Consumer   Term Loan B     Loan       1M USD LIBOR+       3.00     0.00     5.35     4/30/2025       1,995,000       1,985,596       1,970,063  

Advantage Sales & Marketing Inc.

  Services: Business   First Lien Term Loan     Loan       1M USD LIBOR+       3.25     1.00     5.60     7/23/2021       2,402,412       2,400,907       2,151,360  

Advantage Sales & Marketing Inc.

  Services: Business   Term Loan B Incremental     Loan       1M USD LIBOR+       3.25     1.00     5.60     7/23/2021       496,231       488,146       449,710  

Aegis Toxicology Sciences Corporation

  Healthcare & Pharmaceuticals   Term Loan     Loan       3M USD LIBOR+       5.50     1.00     8.24     5/9/2025       4,000,000       3,963,762       3,880,000  

Agrofresh Inc.

  Beverage Food & Tobacco   Term Loan     Loan       1M USD LIBOR+       4.75     1.00     7.10     7/30/2021       2,927,308       2,922,390       2,894,375  

AI Mistral (Luxembourg) Subco Sarl

  High Tech Industries   Term Loan     Loan       1M USD LIBOR+       3.00     1.00     5.35     3/11/2024       492,500       492,500       481,828  

AIS Holdco LLC

  Services: Business   Term Loan     Loan       1M USD LIBOR+       5.00     0.00     7.35     8/15/2025       2,500,000       2,487,639       2,475,000  

Akorn Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       1M USD LIBOR+       5.50     1.00     7.85     4/16/2021       398,056       397,418       332,972  

Albertson’s LLC

  Retail   Term Loan B7     Loan       1M USD LIBOR+       3.00     0.75     5.35     11/17/2025       4,151,511       4,141,282       4,062,004  

Alchemy US Holdco 1 LLC

  Metals & Mining   Term Loan     Loan       6M USD LIBOR+       5.50     0.00     8.39     10/10/2025       2,000,000       1,970,381       1,995,000  

Alera Group Intermediate Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       4.50     0.00     6.85     8/1/2025       498,750       497,547       498,750  

Alion Science and Technology Corporation

  Aerospace & Defense   Term Loan B (1st Lien)     Loan       1M USD LIBOR+       4.50     1.00     6.85     8/19/2021       3,626,521       3,619,654       3,632,179  

Allen Media LLC

  Media: Diversified & Production   Term Loan B     Loan       3M USD LIBOR+       6.50     1.00     9.24     8/30/2023       3,000,000       2,928,173       2,913,750  

Altisource S.a r.l.

  Banking Finance Insurance & Real Estate   Term Loan B (03/18)     Loan       3M USD LIBOR+       4.00     1.00     6.74     4/3/2024       1,924,554       1,908,891       1,908,523  

Altra Industrial Motion Corp.

  Transportation: Cargo   Term Loan     Loan       1M USD LIBOR+       2.00     0.00     4.35     10/1/2025       2,000,000       1,995,090       1,976,260  

American Greetings Corporation

  Media: Advertising Printing & Publishing   Term Loan     Loan       1M USD LIBOR+       4.50     1.00     6.85     4/5/2024       995,000       976,944       993,756  

American Residential Services LLC

  Services: Consumer   Term Loan B     Loan       1M USD LIBOR+       4.00     1.00     6.35     6/30/2022       3,976,642       3,963,077       3,951,788  

Amynta Agency Borrower Inc.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       4.00     0.00     6.35     2/28/2025       498,750       496,427       493,763  

Anastasia Parent LLC

  Consumer goods: Non-durable   Term Loan     Loan       1M USD LIBOR+       3.75     0.00     6.10     8/11/2025       1,000,000       995,162       984,170  

Anchor Glass Container Corporation

  Containers Packaging & Glass   Term Loan (07/17)     Loan       3M USD LIBOR+       2.75     1.00     5.49     12/7/2023       491,281       489,343       418,410  

AqGen Ascensus Inc.

  Services: Consumer   Term Loan Incremental (6/18)     Loan       3M USD LIBOR+       3.50     1.00     6.24     12/5/2022       337,188       336,449       335,080  

AqGen Ascensus Inc.

  Services: Consumer   Delayed Draw Term Loan Incremental (6/18)     Loan       3M USD LIBOR+       3.50     1.00     6.24     12/5/2022       72,500       72,500       72,045  

Aramark Services Inc.

  Services: Consumer   Term Loan B-2     Loan       1M USD LIBOR+       1.75     0.00     4.10     3/28/2024       1,294,904       1,294,904       1,284,389  

Arctic Glacier U.S.A. Inc.

  Beverage Food & Tobacco   Term Loan (3/18)     Loan       1M USD LIBOR+       3.50     1.00     5.85     3/20/2024       522,303       522,243       515,774  

Aretec Group Inc.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       4.25     0.00     6.60     10/1/2025       2,000,000       1,995,176       1,987,500  

ASG Technologies Group Inc.

  High Tech Industries   Term Loan     Loan       1M USD LIBOR+       3.50     1.00     5.85     7/31/2024       495,009       492,877       485,109  

AssetMark Financial Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       3.50     0.00     5.85     11/14/2025       1,000,000       997,561       997,500  

Astoria Energy LLC

  Energy: Electricity   Term Loan     Loan       1M USD LIBOR+       4.00     1.00     6.35     12/24/2021       1,407,655       1,398,428       1,398,857  

Asurion LLC

  Banking Finance Insurance & Real Estate   Term Loan B-4 (Replacement)     Loan       1M USD LIBOR+       3.00     0.00     5.35     8/4/2022       2,286,838       2,278,131       2,264,930  

Asurion LLC

  Banking Finance Insurance & Real Estate   Term Loan B6     Loan       1M USD LIBOR+       3.00     0.00     5.35     11/3/2023       499,251       495,342       493,509  

ATS Consolidated Inc.

  Construction & Building   Term Loan     Loan       1M USD LIBOR+       3.75     0.00     6.10     3/3/2025       497,500       495,146       496,878  

Avaya Inc.

  Telecommunications   Term Loan B     Loan       2M USD LIBOR+       4.25     0.00     6.76     12/16/2024       992,500       983,097       982,823  

Avolon TLB Borrower 1 US LLC

  Capital Equipment   Term Loan B3     Loan       1M USD LIBOR+       2.00     0.75     4.35     1/15/2025       990,019       985,397       977,644  

Ball Metalpack Finco LLC

  Containers Packaging & Glass   Term Loan     Loan       1M USD LIBOR+       4.50     0.00     6.85     7/31/2025       3,995,000       3,975,702       3,975,025  

Bausch Health Companies Inc.

  Healthcare & Pharmaceuticals   Term Loan B (05/18)     Loan       1M USD LIBOR+       3.00     0.00     5.35     6/2/2025       1,800,961       1,793,212       1,781,835  

Bausch Health Companies Inc.

  Healthcare & Pharmaceuticals   Term Loan     Loan       1M USD LIBOR+       2.75     0.00     5.10     11/27/2025       500,000       495,000       491,875  

Blackboard Inc.

  High Tech Industries   Term Loan B4     Loan       3M USD LIBOR+       5.00     1.00     7.74     6/30/2021       2,940,000       2,925,772       2,781,064  

Blount International Inc.

  Forest Products & Paper   Term Loan B (09/18)     Loan       1M USD LIBOR+       3.75     1.00     6.10     4/12/2023       497,500       496,305       496,669  

Blucora Inc.

  High Tech Industries   Term Loan (11/17)     Loan       1M USD LIBOR+       3.00     1.00     5.35     5/22/2024       706,667       703,619       703,133  

Boxer Parent Company Inc.

  High Tech Industries   Term Loan     Loan       3M USD LIBOR+       4.25     0.00     6.99     10/2/2025       5,000,000       4,951,375       4,943,150  

Bracket Intermediate Holding Corp.

  Healthcare & Pharmaceuticals   Term Loan     Loan       3M USD LIBOR+       4.25     0.00     6.99     9/5/2025       1,000,000       995,127       1,000,000  

Broadstreet Partners Inc.

  Banking Finance Insurance & Real Estate   Term Loan B2     Loan       1M USD LIBOR+       3.25     1.00     5.60     11/8/2023       1,037,818       1,035,539       1,026,796  

Brookfield WEC Holdings Inc.

  Energy: Electricity   Term Loan     Loan       1M USD LIBOR+       3.75     0.75     6.10     8/1/2025       2,000,000       1,990,363       1,993,220  

Cable & Wireless Communications Limited

  Telecommunications   Term Loan B4     Loan       1M USD LIBOR+       3.25     0.00     5.60     1/30/2026       2,500,000       2,496,875       2,483,673  

Cable One Inc.

  Media: Broadcasting & Subscription   Term Loan B     Loan       3M USD LIBOR+       1.75     0.00     4.49     5/1/2024       493,750       493,277       490,664  

Canyon Valor Companies Inc.

  Media: Advertising Printing & Publishing   Term Loan B     Loan       3M USD LIBOR+       2.75     0.00     5.49     6/16/2023       941,691       939,337       931,097  

Capital Automotive L.P.

  Banking Finance Insurance & Real Estate   First Lien Term Loan     Loan       1M USD LIBOR+       2.50     1.00     4.85     3/25/2024       479,266       477,318       471,478  

Caraustar Industries Inc.

  Forest Products & Paper   Term Loan B (02/17)     Loan       3M USD LIBOR+       5.50     1.00     8.24     3/14/2022       492,500       491,553       491,579  

CareerBuilder LLC

  Services: Business   Term Loan     Loan       3M USD LIBOR+       6.75     1.00     9.49     7/31/2023       2,345,559       2,299,357       2,339,695  

Casa Systems Inc.

  Telecommunications   Term Loan     Loan       1M USD LIBOR+       4.00     1.00     6.35     12/20/2023       1,473,750       1,462,581       1,467,310  

Catalent Pharma Solutions Inc

  Healthcare & Pharmaceuticals   Term Loan B (new)     Loan       1M USD LIBOR+       2.25     1.00     4.60     5/20/2024       264,599       264,082       262,992  

CCS-CMGC Holdings Inc.

  Healthcare & Pharmaceuticals   Term Loan     Loan       1M USD LIBOR+       5.50     0.00     7.85     10/1/2025       2,500,000       2,475,444       2,479,175  

Cengage Learning Inc.

  Media: Advertising Printing & Publishing   Term Loan     Loan       1M USD LIBOR+       4.25     1.00     6.60     6/7/2023       1,464,371       1,451,753       1,302,836  

CenturyLink Inc.

  Telecommunications   Term Loan B     Loan       1M USD LIBOR+       2.75     0.00     5.10     1/31/2025       2,977,500       2,971,284       2,890,646  

CEOC LLC

  Hotel Gaming & Leisure   Term Loan     Loan       1M USD LIBOR+       2.00     0.00     4.35     10/4/2024       992,500       992,500       972,233  

CH Hold Corp.

  Automotive   Term Loan     Loan       1M USD LIBOR+       3.00     1.00     5.35     2/1/2024       244,811       244,404       243,129  

Charter Communications Operating LLC.

  Media: Broadcasting & Subscription   Term Loan (12/17)     Loan       1M USD LIBOR+       2.00     0.00     4.35     4/30/2025       1,588,000       1,586,276       1,570,532  

Compuware Corporation

  High Tech Industries   Term Loan     Loan       1M USD LIBOR+       3.50     0.00     5.85     8/22/2025       500,000       498,770       499,065  

Concordia International Corp.

  Healthcare & Pharmaceuticals   Term Loan     Loan       1M USD LIBOR+       5.50     1.00     7.85     9/6/2024       1,214,000       1,149,239       1,172,518  

Consolidated Aerospace Manufacturing LLC

  Aerospace & Defense   Term Loan (1st Lien)     Loan       1M USD LIBOR+       3.75     1.00     6.10     8/11/2022       2,418,750       2,412,097       2,418,750  

Consolidated Communications Inc.

  Telecommunications   Term Loan B     Loan       1M USD LIBOR+       3.00     1.00     5.35     10/5/2023       1,494,366       1,481,195       1,427,120  

Covia Holdings Corporation

  Metals & Mining   Term Loan     Loan       3M USD LIBOR+       3.75     1.00     6.49     6/2/2025       997,500       997,500       787,606  

CPI Acquisition Inc

  Banking Finance Insurance & Real Estate   Term Loan B (1st Lien)     Loan       6M USD LIBOR+       4.50     1.00     7.39     8/17/2022       1,436,782       1,423,957       914,756  

Crown Subsea Communications Holding Inc

  Telecommunications   Term Loan     Loan       1M USD LIBOR+       6.00     0.00     8.35     11/3/2025       2,000,000       1,960,500       1,987,500  

CSC Holdings LLC

  Media: Broadcasting & Subscription   Term Loan B     Loan       3M USD LIBOR+       2.25     0.00     4.99     1/15/2026       500,000       498,750       490,315  

CT Technologies Intermediate Hldgs Inc

  Healthcare & Pharmaceuticals   New Term Loan     Loan       1M USD LIBOR+       4.25     1.00     6.60     12/1/2021       1,443,994       1,436,735       1,361,874  

Cumulus Media New Holdings Inc.

  Media: Broadcasting & Subscription   Term Loan     Loan       1M USD LIBOR+       4.50     1.00     6.85     5/13/2022       336,742       333,719       325,939  

Daseke Companies Inc.

  Transportation: Cargo   Replacement Term Loan     Loan       1M USD LIBOR+       5.00     1.00     7.35     2/27/2024       1,980,640       1,969,651       1,963,309  

Dell International L.L.C.

  High Tech Industries   Term Loan B     Loan       1M USD LIBOR+       2.00     0.75     4.35     9/7/2023       1,485,000       1,484,047       1,466,675  

Delta 2 (Lux) SARL

  Hotel Gaming & Leisure   Term Loan B     Loan       1M USD LIBOR+       2.50     1.00     4.85     2/1/2024       1,318,289       1,314,929       1,273,243  

Dex Media Inc.

  Media: Diversified & Production   Term Loan (07/16)     Loan       1M USD LIBOR+       10.00     1.00     12.35     7/29/2021       16,249       16,249       16,425  

DHX Media Ltd.

  Media: Broadcasting & Subscription   Term Loan     Loan       1M USD LIBOR+       3.75     1.00     6.10     12/29/2023       332,042       330,476       324,571  

Digital Room Holdings Inc.

  Media: Advertising Printing & Publishing   Term Loan     Loan       1M USD LIBOR+       5.00     1.00     7.35     12/29/2023       3,109,171       3,080,907       3,101,398  

Dole Food Company Inc.

  Beverage Food & Tobacco   Term Loan B     Loan       Prime+       2.75     1.00     8.00     4/8/2024       484,375       482,441       474,993  

Drew Marine Group Inc.

  Transportation: Consumer   First Lien Term Loan     Loan       1M USD LIBOR+       3.25     1.00     5.60     11/19/2020       2,848,517       2,834,413       2,830,713  

DTZ U.S. Borrower LLC

  Construction & Building   Term Loan B     Loan       1M USD LIBOR+       3.25     0.00     5.60     8/21/2025       6,000,000       5,971,159       5,904,360  

Dynatrace LLC

  High Tech Industries   Term Loan     Loan       1M USD LIBOR+       3.25     0.00     5.60     8/22/2025       1,000,000       1,000,000       993,750  

Eagletree-Carbide Acquisition Corp.

  High Tech Industries   Term Loan     Loan       3M USD LIBOR+       4.25     1.00     6.99     8/28/2024       3,977,504       3,957,960       3,937,729  

Education Management II LLC(a)

  Services: Consumer   Term Loan A     Loan       Prime+       5.50     1.00     10.75     7/2/2020       423,861       418,242       16,954  

Education Management II LLC(a)

  Services: Consumer   Term Loan B     Loan       Prime+       8.50     1.00     13.75     7/2/2020       954,307       944,262       23,858  

EIG Investors Corp.

  High Tech Industries   Term Loan (06/18)     Loan       3M USD LIBOR+       3.75     1.00     6.49     2/9/2023       450,730       449,603       448,729  

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

  Environmental Industries   Term Loan     Loan       3M USD LIBOR+       4.00     1.00     6.74     5/14/2021       988,553       984,733       978,668  

Emerald Performance Materials LLC

  Chemicals Plastics & Rubber   Term Loan     Loan       1M USD LIBOR+       3.50     1.00     5.85     7/30/2021       477,180       476,183       473,601  

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

  Healthcare & Pharmaceuticals   Term Loan B (4/17)     Loan       1M USD LIBOR+       4.25     0.75     6.60     4/29/2024       987,500       983,416       982,355  

Energy Acquisition LP

  Energy: Electricity   Term Loan     Loan       3M USD LIBOR+       4.25     0.00     6.99     6/26/2025       1,995,000       1,975,832       1,955,100  

Engility Corporation

  Aerospace & Defense   Term Loan B1     Loan       1M USD LIBOR+       2.25     0.00     4.60     8/12/2020       130,323       130,005       130,160  

Envision Healthcare Corporation

  Healthcare & Pharmaceuticals   Term Loan B     Loan       1M USD LIBOR+       3.75     0.00     6.10     10/10/2025       5,000,000       4,988,029       4,803,150  

Equian Buyer Corp.

  Services: Business   Term Loan B     Loan       1M USD LIBOR+       3.25     1.00     5.60     5/20/2024       1,975,000       1,966,351       1,960,188  

Evergreen AcqCo 1 LP

  Retail   Term Loan C     Loan       3M USD LIBOR+       3.75     1.25     6.49     7/9/2019       937,650       936,506       898,391  

EWT Holdings III Corp.

  Capital Equipment   Term Loan     Loan       1M USD LIBOR+       3.00     1.00     5.35     12/20/2024       2,816,754       2,804,422       2,788,587  

Extreme Reach Inc.

  Media: Advertising Printing & Publishing   Term Loan     Loan       1M USD LIBOR+       6.25     1.00     8.60     2/7/2020       2,332,769       2,323,834       2,315,274  

Fastener Acquisition Inc.

  Construction & Building   Term Loan B     Loan       3M USD LIBOR+       4.25     1.00     6.99     3/28/2025       497,500       495,160       487,550  

FinCo I LLC

  Banking Finance Insurance & Real Estate   2018 Term Loan B     Loan       1M USD LIBOR+       2.00     0.00     4.35     12/27/2022       415,800       414,843       411,642  

First Data Corporation

  Banking Finance Insurance & Real Estate   2024A New Dollar Term Loan     Loan       1M USD LIBOR+       2.00     0.00     4.35     4/26/2024       1,741,492       1,670,652       1,709,936  

First Eagle Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       3M USD LIBOR+       2.75     0.00     5.49     12/2/2024       2,000,000       1,997,558       1,986,260  

Fitness International LLC

  Services: Consumer   Term Loan B (4/18)     Loan       1M USD LIBOR+       3.25     0.00     5.60     4/18/2025       2,783,189       2,766,106       2,753,632  

Flex Acquisition Company Inc

  Containers Packaging & Glass   Term Loan B     Loan       1M USD LIBOR+       3.25     0.00     5.60     6/30/2025       997,500       995,147       981,600  

Franklin Square Holdings L.P.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       2.50     0.00     4.85     8/1/2025       500,000       497,588       496,250  

Fusion Connect Inc.

  Telecommunications   Term Loan B     Loan       3M USD LIBOR+       7.50     1.00     10.24     5/4/2023       1,950,000       1,878,060       1,833,000  

GBT Group Services B.V.

  Hotel Gaming & Leisure   Term Loan     Loan       3M USD LIBOR+       2.50     0.00     5.24     8/13/2025       500,000       498,779       499,375  

GC EOS Buyer Inc.

  Automotive   Term Loan B     Loan       1M USD LIBOR+       4.50     0.00     6.85     8/1/2025       3,000,000       2,970,623       2,996,250  

General Nutrition Centers Inc.

  Retail   FILO Term Loan     Loan       1M USD LIBOR+       7.00     0.00     9.35     1/3/2023       585,849       585,849       589,950  

General Nutrition Centers Inc.

  Retail   Term Loan B2     Loan       1M USD LIBOR+       9.25     0.75     11.60     3/4/2021       1,187,246       1,187,246       1,156,378  

GI Chill Acquisition LLC

  Services: Business   Term Loan     Loan       3M USD LIBOR+       4.00     0.00     6.74     8/6/2025       2,500,000       2,487,885       2,500,000  

GI Revelation Acquisition LLC

  Services: Business   Term Loan     Loan       1M USD LIBOR+       5.00     0.00     7.35     4/16/2025       1,247,500       1,241,445       1,238,144  

Gigamon Inc.

  Services: Business   Term Loan B     Loan       3M USD LIBOR+       4.25     1.00     6.99     12/27/2024       1,985,000       1,967,111       1,985,000  

Global Tel*Link Corporation

  Telecommunications   Term Loan B     Loan       3M USD LIBOR+       4.25     0.00     6.99     11/28/2025       3,070,455       3,070,455       3,055,101  

Go Wireless Inc.

  Telecommunications   Term Loan     Loan       1M USD LIBOR+       6.50     1.00     8.85     12/22/2024       1,925,000       1,907,652       1,878,088  

GoodRX Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       1M USD LIBOR+       3.00     0.00     5.35     10/10/2025       3,000,000       2,992,541       2,983,740  

Goodyear Tire & Rubber Company The

  Chemicals Plastics & Rubber   Second Lien Term Loan     Loan       3M USD LIBOR+       2.00     0.00     4.74     3/7/2025       2,000,000       2,000,000       1,950,000  

Grosvenor Capital Management Holdings LLLP

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       2.75     1.00     5.10     3/28/2025       975,584       970,949       971,516  

Guidehouse LLP

  Aerospace & Defense   Term Loan     Loan       1M USD LIBOR+       3.25     0.00     5.60     5/1/2025       1,995,000       1,990,396       1,970,063  

Hargray Communications Group Inc.

  Media: Broadcasting & Subscription   Term Loan B     Loan       1M USD LIBOR+       3.00     1.00     5.35     5/16/2024       987,500       985,392       978,553  

Harland Clarke Holdings Corp.

  Media: Advertising Printing & Publishing   Term Loan     Loan       3M USD LIBOR+       4.75     1.00     7.49     11/3/2023       1,860,788       1,850,902       1,708,204  

HD Supply Waterworks Ltd.

  Construction & Building   Term Loan     Loan       6M USD LIBOR+       3.00     1.00     5.89     8/1/2024       495,000       493,883       490,050  

Helix Gen Funding LLC

  Energy: Electricity   Term Loan B (02/17)     Loan       1M USD LIBOR+       3.75     1.00     6.10     6/3/2024       264,030       263,318       244,558  

Hemisphere Media Holdings LLC

  Media: Broadcasting & Subscription   Term Loan (2/17)     Loan       1M USD LIBOR+       3.50     0.00     5.85     2/14/2024       2,450,006       2,459,555       2,434,693  

HLF Financing SaRL LLC

  Consumer goods: Non-durable   Term Loan B (08/18)     Loan       1M USD LIBOR+       3.25     0.00     5.60     8/18/2025       1,000,000       997,526       996,250  

Hoffmaster Group Inc.

  Forest Products & Paper   Term Loan B1     Loan       1M USD LIBOR+       4.00     1.00     6.35     11/21/2023       1,077,131       1,080,054       1,077,131  

Holley Purchaser Inc.

  Transportation: Cargo   Term Loan B     Loan       3M USD LIBOR+       5.00     0.00     7.74     10/24/2025       2,500,000       2,475,106       2,450,000  

Hostess Brands LLC

  Beverage Food & Tobacco   Cov-Lite Term Loan B     Loan       3M USD LIBOR+       2.25     0.75     4.99     8/3/2022       1,471,440       1,467,836       1,432,359  

Hudson River Trading LLC

  Banking Finance Insurance & Real Estate   Term Loan B (10/18)     Loan       1M USD LIBOR+       3.50     0.00     5.85     4/3/2025       2,490,000       2,470,455       2,486,888  

Hyland Software Inc.

  High Tech Industries   Term Loan 3     Loan       1M USD LIBOR+       3.50     0.75     5.85     7/1/2024       1,590,198       1,588,044       1,581,579  

Hyperion Refinance S.a.r.l.

  Banking Finance Insurance & Real Estate   Tem Loan (12/17)     Loan       1M USD LIBOR+       3.50     1.00     5.85     12/20/2024       2,235,000       2,224,973       2,221,031  

Idera Inc.

  High Tech Industries   Term Loan B     Loan       1M USD LIBOR+       4.50     1.00     6.85     6/28/2024       1,969,773       1,952,334       1,974,697  

IG Investments Holdings LLC

  Services: Business   Term Loan     Loan       3M USD LIBOR+       3.50     1.00     6.24     5/23/2025       3,406,795       3,388,032       3,389,761  

Inmar Inc.

  Services: Business   Term Loan B     Loan       1M USD LIBOR+       3.50     1.00     5.85     5/1/2024       493,750       489,626       490,457  

Isagenix International LLC

  Beverage Food & Tobacco   Term Loan     Loan       3M USD LIBOR+       5.75     1.00     8.49     6/16/2025       1,975,000       1,956,032       1,925,625  

Jill Holdings LLC

  Retail   Term Loan (1st Lien)     Loan       3M USD LIBOR+       5.00     1.00     7.74     5/9/2022       864,689       862,296       852,799  

JP Intermediate II LLC

  Beverage Food & Tobacco   Term Loan     Loan       3M USD LIBOR+       5.50     1.00     8.24     11/20/2025       3,000,000       2,970,572       2,955,000  

KC Culinarte Intermediate LLC

  Beverage Food & Tobacco   Term Loan     Loan       1M USD LIBOR+       3.75     1.00     6.10     8/25/2025       2,000,000       1,990,250       1,997,500  

Kinetic Concepts Inc.

  Healthcare & Pharmaceuticals   1/17 USD Term Loan     Loan       3M USD LIBOR+       3.25     1.00     5.99     2/2/2024       2,370,000       2,360,950       2,360,520  

KUEHG Corp.

  Services: Consumer   Term Loan B-3     Loan       3M USD LIBOR+       3.75     1.00     6.49     2/21/2025       498,750       497,530       495,738  

Lakeland Tours LLC

  Services: Business   Term Loan B     Loan       3M USD LIBOR+       4.00     1.00     6.74     12/16/2024       2,488,748       2,479,537       2,477,350  

Lannett Company Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       1M USD LIBOR+       5.38     1.00     7.73     11/25/2022       2,584,895       2,549,554       2,084,718  

Learfield Communications LLC

  Media: Advertising Printing & Publishing   Initial Term Loan (A-L Parent)     Loan       1M USD LIBOR+       3.25     1.00     5.60     12/1/2023       491,250       489,476       489,408  

Lighthouse Network LLC

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       3M USD LIBOR+       4.50     1.00     7.24     12/2/2024       992,500       988,196       990,019