Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

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

For the Quarterly Period Ended May 31, 2019

 

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)

(212) 906-7800

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.001 per share   SAR   The New York Stock Exchange
6.75% Notes due 2023   SAB   The New York Stock Exchange
6.25% Notes due 2025   SAF   The New York Stock Exchange

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 July 9, 2019 was 8,018,188.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

 

PART I. FINANCIAL INFORMATION

 

          Page  

PART I.

   FINANCIAL INFORMATION      3  

Item 1.

  

Consolidated Financial Statements

     3  
  

Consolidated Statements of Assets and Liabilities as of May  31, 2019 (unaudited) and February 28, 2019

     3  
  

Consolidated Statements of Operations for the three months ended May  31, 2019 (unaudited) and May 31, 2018 (unaudited)

     4  
  

Consolidated Schedules of Investments as of May  31, 2019 (unaudited) and February 28, 2019

     5  
  

Consolidated Statements of Changes in Net Assets for the three months ended May 31, 2019 (unaudited) and May 31, 2018 (unaudited)

     18  
  

Consolidated Statements of Cash Flows for the three months ended May  31, 2019 (unaudited) and May 31, 2018 (unaudited)

     19  
  

Notes to Consolidated Financial Statements as of May  31, 2019 (unaudited)

     20  

Item 2.

  

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

     76  

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     107  

Item 4.

  

Controls and Procedures

     109  

PART II.

   OTHER INFORMATION      110  

Item 1.

  

Legal Proceedings

     110  

Item 1A.

  

Risk Factors

     110  

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     110  

Item 3.

  

Defaults Upon Senior Securities

     110  

Item 4.

  

Mine Safety Disclosures

     110  

Item 5.

  

Other Information

     110  

Item 6.

  

Exhibits

     111  

Signatures

     114  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 

    May 31, 2019     February 28, 2019  
    (unaudited)        

ASSETS

   

Investments at fair value

   

Non-control/Non-affiliate investments (amortized cost of $308,061,752 and $307,136,188, respectively)

  $ 309,830,182     $ 306,511,427  

Affiliate investments (amortized cost of $18,557,809 and $18,514,716, respectively)

    11,676,118       11,463,081  

Control investments (amortized cost of $78,739,023 and $76,265,189, respectively)

    87,945,041       84,045,212  
 

 

 

   

 

 

 

Total investments at fair value (amortized cost of $405,358,584 and $401,916,093, respectively)

    409,451,341       402,019,720  

Cash and cash equivalents

    37,183,604       30,799,068  

Cash and cash equivalents, reserve accounts

    23,812,643       31,295,326  

Interest receivable (net of reserve of $873,414 and $647,210, respectively)

    3,815,502       3,746,604  

Due from affiliate (See Note 6)

    1,243,197       1,673,747  

Management and incentive fee receivable

    279,828       542,094  

Other assets

    550,093       595,543  
 

 

 

   

 

 

 

Total assets

  $ 476,336,208     $ 470,672,102  
 

 

 

   

 

 

 

LIABILITIES

   

Revolving credit facility

  $ —       $ —    

Deferred debt financing costs, revolving credit facility

    (581,922     (605,189

SBA debentures payable

    150,000,000       150,000,000  

Deferred debt financing costs, SBA debentures payable

    (2,274,866     (2,396,931

2023 Notes payable

    74,450,500       74,450,500  

Deferred debt financing costs, 2023 notes payable

    (1,819,617     (1,919,620

2025 Notes payable

    60,000,000       60,000,000  

Deferred debt financing costs, 2025 notes payable

    (2,320,888     (2,377,551

Base management and incentive fees payable

    7,522,070       6,684,785  

Deferred tax liability

    762,783       739,716  

Accounts payable and accrued expenses

    1,430,701       1,615,443  

Interest and debt fees payable

    1,978,494       3,224,671  

Directors fees payable

    63,500       62,000  

Due to manager

    341,752       319,091  
 

 

 

   

 

 

 

Total liabilities

  $ 289,552,507     $ 289,796,915  
 

 

 

   

 

 

 

Commitments and contingencies (See Note 8)

   

NET ASSETS

   

Common stock, par value $.001, 100,000,000 common shares authorized, 7,764,844 and 7,657,156 common shares issued and outstanding, respectively

  $ 7,765     $ 7,657  

Capital in excess of par value

    205,988,350       203,552,800  

Total distributable earnings (loss)

    (19,212,414     (22,685,270
 

 

 

   

 

 

 

Total net assets

    186,783,701       180,875,187  
 

 

 

   

 

 

 

Total liabilities and net assets

  $ 476,336,208     $ 470,672,102  
 

 

 

   

 

 

 

NET ASSET VALUE PER SHARE

  $ 24.06     $ 23.62  
 

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Operations

(unaudited)

 

     For the three months ended  
     May 31, 2019     May 31, 2018  

INVESTMENT INCOME

    

Interest from investments

    

Interest income:

    

Non-control/Non-affiliate investments

   $ 8,527,740     $ 7,405,909  

Affiliate investments

     249,325       239,350  

Control investments

     1,648,146       1,146,665  

Payment-in-kind interest income:

    

Non-control/Non-affiliate investments

     151,897       216,010  

Affiliate investments

     40,150       34,147  

Control investments

     985,869       564,857  
  

 

 

   

 

 

 

Total interest from investments

     11,603,127       9,606,938  

Interest from cash and cash equivalents

     51,359       16,293  

Management fee income

     629,516       385,194  

Incentive fee income

     —         199,183  

Other income

     467,182       280,410  
  

 

 

   

 

 

 

Total investment income

     12,751,184       10,488,018  
  

 

 

   

 

 

 

OPERATING EXPENSES

    

Interest and debt financing expenses

     3,864,576       2,722,792  

Base management fees

     1,812,169       1,532,468  

Incentive management fees

     2,113,169       1,072,612  

Professional fees

     395,126       542,797  

Administrator expenses

     500,000       437,500  

Insurance

     64,619       63,859  

Directors fees and expenses

     60,000       95,500  

General & administrative

     258,601       347,850  

Income tax expense (benefit)

     2,136       (267,310

Excise tax expense (credit)

     —         (270

Other expense

     —         12,572  
  

 

 

   

 

 

 

Total operating expenses

     9,070,396       6,560,370  
  

 

 

   

 

 

 

NET INVESTMENT INCOME

     3,680,788       3,927,648  
  

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

    

Net realized gain (loss) from investments:

    

Non-control/Non-affiliate investments

     —         212,008  
  

 

 

   

 

 

 

Net realized gain (loss) from investments

     —         212,008  

Net change in unrealized appreciation (depreciation) on investments:

    

Non-control/Non-affiliate investments

     2,393,191       303,705  

Affiliate investments

     169,944       (475,562

Control investments

     1,425,995       815,062  
  

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investments

     3,989,130       643,205  

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

     (20,930     (940,546
  

 

 

   

 

 

 

Net realized and unrealized gain (loss) on investments

     3,968,200       (85,333
  

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 7,648,988     $ 3,842,315  
  

 

 

   

 

 

 

WEIGHTED AVERAGE—BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.99     $ 0.61  

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC AND DILUTED

     7,746,187       6,275,494  

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

May 31, 2019

(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—165.9% (b)

             

Apex Holdings Software Technologies, LLC

  Business Services   First Lien Term Loan
(3M USD LIBOR+8.00%), 10.50% Cash, 9/21/2021
    9/21/2016     $ 18,000,000     $ 17,932,070     $ 18,000,000       9.7

Apex Holdings Software Technologies, LLC

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.50% Cash, 9/21/2021
    10/1/2018     $ 1,500,000       1,488,728       1,500,000       0.8

Avionte Holdings, LLC (h)

  Business Services   Class A Units     1/8/2014       100,000       100,000       707,472       0.4

CLEO Communications Holding, LLC

  Business Services   First Lien Term Loan
(3M USD LIBOR+8.00%), 10.50% Cash/2.00% PIK, 3/31/2022
    3/31/2017     $ 13,583,511       13,517,395       13,583,512       7.3

CLEO Communications Holding, LLC

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.50% Cash/2.00% PIK, 3/31/2022
    3/31/2017     $ 12,204,179       12,105,751       12,204,179       6.5

Destiny Solutions Inc. (a)

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.50% Cash, 5/16/2023
    5/16/2018     $ 8,500,000       8,429,988       8,513,600       4.6

Destiny Solutions Inc. (a), (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+7.00%), 9.50% 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       1,083,543       0.6

Emily Street Enterprises, L.L.C.

  Business Services   Senior Secured Note
(3M USD LIBOR+8.50%), 11.00% Cash, 1/23/2020
    12/28/2012     $ 3,300,000       3,299,665       3,307,657       1.8

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

  Business Services   Warrant Membership Interests
Expires 12/28/2022
    12/28/2012       49,318       400,000       414,271       0.2

Erwin, Inc. (d)

  Business Services   Second Lien Term Loan
(3M USD LIBOR+11.50%), 14.00% Cash/1.00% PIK, 8/28/2021
    2/29/2016     $ 15,928,264       15,845,224       15,928,264       8.5

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

Company

 

Industry

 

Investment Interest Rate/
Maturity

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

Fancy Chap, Inc.

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.50%), 10.00% Cash, 4/8/2024
    4/8/2019     $ 6,000,000       5,940,434       5,991,000       3.2

Fancy Chap, Inc. (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+7.50%), 10.00% Cash, 4/8/2024
    4/8/2019     $ —         —         —         0.0

Fancy Chap, Inc. (h)

  Business Services   Series C Preferred Stock     4/8/2019       38,398       925,123       2,076,658       1.1

FMG Suite Holdings, LLC (d)

  Business Services   Second Lien Term Loan
(1M USD LIBOR+8.00%), 10.43% Cash, 11/16/2023
    5/16/2018     $ 23,000,000       22,849,679       22,958,600       12.3

GDS Holdings US, Inc. (d)

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.50% Cash, 8/23/2023
    8/23/2018     $ 7,500,000       7,435,464       7,492,500       4.0

GDS Holdings US, Inc.

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+7.00%), 9.50% Cash, 8/23/2023
    3/29/2019     $ 1,000,000       990,143       999,000       0.5

GDS Software Holdings, LLC (h)

  Business Services   Common Stock Class A Units     8/23/2018       250,000       250,000       299,892       0.2

Identity Automation Systems (h)

  Business Services   Common Stock Class A Units     8/25/2014       232,616       232,616       640,811       0.3

Identity Automation Systems (d)

  Business Services   First Lien Term Loan
(3M USD LIBOR+9.24%), 11.74% Cash, 3/31/2021
    8/25/2014     $ 15,500,000       15,437,640       15,500,000       8.3

inMotionNow, Inc.

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.25), 9.75% Cash, 5/15/2024
    5/15/2019     $ 12,200,000       12,078,703       12,078,000       6.5

inMotionNow, Inc. (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+7.25) 9.75% Cash, 5/15/2024
    5/15/2019     $ —         —         —         0.0

Knowland Group, LLC

  Business Services   Second Lien Term Loan
(3M USD LIBOR+8.00%), 10.50% Cash, 5/9/2024
    11/9/2018     $ 15,000,000       15,000,000       14,953,500       8.0

National Waste Partners (d)

  Business Services   Second Lien Term Loan
10.00% Cash, 2/13/2022
    2/13/2017     $ 9,000,000       8,946,185       8,853,300       4.7

Omatic Software, LLC

  Business Services   First Lien Term Loan
(3M USD LIBOR+8.00%), 10.50% Cash, 5/29/2023
    5/29/2018     $ 5,500,000       5,453,319       5,527,500       3.0

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

Company

 

Industry

 

Investment Interest Rate/
Maturity

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

Omatic Software, LLC (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.50% Cash, 5/29/2023
    5/29/2018     $ —         —         —         0.0

Passageways, Inc.

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.75%), 10.25% Cash, 7/5/2023
    7/5/2018     $ 5,000,000       4,956,214       5,059,500       2.7

Passageways, Inc. (h)

  Business Services   Series A Preferred Stock     7/5/2018       2,027,205       1,000,000       1,395,128       0.7

Vector Controls Holding Co.,
LLC (d)

  Business Services   First Lien Term Loan
11.50% (9.75% Cash/1.75% PIK), 3/6/2022
    3/6/2013     $ 9,098,356       9,097,625       9,166,594       4.9

Vector Controls Holding Co.,
LLC (h)

  Business Services   Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027     5/31/2015       343       —         2,076,854       1.1
         

 

 

   

 

 

   

 

 

 
    Total Business Services         184,710,966       190,311,335       101.9
         

 

 

   

 

 

   

 

 

 

Targus Holdings, Inc. (h)

  Consumer Products   Common Stock     12/31/2009       210,456       1,713,605       501,112       0.3
         

 

 

   

 

 

   

 

 

 
    Total Consumer Products         1,713,605       501,112       0.3
         

 

 

   

 

 

   

 

 

 

My Alarm Center, LLC (k)

  Consumer Services   Preferred Equity Class A Units
8.00% PIK
    7/14/2017       2,227       2,357,879       374,662       0.2

My Alarm Center, LLC (h)

  Consumer Services   Preferred Equity Class B Units     7/14/2017       1,797       1,796,880       —         0.0

My Alarm Center, LLC (h)

  Consumer Services   Preferred Equity Class Z Units     9/12/2018       676       655,987       1,997,158       1.0

My Alarm Center, LLC (h)

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

 

 

   

 

 

   

 

 

 
    Total Consumer Services         4,810,746       2,371,820       1.2
         

 

 

   

 

 

   

 

 

 

C2 Educational Systems (d)

  Education   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.50% Cash, 5/31/2020
    5/31/2017     $ 16,000,000       15,943,708       15,920,139       8.5

Kev Software Inc. (a)

  Education   First Lien Term Loan
(1M USD LIBOR+8.63%), 11.06% Cash, 9/13/2023
    9/13/2018     $ 21,393,178       21,226,465       21,388,899       11.5

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. (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       801,908       0.4

 

See accompanying notes to consolidated financial statements.

 

7


Table of Contents

Company

 

Industry

 

Investment Interest Rate/
Maturity

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

Texas Teachers of Tomorrow, LLC

  Education   Second Lien Term Loan
(3M USD LIBOR+9.75%), 12.25% Cash, 6/2/2021
    12/2/2015     $ 10,000,000       9,956,443       9,953,204       5.3
         

 

 

   

 

 

   

 

 

 
    Total Education         49,096,034       48,070,410       25.7
         

 

 

   

 

 

   

 

 

 

TMAC Acquisition Co., LLC (k)

  Food and Beverage   Unsecured Term Loan
8.00% PIK, 9/01/2023
    3/1/2018     $ 2,216,427       2,216,427       2,057,888       1.1
         

 

 

   

 

 

   

 

 

 
    Total Food and Beverage         2,216,427       2,057,888       1.1
         

 

 

   

 

 

   

 

 

 

Axiom Parent Holdings, LLC (h)

  Healthcare Services   Common Stock Class A Units     6/19/2018       400,000       400,000       424,155       0.2

Axiom Purchaser, Inc. (d)

  Healthcare Services   First Lien Term Loan
(3M USD LIBOR+6.00%), 8.50% Cash, 6/19/2023
    6/19/2018     $ 10,000,000       9,926,809       9,999,000       5.4

Axiom Purchaser, Inc. (j)

  Healthcare Services   Delayed Draw Term Loan
(3M USD LIBOR+6.00%), 8.50% Cash, 6/19/2023
    6/19/2018     $ —         —         —         0.0

Censis Technologies, Inc.

  Healthcare Services   First Lien Term Loan B
(1M USD LIBOR+8.30%), 10.73% Cash, 9/27/2023
    7/25/2014     $ 19,900,000       19,873,291       19,963,680       10.7

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

  Healthcare Services   Limited Partner Interests     7/25/2014       999       999,000       4,018,452       2.1

ComForCare Health Care

  Healthcare Services   First Lien Term Loan
(3M USD LIBOR+7.50%), 10.00% Cash, 1/31/2022
    1/31/2017     $ 15,000,000       14,905,794       15,063,000       8.1

HemaTerra Holding Company, LLC

  Healthcare Services   First Lien Term Loan
(3M USD LIBOR+6.75%), 9.25% Cash, 4/15/2024
    4/15/2019     $ 6,000,000       5,941,146       5,940,000       3.2

HemaTerra Holding Company,
LLC (j)

  Healthcare Services   Delayed Draw Term Loan
(3M USD LIBOR+6.75%), 9.25% Cash, 4/15/2024
    4/15/2019     $ —         —         —         0.0

TRC HemaTerra, LLC (h)

  Healthcare Services   Class D Membership Interests     4/15/2019       1,000,000       1,000,000       1,000,000       0.5

Ohio Medical, LLC (h)

  Healthcare Services   Common Stock     1/15/2016       5,000       500,000       441,950       0.2

Ohio Medical, LLC

  Healthcare Services   Senior Subordinated Note
12.00% Cash, 7/15/2021
    1/15/2016     $ 7,300,000       7,266,535       7,262,040       4.0

Roscoe Medical, Inc. (h)

  Healthcare Services   Common Stock     3/26/2014       5,081       508,077       —         0.0

Roscoe Medical, Inc. (k)

  Healthcare Services   Second Lien Term Loan
11.25% Cash, 3/28/2021
    3/26/2014     $ 4,200,000       4,193,322       2,405,340       1.3
         

 

 

   

 

 

   

 

 

 
    Total Healthcare Services         65,513,974       66,517,617       35.7
         

 

 

   

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

8


Table of Contents

Company

 

Industry

 

Investment Interest Rate/
Maturity

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

Sub Total Non-control/Non-affiliate investments

            308,061,752       309,830,182       165.9
       

 

 

   

 

 

   

 

 

 

Affiliate investments—6.3% (b)

             

GreyHeller LLC (f)

  Business Services   First Lien Term Loan
(3M USD LIBOR+11.00%), 13.50% Cash, 11/16/2021
    11/17/2016     $ 7,000,000       6,960,362       7,140,000       3.8

GreyHeller LLC (f), (h)

  Business Services   Series A Preferred Units     11/17/2016       850,000       850,000       1,629,899       0.9
         

 

 

   

 

 

   

 

 

 
    Total Business Services         7,810,362       8,769,899       4.7
         

 

 

   

 

 

   

 

 

 

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

  Metals   Common Stock     7/30/2010       60,000       9,685,028       1,843,800       1.0

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

  Metals   Second Lien Term Loan
15.00% PIK, 8/10/2022
    7/30/2010     $ 1,062,419       1,062,419       1,062,419       0.6
    Total Metals         10,747,447       2,906,219       1.6
         

 

 

   

 

 

   

 

 

 

Sub Total Affiliate investments

            18,557,809       11,676,118       6.3
         

 

 

   

 

 

   

 

 

 

Control investments—47.0% (b)

             

Easy Ice, LLC (g)

  Business Services   Preferred Equity
10.00% PIK
    2/3/2017       5,080,000       9,925,702       13,510,126       7.2

Easy Ice, LLC (d), (g)

  Business Services   Second Lien Term Loan
7.03% Cash/5.97% PIK, 2/28/2023
    3/29/2013     $ 21,867,482       21,820,919       21,976,819       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     $ 3,931,585       3,895,045       3,951,243       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     $ 5,092,999       5,048,142       5,135,271       2.7

Netreo Holdings, LLC (g), (h)

  Business Services   Common Stock Class A Unit     7/3/2018       3,150,000       3,150,000       5,406,229       2.9
         

 

 

   

 

 

   

 

 

 
    Total Business Services         43,839,808       49,979,688       26.7
         

 

 

   

 

 

   

 

 

 

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

  Structured Finance Securities   Other/Structured Finance Securities
19.50%, 1/20/2030
    1/22/2008     $ 69,500,000       24,899,215       28,024,105       15.0

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-R-2
Note (a), (g)

  Structured Finance Securities   Other/Structured Finance Securities
(3M USD LIBOR+8.75%), 11.25%, 1/20/2030
    12/14/2018     $ 2,500,000       2,500,000       2,485,183       1.3

Saratoga Investment Corp. CLO 2013-1, Ltd. Class G-R-2
Note (a), (g)

  Structured Finance Securities   Other/Structured Finance Securities
(3M USD LIBOR+10.00%), 12.50%, 1/20/2030
    12/14/2018     $ 7,500,000       7,500,000       7,456,065       4.0
         

 

 

   

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

9


Table of Contents

Company

 

Industry

 

Investment Interest Rate/
Maturity

  Original
Acquisition
Date
    Principal/
Number of
Shares
    Cost     Fair Value (c)     % of
Net Assets
 
    Total Structured Finance Securities         34,899,215       37,965,353       20.3
         

 

 

   

 

 

   

 

 

 

Sub Total Control investments

            78,739,023       87,945,041       47.0
         

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS—219.2% (b)

          $ 405,358,584     $ 409,451,341       219.2
         

 

 

   

 

 

   

 

 

 
                  Number of
Shares
    Cost     Fair Value     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts—32.7% (b)

 

       

U.S. Bank Money Market (l)

 

    60,996,247     $ 60,996,247     $ 60,996,247       32.7
       

 

 

   

 

 

   

 

 

   

 

 

 

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

 

    60,996,247     $ 60,996,247     $ 60,996,247       32.7
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

Represents a non-qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940, as amended. As of May 31, 2019, non-qualifying assets represent 16.5% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.

(b)

Percentages are based on net assets of $186,783,701 as of May 31, 2019.

(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 19.50% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.

(f)

As defined in the Investment Company Act, this portfolio company is an Affiliate as we own between 5.0% and 25.0% of the voting securities. Transactions during the quarter ended May 31, 2019 in which the issuer was an Affiliate are as follows:

 

Company

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

GreyHeller LLC

   $ —        $ —        $ 249,325      $ —        $ —        $ 130,344  

Elyria Foundry Company, L.L.C.

     —          —          40,150        —          —          39,600  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 289,475      $ —        $ —        $ 169,944  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

See accompanying notes to consolidated financial statements.

 

10


Table of Contents
(g)

As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the quarter ended May 31, 2019 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
Fee Income
     Net Realized
Gain (Loss) from
Investments
     Net Change in
Unrealized
Appreciation
(Depreciation)
 

Easy Ice, LLC

   $ —        $ —        $ 961,894      $ —        $ —        $ (76,286

Easy Ice Masters, LLC

     —          —          130,808        —          —          4,762  

Netreo Holdings, LLC

     —          —          143,991        —          —          242,491  

Saratoga Investment Corp. CLO 2013-1, Ltd.

     —          —          1,081,435        629,516        —          1,247,780  

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-R-2 Notes

     —          —          72,982        —          —          1,683  

Saratoga Investment Corp. CLO 2013-1, Ltd. Class G-R-2 Notes

        —          242,905        —          —          5,565  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 2,634,015      $ 629,516      $ —        $ 1,425,995  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(h)

Non-income producing at May 31, 2019.

(i)

Includes securities issued by an affiliate of the Company.

(j)

All or a portion of this investment has an unfunded commitment as of May 31, 2019. (see Note 7 to the consolidated financial statements).

(k)

As of May 31, 2019, the investment was on non-accrual status. The fair value of these investments was approximately $4.9 million, which represented 1.2% 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 May 31, 2019.

LIBOR—London Interbank Offered Rate

1M USD LIBOR - The 1 month USD LIBOR rate as of May 31, 2019 was 2.43%.

3M USD LIBOR - The 3 month USD LIBOR rate as of May 31, 2019 was 2.50%.

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

 

 

See accompanying notes to consolidated financial statements.

 

11


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

February 28, 2019

 

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—169.5% (b)

             

Apex Holdings Software Technologies, LLC

    Business Services     First Lien Term Loan
(3M USD LIBOR+8.00%), 10.62% Cash, 9/21/2021
    9/21/2016     $ 18,000,000     $ 17,922,851     $ 18,000,000       10.0

Apex Holdings Software Technologies, LLC

    Business Services     Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.62% Cash, 9/21/2021
    10/1/2018     $ 1,000,000       992,183       1,000,000       0.6

Avionte Holdings, LLC (h)

    Business Services     Class A Units     1/8/2014       100,000       100,000       635,781       0.4

CLEO Communications Holding, LLC

    Business Services     First Lien Term Loan
(3M USD LIBOR+8.00%), 10.62% Cash/2.00% PIK, 3/31/2022
    3/31/2017     $ 13,514,320       13,437,153       13,514,320       7.5

CLEO Communications Holding, LLC

    Business Services     Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.62% Cash/2.00% PIK, 3/31/2022
    3/31/2017     $ 12,142,015       12,040,280       12,142,015       6.7

Destiny Solutions Inc. (a)

    Business Services     First Lien Term Loan
(3M USD LIBOR+7.00%), 9.62% Cash, 5/16/2023
    5/16/2018     $ 8,500,000       8,426,441       8,489,800       4.7

Destiny Solutions Inc. (a), (j)

    Business Services     Delayed Draw Term Loan
(3M USD LIBOR+7.00%), 9.62% 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       1,062,440       0.6

Emily Street Enterprises, L.L.C.

    Business Services     Senior Secured Note
(3M USD LIBOR+8.50%), 11.12% Cash, 1/23/2020
    12/28/2012     $ 3,300,000       3,299,122       3,314,520       1.8

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

    Business Services     Warrant Membership Interests
Expires 12/28/2022
    12/28/2012       49,318       400,000       505,509       0.3

Erwin, Inc. (d)

    Business Services     Second Lien Term Loan
(3M USD LIBOR+11.50%), 14.12% Cash/1.00% PIK, 8/28/2021
    2/29/2016     $ 15,888,102       15,796,316       15,888,102       8.8

FMG Suite Holdings, LLC (d)

    Business Services     Second Lien Term Loan
(1M USD LIBOR+8.00%), 10.49% Cash, 11/16/2023
    5/16/2018     $ 23,000,000       22,844,123       23,000,000       12.7

 

See accompanying notes to consolidated financial statements.

 

12


Table of Contents

Company

  Industry  

Investment Interest Rate/
Maturity

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

GDS Holdings US, LLC (d)

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.62% Cash, 8/23/2023
    8/23/2018     $ 7,500,000       7,430,649       7,495,500       4.0

GDS Holdings US, LLC (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+7.00%), 9.62% Cash, 8/23/2023
    8/23/2018     $ —         —         —         0.0

GDS Software Holdings, LLC (h)

  Business Services   Common Stock Class A Units     8/23/2018       250,000       250,000       277,139       0.2

Identity Automation Systems (h)

  Business Services   Common Stock Class A Units     8/25/2014       232,616       232,616       629,555       0.3

Identity Automation Systems (d)

  Business Services   First Lien Term Loan
(3M USD LIBOR+9.00%), 11.62% Cash, 3/31/2021
    8/25/2014     $ 24,100,000       23,991,294       24,100,000       13.3

Knowland Group, LLC

  Business Services   Second Lien Term Loan
(3M USD LIBOR+8.00%), 10.62% Cash, 5/9/2024
    11/9/2018     $ 15,000,000       15,000,000       15,000,000       8.3

Microsystems Company

  Business Services   Second Lien Term Loan
(3M USD LIBOR+8.25%), 10.87% Cash, 7/1/2022
    7/1/2016     $ 18,000,000       17,889,554       17,881,200       9.9

National Waste Partners (d)

  Business Services   Second Lien Term Loan
10.00% Cash, 2/13/2022
    2/13/2017     $ 9,000,000       8,942,155       8,864,100       4.9

Omatic Software, LLC

  Business Services   First Lien Term Loan
(3M USD LIBOR+8.00%), 10.62% Cash, 5/29/2023
    5/29/2018     $ 5,500,000       5,451,758       5,537,400       3.1

Omatic Software, LLC (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.62% Cash, 5/29/2023
    5/29/2018     $ —         —         —         0.0

Passageways, Inc.

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.75%), 10.37% Cash, 7/5/2023
    7/5/2018     $ 5,000,000       4,955,204       5,063,500       2.8

Passageways, Inc. (h)

  Business Services   Series A Preferred Stock     7/5/2018       2,027,205       1,000,000       1,339,705       0.7

Vector Controls Holding Co.,
LLC (d)

  Business Services   First Lien Term Loan
11.50% (9.75% Cash/1.75% PIK), 3/6/2022
    3/6/2013     $ 9,311,956       9,310,703       9,371,929       5.2

Vector Controls Holding Co.,
LLC (h)

  Business Services   Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027     5/31/2015       343       —         2,210,149       1.2
         

 

 

   

 

 

   

 

 

 
    Total Business Services         190,711,402       195,322,664       108.0
         

 

 

   

 

 

   

 

 

 

Targus Holdings, Inc. (h)

  Consumer Products   Common Stock     12/31/2009       210,456       1,713,605       505,094       0.3
         

 

 

   

 

 

   

 

 

 
    Total Consumer Products         1,713,605       505,094       0.3
         

 

 

   

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

13


Table of Contents

Company

  Industry  

Investment Interest Rate/
Maturity

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

My Alarm Center, LLC (k)

  Consumer Services   Preferred Equity Class A Units
8.00% PIK
    7/14/2017       2,227       2,357,879       1,112,543       0.6

My Alarm Center, LLC (h)

  Consumer Services   Preferred Equity Class B Units     7/14/2017       1,797       1,796,880       —         0.0

My Alarm Center, LLC

  Consumer Services   Preferred Equity Class Z Units
25.00% PIK
    9/12/2018       676       655,987       2,053,514       1.1

My Alarm Center, LLC (h)

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

 

 

   

 

 

   

 

 

 
    Total Consumer Services         4,810,746       3,166,057       1.7
         

 

 

   

 

 

   

 

 

 

C2 Educational Systems (d)

  Education   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.62% Cash, 5/31/2020
    5/31/2017     $ 16,000,000       15,929,485       16,032,000       8.9

Kev Software Inc. (a)

  Education   First Lien Term Loan
(1M USD LIBOR+8.63%), 11.12% Cash, 9/13/2023
    9/13/2018     $ 21,446,929       21,273,211       21,438,351       11.9

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. (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       792,165       0.4

Texas Teachers of Tomorrow, LLC

  Education   Second Lien Term Loan
(3M USD LIBOR+9.75%), 12.37% Cash, 6/2/2021
    12/2/2015     $ 10,000,000       9,952,251       9,807,000       5.4
         

 

 

   

 

 

   

 

 

 
    Total Education         49,124,365       48,075,776       26.6
         

 

 

   

 

 

   

 

 

 

TMAC Acquisition Co., LLC (k)

  Food and Beverage   Unsecured Term Loan
8.00% PIK, 9/01/2023
    3/1/2018     $ 2,216,427       2,216,427       2,100,286       1.2
         

 

 

   

 

 

   

 

 

 
    Total Food and Beverage         2,216,427       2,100,286       1.2
         

 

 

   

 

 

   

 

 

 

Axiom Parent Holdings, LLC (h)

  Healthcare Services   Common Stock Class A Units     6/19/2018       400,000       400,000       402,990       0.2

Axiom Purchaser, Inc. (d)

  Healthcare Services   First Lien Term Loan
(3M USD LIBOR+6.00%), 8.62% Cash, 6/19/2023
    6/19/2018     $ 10,000,000       9,923,962       10,020,000       5.5

Axiom Purchaser, Inc. (j)

  Healthcare Services  

Delayed Draw Term Loan

(3M USD LIBOR+6.00%), 8.62% Cash, 6/19/2023

    6/19/2018     $ —         —         —         0.0

Censis Technologies, Inc.

  Healthcare Services   First Lien Term Loan B
(1M USD LIBOR+8.30%), 10.79% Cash, 9/27/2023
    7/25/2014     $ 19,950,000       19,877,861       19,991,895       11.1

 

See accompanying notes to consolidated financial statements.

 

14


Table of Contents

Company

  Industry  

Investment Interest Rate/
Maturity

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

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

  Healthcare Services   Limited Partner Interests     7/25/2014       999       999,000       2,387,705       1.3

ComForCare Health Care

  Healthcare Services   First Lien Term Loan
(3M USD LIBOR+7.50%), 10.12% Cash, 1/31/2022
    1/31/2017     $ 15,000,000       14,898,535       15,096,000       8.3

Ohio Medical, LLC (h)

  Healthcare Services   Common Stock     1/15/2016       5,000       500,000       208,250       0.1

Ohio Medical, LLC

  Healthcare Services   Senior Subordinated Note
12.00% Cash, 7/15/2021
    1/15/2016     $ 7,300,000       7,263,114       6,735,710       3.8

Roscoe Medical, Inc. (h)

  Healthcare Services   Common Stock     3/26/2014       5,081       508,077       —         0.0

Roscoe Medical, Inc. (k)

  Healthcare Services   Second Lien Term Loan
11.25% Cash, 3/28/2021
    3/26/2014     $ 4,200,000       4,189,094       2,499,000       1.4
    Total Healthcare Services         58,559,643       57,341,550       31.7
         

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliate investments

          307,136,188       306,511,427       169.5
         

 

 

   

 

 

   

 

 

 

Affiliate investments - 6.3% (b)

             

GreyHeller LLC (f)

  Business Services   First Lien Term Loan
(3M USD LIBOR+11.00%), 13.62% Cash, 11/16/2021
    11/17/2016     $ 7,000,000       6,956,976       7,140,000       4.0

GreyHeller LLC (f), (h)

  Business Services   Series A Preferred Units     11/17/2016       850,000       850,000       1,496,169       0.8
         

 

 

   

 

 

   

 

 

 
    Total Business Services         7,806,976       8,636,169       4.8
         

 

 

   

 

 

   

 

 

 

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

  Metals   Common Stock     7/30/2010       60,000       9,685,028       1,804,200       1.0

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

  Metals   Second Lien Term Loan
15.00% PIK, 8/10/2022
    7/30/2010     $ 1,022,712       1,022,712       1,022,712       0.5
         

 

 

   

 

 

   

 

 

 
    Total Metals         10,707,740       2,826,912       1.5
         

 

 

   

 

 

   

 

 

 

Sub Total Affiliate investments

            18,514,716       11,463,081       6.3
         

 

 

   

 

 

   

 

 

 

Control investments—46.5% (b)

             

Easy Ice, LLC (g)

  Business Services   Preferred Equity
10.00% PIK
    2/3/2017       5,080,000       9,683,612       13,357,444       7.4

Easy Ice, LLC (d), (g)

  Business Services   Second Lien Term Loan
7.03% Cash/5.97% PIK, 2/28/2023
    3/29/2013     $ 21,184,063       21,126,021       21,268,799       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     $ 3,804,244       3,768,025       3,819,461       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     $ 5,067,057       5,021,133       5,092,899       2.8

 

See accompanying notes to consolidated financial statements.

 

15


Table of Contents

Company

  Industry    

Investment Interest Rate/
Maturity

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

Netreo Holdings, LLC (g), (h)

    Business Services     Common Stock Class A Unit     7/3/2018       3,150,000       3,150,000       5,179,101       2.9
         

 

 

   

 

 

   

 

 

 
    Total Business Services         42,748,791       48,717,704       27.0
         

 

 

   

 

 

   

 

 

 

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

    Structured Finance Securities     Other/Structured Finance Securities
16.67%, 1/20/2030
    1/22/2008     $ 69,500,000       23,516,398       25,393,508       14.0

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-R-2
Note (a), (g)

    Structured Finance Securities     Other/Structured Finance Securities
(3M USD LIBOR+8.75%), 11.37%, 1/20/2030
    12/14/2018     $ 2,500,000       2,500,000       2,483,500       1.4

Saratoga Investment Corp. CLO 2013-1, Ltd. Class G-R-2
Note (a), (g)

    Structured Finance Securities     Other/Structured Finance Securities
(3M USD LIBOR+10.00%), 12.62%, 1/20/2030
    12/14/2018     $ 7,500,000       7,500,000       7,450,500       4.1
         

 

 

   

 

 

   

 

 

 
    Total Structured Finance Securities         33,516,398       35,327,508       19.5
         

 

 

   

 

 

   

 

 

 

Sub Total Control investments

            76,265,189       84,045,212       46.5
         

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS—222.3% (b)

          $ 401,916,093     $ 402,019,720       222.3
         

 

 

   

 

 

   

 

 

 
                    Number of
Shares
    Cost     Fair Value     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 34.3% (b)

 

       

U.S. Bank Money Market (l)

 

    62,094,394     $ 62,094,394     $ 62,094,394       34.3
       

 

 

   

 

 

   

 

 

   

 

 

 

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

 

    62,094,394     $ 62,094,394     $ 62,094,394       34.3
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

Represents a non-qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940, as amended. As of February 28, 2019, non-qualifying assets represent 16.5% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.

(b)

Percentages are based on net assets of $180,875,187 as of February 28, 2019.

(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 7 to the consolidated financial statements).

(e)

This investment does not have a stated interest rate that is payable thereon. As a result, the 16.67% 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, 2019 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

   $ —        $ —        $ 963,289      $ —        $ —        $ 776,012  

Elyria Foundry Company, L.L.C.

     —          —          150,284        —          —          (1,629,600
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 1,113,573      $ —        $ —        $ (853,588
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents
(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, 2019 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     $ —       $ 3,424,369     $ —       $ —       $ 1,720,004  

Easy Ice Masters, LLC

    3,629,682       —         161,468       —         —         51,436  

Netreo Holdings, LLC

    8,100,000       —         374,843       —         —         2,100,867  

Saratoga Investment Corp. CLO 2013-1, Ltd.

    14,268,609       (48,083     2,922,372       2,355,412       —         (701,722

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

    —         (4,500,000     412,069       —         —         900  

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-R-2 Notes

    2,500,000       —         61,761       —         —         (16,500

Saratoga Investment Corp. CLO 2013-1, Ltd. Class G-R-2 Notes

    7,500,000       —         205,333       —         —         (49,500

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

    20,000,000       (20,000,000     511,731       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 57,682,739     $ (24,548,083   $ 8,073,946     $ 2,355,412     $ —       $ 3,105,485  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(h)

Non-income producing at February 28, 2019.

(i)

Includes securities issued by an affiliate of the Company.

(j)

All or a portion of this investment has an unfunded commitment as of February 28, 2019. (see Note 8 to the consolidated financial statements).

(k)

As of February 28, 2019, the investment was on non-accrual status. The fair value of these investments was approximately $5.7 million, which represented 1.4% 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 February 28, 2019.

LIBOR - London Interbank Offered Rate

1M USD LIBOR - The 1 month USD LIBOR rate as of February 28, 2019 was 2.49%.

3M USD LIBOR - The 3 month USD LIBOR rate as of February 28, 2019 was 2.62%.

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

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Changes in Net Assets

(unaudited)

 

     For the three months ended  
     May 31, 2019     May 31, 2018  

INCREASE FROM OPERATIONS:

    

Net investment income

   $ 3,680,788     $ 3,927,648  

Net realized gain from investments

     —         212,008  

Net change in unrealized appreciation on investments

     3,989,130       643,205  

Net change in provision for deferred taxes on unrealized appreciation on investments

     (20,930     (940,546
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     7,648,988       3,842,315  
  

 

 

   

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

    

Total distributions to shareholders

     (4,176,132     (3,128,513
  

 

 

   

 

 

 

Net decrease in net assets from shareholder distributions

     (4,176,132     (3,128,513
  

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS:

    

Proceeds from issuance of common stock

     1,772,634       —    

Stock dividend distribution

     667,389       504,878  

Offering costs

     (4,365     —    
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     2,435,658       504,878  
  

 

 

   

 

 

 

Total increase in net assets

     5,908,514       1,218,680  

Net assets at beginning of period, as previously reported

     180,875,187       143,691,367  

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

     —         (65,300
  

 

 

   

 

 

 

Net assets at beginning of period, as adjusted

     180,875,187       143,626,067  
  

 

 

   

 

 

 

Net assets at end of period

   $ 186,783,701     $ 144,844,747  
  

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

     For the three months ended  
     May 31, 2019     May 31, 2018  

Operating activities

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 7,648,988     $ 3,842,315  

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

    

Payment-in-kind and other adjustments to cost

     (2,672,834     (758,415

Net accretion of discount on investments

     (318,260     (380,862

Amortization of deferred debt financing costs

     341,688       254,601  

Net realized (gain) loss from investments

     —         (212,008

Net change in unrealized (appreciation) depreciation on investments

     (3,989,130     (643,205

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

     20,930       940,546  

Proceeds from sales and repayments of investments

     26,917,351       36,540,803  

Purchases of investments

     (27,368,748     (35,203,552

(Increase) decrease in operating assets:

    

Interest receivable

     (68,898     (733,644

Due from affiliate

     430,550       —    

Management and incentive fee receivable

     262,266       49,099  

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

     —         (65,300

Other assets

     45,304       40,331  

Deferred tax asset

     2,136       (267,310

Receivable from unsettled trades

     —         (159,271

Increase (decrease) in operating liabilities:

    

Base management and incentive fees payable

     837,285       173,779  

Accounts payable and accrued expenses

     (184,742     135,183  

Interest and debt fees payable

     (1,246,177     (1,036,724

Directors fees payable

     1,500       43,000  

Due to manager

     22,661       17,589  
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

     681,870       2,576,955  
  

 

 

   

 

 

 

Financing activities

    

Payments of deferred debt financing costs

     (39,689     —    

Proceeds from issuance of common stock

     1,772,634       —    

Payments of cash dividends

     (3,508,743     (2,623,635

Payments of offering costs

     (4,219     —    
  

 

 

   

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

     (1,780,017     (2,623,635
  

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS AND CASH AND CASH EQUIVALENTS, RESERVE ACCOUNTS

     (1,098,147     (46,680

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

     62,094,394       13,777,491  
  

 

 

   

 

 

 

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

   $ 60,996,247     $ 13,730,811  
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid during the period

   $ 4,769,065     $ 3,504,914  

Cash paid for taxes

     5,761       14,070  

Supplemental non-cash information:

    

Payment-in-kind interest income

   $ 2,672,834     $ 758,415  

Net accretion of discount on investments

     318,260       380,862  

Amortization of deferred debt financing costs

     341,688       254,601  

Stock dividend distribution

     667,389       504,878  

See accompanying notes to consolidated financial statements.

 

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Table of Contents

SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2019

(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-Easy Ice, LLC, SIA-GH, Inc., SIA-HT, Inc., SIA-MAC, Inc., SIA-TT, Inc. and SIA-Vector, Inc., which are structured as Delaware entities, or tax blockers (“Taxable 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.

 

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Table of Contents

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-Easy Ice, LLC, SIA-GH, Inc., SIA-HT, Inc., SIA-MAC, Inc., SIA-TT, Inc. and SIA-Vector, Inc. All intercompany accounts and transactions have been eliminated in consolidation. All references made to the “Company,” “we,” and “us” herein include Saratoga Investment Corp. and its consolidated subsidiaries, except as stated otherwise.

The Company and SBIC LP are both considered to be investment companies for financial reporting purposes and have applied the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services—Investment Companies” (“ASC 946”). There have been no changes to the Company or SBIC LP’s status as investment companies during the three months ended May 31, 2019.

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

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

 

   

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

 

   

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

 

   

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

As of May 31, 2019, 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.

 

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Table of Contents

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

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

 

     May 31, 2019      May 31, 2018  

Cash and cash equivalents

   $ 37,183,604      $ 3,313,448  

Cash and cash equivalents, reserve accounts

     23,812,643        10,417,363  
  

 

 

    

 

 

 

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

   $ 60,996,247      $ 13,730,811  
  

 

 

    

 

 

 

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 or its liabilities are to be transferred at the balance sheet date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

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

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

 

   

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

 

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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.

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

 

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payments received on non-accrual loans may be recognized as a reduction in principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At May 31, 2019, certain investments in four portfolio companies, including preferred equity interests, were on non-accrual status with a fair value of approximately $4.9 million, or 1.2% of the fair value of our portfolio. At February 28, 2019, certain investments in four portfolio companies, including preferred equity interests, were on non-accrual status with a fair value of approximately $5.7 million, or 1.4% 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, Investments-Other, Beneficial Interests in Securitized Financial Assets, (“ASC 325”), 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. Management has concluded that the majority of its revenues associated with financial instruments are scoped out of ASC 606, and has concluded that the only significant impact relates to the timing of the recognition of the CLO incentive fee income. The adoption of ASC 606 did not have an impact on the Company’s management fee income or investment 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)(4); 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 recognizes incentive fee income only when the amount is realized and no longer subject to reversal. Therefore, the Company no longer recognizes 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 it becomes realized at the end of the measurement period and all uncertainties are eliminated, which is typically quarterly.

 

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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.

In conjunction with the third refinancing and issuance of the Saratoga CLO’s 2013-1 Reset CLO Notes (the “2013-1 Reset CLO Notes”) on December 14, 2018, the Company is no longer entitled to receive an incentive management fee from Saratoga CLO. See Note 4 for additional information. Prior to the refinancing, the Company reported $0.2 million in incentive fees from the Saratoga CLO for the three months ended May 31, 2018 and is reported as incentive fee income on the Company’s consolidated statement of operations.

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.

Without the adoption of ASC 606, there was no impact to either the consolidated statements of assets and liabilities as of May 31, 2019 and February 28, 2019 or the consolidated statement of operations for the three months ended May 31, 2019.

For the three months ended May 31, 2018, the impact on the consolidated statement of operations without the adoption of ASC 606 is shown in the table below:

Consolidated Statement of Operations

 

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

Incentive fee income

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

Total investment income

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

NET INVESTMENT INCOME

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

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

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

WEIGHTED AVERAGE—BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.61      $ 0.01      $ 0.62  

Other Income

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

 

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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 straight-line 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, except as related to the Taxable Blockers when applicable.

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

 

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entire distribution in cash. If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock.

The Company may utilize wholly-owned holding companies taxed under Subchapter C of the Code or tax 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 of the Taxable Blockers 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, 2019, the Company did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. The 2016, 2017 and 2018 federal tax years for the Company remain subject to examination by the IRS. As of May 31, 2019 and February 28, 2019, 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 the Manager 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 Manager if the Company were to liquidate its investment portfolio at such time.

 

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The actual incentive fee payable to the Company’s Manager 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. Management has adopted these amendments as currently required and these are reflected in the Company’s consolidated financial statements and related disclosures. The presentation of certain prior year information has been adjusted to conform with these amendments.

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 has assessed these changes and does not believe they would have a material impact 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 concluded these changes do not have a material impact on the Company’s consolidated financial statements and disclosures.

Risk Management

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

Credit risk is the risk of default or non-performance by portfolio companies, equivalent to the investment’s carrying amount. The Company is also exposed to credit risk related to maintaining all of its cash and cash equivalents, including those in reserve accounts, at a major financial institution and credit risk related to any of its derivative counterparties.

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

 

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Note 3. Investments

As noted above, the Company values all investments in accordance with ASC 820. ASC 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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

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

 

   

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

 

   

Level 2— Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. Such inputs may be quoted prices for similar assets or liabilities, quoted markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full character of the financial instrument, or inputs that are derived principally from, or corroborated by, observable market information. Investments which are generally included in this category include illiquid debt securities and less liquid, privately held or restricted equity securities, for which some level of recent trading activity has been observed.

 

   

Level 3— Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs may be based on the Company’s own assumptions about how market participants would price the asset or liability or may use Level 2 inputs, as adjusted, to reflect specific investment attributes relative to a broader market assumption. These inputs into the determination of fair value may require significant management judgment or estimation. Even if observable market data for comparable performance or valuation measures (earnings multiples, discount rates, other financial/valuation ratios, etc.) are available, such investments are grouped as Level 3 if any significant data point that is not also market observable (private company earnings, cash flows, etc.) is used in the valuation methodology.

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.

 

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The following table presents fair value measurements of investments, by major class, as of May 31, 2019 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

First lien term loans

   $ —        $ —        $ 219,479      $ 219,479  

Second lien term loans

     —          —          109,305        109,305  

Unsecured term loans

     —          —          2,058        2,058  

Structured finance securities

     —          —          37,965        37,965  

Equity interests

     —          —          40,644        40,644  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 409,451      $ 409,451  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents fair value measurements of investments, by major class, as of February 28, 2019 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

First lien term loans

   $ —        $ —        $ 202,846      $ 202,846  

Second lien term loans

     —          —          125,786        125,786  

Unsecured term loans

     —          —          2,100        2,100  

Structured finance securities

     —          —          35,328        35,328  

Equity interests

     —          —          35,960        35,960  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 402,020      $ 402,020  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended May 31, 2019 (dollars in thousands):

 

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

Balance as of February 28, 2019

  $ 202,846     $ 125,786     $ 2,100     $ 35,328     $ 35,960     $ 402,020  

Payment-in-kind and other adjustments to cost

    323       1,043       —         1,383       242       2,991  

Net change in unrealized appreciation (depreciation) on investments

    (217     476       (42     1,254       2,517       3,988  

Purchases

    25,444       —         —         —         1,925       27,369  

Sales and repayments

    (8,917     (18,000     —         —         —         (26,917

Net realized gain (loss) from investments

    —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of May 31, 2019

  $ 219,479     $ 109,305     $ 2,058     $ 37,965     $ 40,644     $ 409,451  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (217   $ 468     $ (42   $ 1,254     $ 2,517     $ 3,980  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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.

 

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Transfers and restructurings, if any, are recognized at the beginning of the period in which they occur. There were no restructures in or out of Levels 1, 2 or 3 during the three months ended May 31, 2019.

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

 

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

Balance as of February 28, 2018

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

Payment-in-kind and other adjustments to cost

    73       271       531       —         —         265       1,140  

Net change in unrealized appreciation (depreciation) on investments

    (73     (22     (186     (66     130       860       643  

Purchases

    —         16,335       15,653       2,216       —         999       35,203  

Sales and repayments

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

Net realized gain from investments

    —         212       —         —         —         —         212  

Restructures in

    —         —         —         —         —         —         —    

Restructures out

    —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of May 31, 2018

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of May 31, 2019 were as follows (dollars in thousands):

 

                                                                                                                            
    Fair Value     Valuation Technique    

Unobservable Input

  Range     Weighted Average*  

First lien term loans

  $ 219,479       Market Comparables     Market Yield (%)     8.5% - 13.0%       10.8%  
      EBITDA Multiples (x)     3.0x       3.0x  

Second lien term loans

    109,305       Market Comparables     Market Yield (%)     10.5% - 47.5%       12.7%  
                EBITDA Multiples (x)   5.0x     5.0x  

Unsecured term loans

    2,058       Market Comparables     Market Yield (%)     19.2% - 19.2%       19.2%  
      EBITDA Multiples (x)     4.8x       4.8x  

Structured finance securities

    37,965       Discounted Cash Flow     Discount Rate (%)     9.0% - 15.0%       13.7%  

Equity interests

    40,644       Market Comparables     EBITDA Multiples (x)     4.0x - 14.0x       7.3x  
      Revenue Multiples (x)     0.6x - 39.5x       8.2x  
 

 

 

         

Total

  $ 409,451          
 

 

 

         

 

*

The weighted average in the table above is calculated based on each investment’s fair value weighting, using the applicable unobservable input.

 

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The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of February 28, 2019 were as follows (dollars in thousands):

 

                                                                                                                            
    Fair Value     Valuation Technique    

Unobservable Input

  Range     Weighted Average*  

First lien term loans

  $ 202,846       Market Comparables     Market Yield (%)     8.6% - 13.2%       11.0%  
      EBITDA Multiples (x)     3.0x       3.0x  

Second lien term loans

    125,786       Market Comparables     Market Yield (%)     10.5% - 41.1%       12.8%  
      EBITDA Multiples (x)     5.0x       5.0x  

Unsecured term loans

    2,100       Market Comparables     Market Yield (%)     15.00%       15.0%  
      EBITDA Multiples (x)     4.8x       4.8x  

Structured finance securities

    35,328       Discounted Cash Flow     Discount Rate (%)     9.0% - 15.0%       13.6%  

Equity interests

    35,960       Market Comparables     EBITDA Multiples (x)     4.0x - 14.7x       6.7x  
      Revenue Multiples (x)     0.6x - 39.6x       10.1x  
 

 

 

         

Total

  $ 402,020          
 

 

 

         

 

*

The weighted average in the table above is calculated based on each investment’s fair value weighting, using the applicable unobservable input.

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

The composition of our investments as of May 31, 2019 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

   $ 219,178        54.1   $ 219,479        53.6

Second lien term loans

     110,836        27.3       109,305        26.7  

Unsecured term loans

     2,217        0.6       2,058        0.5  

Structured finance securities

     34,899        8.6       37,965        9.3  

Equity interests

     38,229        9.4       40,644        9.9  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 405,359        100.0   $ 409,451        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The composition of our investments as of February 28, 2019 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

   $ 202,328        50.3   $ 202,846        50.5

Second lien term loans

     127,793        31.8       125,786        31.3  

Unsecured term loans

     2,217        0.6       2,100        0.5  

Structured finance securities

     33,516        8.3       35,328        8.8  

Equity interests

     36,062        9.0       35,960        8.9  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 401,916        100.0   $ 402,020        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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

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

Our investment in Saratoga CLO is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by our Manager and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. In connection with the refinancing of the Saratoga CLO liabilities, we ran Intex models based on assumptions about the refinanced Saratoga CLO’s structure, including capital structure, cost of liabilities and reinvestment period. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flow analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO at May 31, 2019. The significant inputs at May 31, 2019 for the valuation model include:

 

   

Default rate: 2.0%

 

   

Recovery rate: 35-70%

 

   

Discount rate: 15.0%

 

   

Prepayment rate: 20.0%

 

   

Reinvestment rate / price: L+375bps / $99.50

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

On January 22, 2008, the Company entered into a collateral management agreement with Saratoga CLO, pursuant to which the Company acts as its collateral manager. The Saratoga CLO was initially refinanced in October 2013 with its reinvestment period extended to October 2016. On November 15, 2016, the Company completed a second refinancing of the Saratoga CLO with its reinvestment period extended to October 2018.

 

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Table of Contents

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%. Interest accrued on the investment in the CLO 2013-1 Warehouse Loan is included in interest income on the Company’s consolidated statement of operations. During the year ended February 28, 2019, the maximum amount invested by the Company in the CLO 2013-1 Warehouse Loan amounted to $20.0 million.

On December 14, 2018, the Company completed a third refinancing and upsize of the Saratoga CLO (the “2013-1 Reset CLO Notes”). The third Saratoga CLO refinancing, among other things, extended its reinvestment period to January 2021, and extended its legal maturity date to January 2030. A non-call period ending January 2020 was also added. Following this refinancing, the Saratoga CLO portfolio increased from approximately $300.0 million in aggregate principal amount to approximately $500.0 million of predominantly senior secured first lien term loans. In addition to refinancing its liabilities, the Company invested an additional $13.8 million in all of the newly issued subordinated notes of the Saratoga CLO and also purchased $2.5 million in aggregate principal amount of the Class F-R-2 and $7.5 million aggregate principal amount of the Class G-R-2 notes tranches at par, with a coupon of LIBOR plus 8.75% and LIBOR plus 10.00%, respectively. As part of this refinancing, the Company also redeemed our existing $4.5 million aggregate amount of the Class F notes tranche at par.

The Saratoga CLO remains 100.0% owned and managed by the Company. We receive a base management fee of 0.10% per annum and a subordinated management fee of 0.40% per annum of the outstanding principal amount of Saratoga CLO’s assets, paid quarterly to the extent of available proceeds. Following the third refinancing and the issuance of the 2013-1 Reset CLO Notes on December 14, 2018, we are no longer entitled to an incentive management fee equal to 20.0% of excess cash flow to the extent the Saratoga CLO subordinated notes receive an internal rate of return paid in cash equal to or greater than 12.0%.

For the three months ended May 31, 2019 and May 31, 2018, we accrued management fee income of $0.6 million and $0.4 million, respectively, and interest income of $1.1 million and $0.8 million, respectively, from the Saratoga CLO. For the three months ended May 31, 2018, we accrued $0.2 million related to the incentive management fee from Saratoga CLO.

As of May 31, 2019, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $28.0 million. The Company determines the fair value of its investment in the subordinated notes of Saratoga CLO based on the present value of the projected future cash flows of the subordinated notes over the life of Saratoga CLO. As of May 31, 2019, the fair value of its investment in the Class F-R-2 Notes and G-R-2 Notes of Saratoga CLO was $2.5 million and $7.5 million, respectively. As of May 31, 2019, Saratoga CLO had investments with a principal balance of $513.4 million and a weighted average spread over LIBOR of 4.0% and had debt with a principal balance of $470.0 million with a weighted average spread over LIBOR of 2.0%. 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. As of May 31, 2019, the present value of the projected future cash flows of the subordinated notes was approximately $28.6 million, using a 15.0% discount rate. The Company’s total investment in the subordinate notes of Saratoga CLO is $43.8 million, which is comprised of the initial investment of $30.0 million in January 2008 plus the additional investment of $13.8 million in December 2018, and to date the Company has since received distributions of $55.9 million, management fees of $20.2 million and incentive fees of $1.2 million.

As of February 28, 2019, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $25.4 million. The Company determines the fair value of its investment in the subordinated notes of Saratoga CLO based on the present value of the projected future cash flows of the

 

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Table of Contents

subordinated notes over the life of Saratoga CLO. As of February 28, 2019, the fair value of its investment in the Class F-R-2 Notes and G-R-2 Notes of Saratoga CLO was $2.5 million and $7.5 million, respectively. As of February 28, 2019, Saratoga CLO had investments with a principal balance of $510.3 million and a weighted average spread over LIBOR of 4.0% and had debt with a principal balance of $470.0 million with a weighted average spread over LIBOR of 2.3%. As of February 28, 2019, the present value of the projected future cash flows of the subordinated notes was approximately $26.6 million, using a 15.0% discount rate.

Below is certain financial information from the separate financial statements of Saratoga CLO as of May 31, 2019 (unaudited) and February 28, 2019 and for the three months ended May 31, 2019 (unaudited) and May 31, 2018 (unaudited).

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities

 

     May 31, 2019     February 28, 2019  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Loans at fair value (amortized cost of $508,645,633 and $506,145,483, respectively)

   $ 497,734,598     $ 498,389,369  

Equities at fair value (amortized cost of $2,566,752 and $3,531,218, respectively)

     151       15,691  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $511,212,385 and $509,676,701, respectively)

     497,734,749       498,405,060  

Cash and cash equivalents

     8,579,399       18,495,653  

Receivable from open trades

     1,204,614       7,855,309  

Interest receivable (net of reserve of $291,580 and $168,443, respectively)

     1,886,128       2,104,495  
  

 

 

   

 

 

 

Total assets

   $ 509,404,890     $ 526,860,517  
  

 

 

   

 

 

 

LIABILITIES

    

Interest payable

   $ 2,461,179     $ 4,963,472  

Payable from open trades

     14,504,906       26,232,247  

Accrued base management fee

     55,966       108,419  

Accrued subordinated management fee

     223,862       433,675  

Due to affiliate

     1,243,197       1,673,747  

Accounts payable and accrued expenses

     23,136       1,221,110  

Saratoga Investment Corp. CLO 2013-1, Ltd. Notes:

    

Class  A-1FL-R-2 Senior Secured Floating Rate Notes

     255,000,000       255,000,000  

Class  A-1FXD-R-2 Senior Secured Fixed Rate Notes

     25,000,000       25,000,000  

Class-A-2-R-2 Senior Secured Floating Rate Notes

     40,000,000       40,000,000  

Class B-R-2 Senior Secured Floating Rate Notes

     59,500,000       59,500,000  

Class C-R-2 Deferrable Mezzanine Floating Rate Notes

     22,500,000       22,500,000  

Discount on Class C-R-2 Notes

     (571,332     (585,059

Class D-R-2 Deferrable Mezzanine Floating Rate Notes

     31,000,000       31,000,000  

Discount on Class D-R-2 Notes

     (1,039,656     (1,064,636

Class  E-1-R-2 Deferrable Mezzanine Floating Rate Notes

     27,000,000       27,000,000  

Class  E-2-R-2 Deferrable Mezzanine Fixed Rate Notes

     —         —    

Class F-R-2 Deferrable Junior Floating Rate Notes

     2,500,000       2,500,000  

Class G-R-2 Deferrable Junior Floating Rate Notes

     7,500,000       7,500,000  

Deferred debt financing costs

     (2,408,435     (2,465,897

Subordinated Notes

     69,500,000       69,500,000  

Discount on Subordinated Notes

     (24,664,279     (25,256,892
  

 

 

   

 

 

 

Total liabilities

   $ 529,328,544     $ 544,760,186  
  

 

 

   

 

 

 

NET ASSETS

    

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

   $ 250     $ 250  

Total distributable earnings (loss)

     (19,923,904     (17,899,919
  

 

 

   

 

 

 

Total net assets (deficit)

     (19,923,654     (17,899,669
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 509,404,890     $ 526,860,517  
  

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Operations

(unaudited)

 

     For the three months ended  
     May 31, 2019     May 31, 2018  

INVESTMENT INCOME

    

Interest from investments

   $ 8,203,707     $ 5,032,427  

Interest from cash and cash equivalents

     7,363       4,015  

Other income

     140,123       142,957  
  

 

 

   

 

 

 

Total investment income

     8,351,193       5,179,399  
  

 

 

   

 

 

 

EXPENSES

    

Interest and debt financing expenses

     6,418,808       3,994,176  

Base management fee

     125,903       77,039  

Subordinated management fee

     503,613       308,155  

Incentive fees

     —         226,835  

Professional fees

     124,508       25,888  

Trustee expenses

     19,879       45,468  

Miscellaneous fee expense

     32,538       27,389  
  

 

 

   

 

 

 

Total expenses

     7,225,249       4,704,950  
  

 

 

   

 

 

 

NET INVESTMENT INCOME

     1,125,944       474,449  
  

 

 

   

 

 

 

REALIZED AND UNREALIZED LOSS ON INVESTMENTS:

    

Net realized loss on investments

     (943,934     (1,157,929

Net change in unrealized depreciation on investments

     (2,205,995     (110,177
  

 

 

   

 

 

 

Net realized and unrealized loss on investments

     (3,149,929     (1,268,106
  

 

 

   

 

 

 

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ (2,023,985   $ (793,657
  

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1 Ltd.

Schedule of Investments

May 31, 2019

(unaudited)

 

Issuer Name

 

Industry

 

Asset Name

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

Education Management II LLC

  Services: Consumer   Education Management II A-1 Preferred Shares   Equity     -               6,692     $ 669,214     $ 134  

Education Management II LLC

  Services: Consumer   Education Management II A-2 Preferred Shares   Equity     -               18,975       1,897,538       17  

24 Hour Fitness Worldwide Inc.

  Services: Consumer   Term Loan (5/18)   Loan     1M USD LIBOR+       3.50     0.00     5.93     5/30/2025     $ 2,982,487       2,971,392       2,965,100  

ABB Con-Cise Optical Group LLC

  Healthcare & Pharmaceuticals   Term Loan B   Loan     3M USD LIBOR+       5.00     1.00     7.50     6/15/2023       2,098,066       2,074,926       1,966,936  

Achilles Acquisition LLC

  Banking Finance Insurance & Real Estate   Term Loan (09/18)   Loan     1M USD LIBOR+       4.00     0.00     6.43     10/13/2025       3,000,000       2,993,593       2,992,500  

Acosta Inc.

  Media: Advertising Printing & Publishing   Term Loan B (1st Lien)   Loan     1M USD LIBOR+       3.25     1.00     5.68     9/27/2021       1,910,400       1,904,699       788,040  

ADMI Corp.

  Services: Consumer   Term Loan B   Loan     1M USD LIBOR+       2.75     0.00     5.18     4/30/2025       1,985,000       1,976,388       1,956,873  

Advantage Sales & Marketing Inc.

  Services: Business   First Lien Term Loan   Loan     1M USD LIBOR+       3.25     1.00     5.68     7/23/2021       2,389,899       2,388,562       2,067,574  

Advantage Sales & Marketing Inc.

  Services: Business   Term Loan B Incremental   Loan     1M USD LIBOR+       3.25     1.00     5.68     7/23/2021       493,719       487,181       424,909  

Aegis Toxicology Sciences Corporation

  Healthcare & Pharmaceuticals   Term Loan   Loan     3M USD LIBOR+       5.50     1.00     8.00     5/9/2025       3,980,000       3,946,077       3,831,984  

Agiliti Health Inc.

  Healthcare & Pharmaceuticals   Term Loan (1/19)   Loan     1M USD LIBOR+       3.00     0.00     5.43     1/5/2026       500,000       500,000       500,000  

Agrofresh Inc.

  Beverage Food & Tobacco   Term Loan   Loan     6M USD LIBOR+       4.75     1.00     7.27     7/30/2021       2,912,180       2,908,470       2,824,814  

AI Mistral (Luxembourg) Subco Sarl

  High Tech Industries   Term Loan   Loan     1M USD LIBOR+       3.00     1.00     5.43     3/11/2024       490,000       490,000       426,300  

AIS Holdco LLC

  Services: Business   Term Loan   Loan     3M USD LIBOR+       5.00     0.00     7.50     8/15/2025       2,468,750       2,457,800       2,271,250  

Akorn Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     1M USD LIBOR+       7.00     1.00     9.43     4/16/2021       398,255       397,752       371,624  

Albertson’s LLC

  Retail   Term Loan B7   Loan     1M USD LIBOR+       3.00     0.75     5.43     11/17/2025       4,141,132       4,130,851       4,113,717  

Alchemy US Holdco 1 LLC

  Metals & Mining   Term Loan   Loan     1M USD LIBOR+       5.50     0.00     7.93     10/10/2025       1,987,500       1,959,956       1,977,562  

Alera Group Intermediate Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan B   Loan     1M USD LIBOR+       4.50     0.00     6.93     8/1/2025       497,500       496,377       498,744  

Alion Science and Technology Corporation

  Aerospace & Defense   Term Loan B (1st Lien)   Loan     1M USD LIBOR+       4.50     1.00     6.93     8/19/2021       3,626,521       3,620,887       3,626,521  

 

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Table of Contents

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  

Allen Media LLC

  Media: Diversified & Production   Term Loan B   Loan     4M USD LIBOR+       6.50     1.00     7.50     8/30/2023       2,962,500       2,898,258       2,943,984  

Altisource S.a r.l.

  Banking Finance Insurance & Real Estate   Term Loan B (03/18)   Loan     3M USD LIBOR+       4.00     1.00     6.50     4/3/2024       1,676,074       1,666,089       1,651,637  

Altra Industrial Motion Corp.

  Capital Equipment   Term Loan   Loan     1M USD LIBOR+       2.00     0.00     4.43     10/1/2025       1,917,909       1,913,622       1,893,130  

American Dental Partners Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     3M USD LIBOR+       4.25     1.00     6.75     3/24/2023       997,500       987,844       985,031  

American Greetings Corporation

  Media: Advertising Printing & Publishing   Term Loan   Loan     1M USD LIBOR+       4.50     1.00     6.93     4/5/2024       4,969,900       4,967,612       4,957,475  

American Residential Services LLC

  Services: Consumer   Term Loan B   Loan     1M USD LIBOR+       4.00     1.00     6.43     6/30/2022       3,956,604       3,945,057       3,897,255  

Amynta Agency Borrower Inc.

  Banking Finance Insurance & Real Estate   Term Loan   Loan     1M USD LIBOR+       4.50     0.00     6.93     2/28/2025       3,488,714       3,448,337       3,384,053  

Anastasia Parent LLC

  Consumer goods: Non-durable   Term Loan   Loan     1M USD LIBOR+       3.75     0.00     6.18     8/11/2025       995,000       990,594       856,526  

Anchor Glass Container Corporation

  Containers Packaging & Glass   Term Loan (07/17)   Loan     1M USD LIBOR+       2.75     1.00     5.18     12/7/2023       488,794       487,055       439,000  

Arctic Glacier U.S.A. Inc.

  Beverage Food & Tobacco   Term Loan (3/18)   Loan     1M USD LIBOR+       3.50     1.00     5.93     3/20/2024       3,350,967       3,330,502       3,346,778  

Aretec Group Inc.

  Banking Finance Insurance & Real Estate   Term Loan (10/18)   Loan     1M USD LIBOR+       4.25     0.00     6.68     10/1/2025       1,995,000       1,990,648       1,960,088  

ASG Technologies Group Inc.

  High Tech Industries   Term Loan   Loan     1M USD LIBOR+       3.50     1.00     5.93     7/31/2024       492,516       490,599       489,437  

AssetMark Financial Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan   Loan     3M USD LIBOR+       3.50     0.00     6.00     11/14/2025       2,493,750       2,490,117       2,499,984  

Astoria Energy LLC

  Energy: Electricity   Term Loan   Loan     1M USD LIBOR+       4.00     1.00     6.43     12/24/2021       1,406,149       1,398,360       1,408,202  

Asurion LLC

  Banking Finance Insurance & Real Estate   Term Loan B-4 (Replacement)   Loan     1M USD LIBOR+       3.00     0.00     5.43     8/4/2022       2,078,304       2,071,534       2,068,660  

Asurion LLC

  Banking Finance Insurance & Real Estate   Term Loan B6   Loan     1M USD LIBOR+       3.00     0.00     5.43     11/3/2023       496,660       493,172       494,549  

Athenahealth Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     3M USD LIBOR+       4.50     0.00     7.00     2/11/2026       2,000,000       1,962,053       2,002,500  

Avaya Inc.

  Telecommunications   Term Loan B   Loan     1M USD LIBOR+       4.25     0.00     6.68     12/16/2024       1,984,975       1,970,465       1,945,275  

Avison Young (Canada) Inc.

  Services: Business   Term Loan   Loan     3M USD LIBOR+       5.00     0.00     7.50     1/30/2026       1,995,000       1,955,885       1,955,100  

Ball Metalpack Finco LLC

  Containers Packaging & Glass   Term Loan   Loan     3M USD LIBOR+       4.50     0.00     7.00     7/31/2025       3,974,975       3,956,970       3,967,542  

Bausch Health Companies Inc.

  Healthcare & Pharmaceuticals   Term Loan B (05/18)   Loan     1M USD LIBOR+       3.00     0.00     5.43     6/2/2025       1,708,604       1,701,767       1,701,137  

Berry Global Group Inc.

  Chemicals Plastics & Rubber   Term Loan (05/19)   Loan     3M USD LIBOR+       2.50     0.00     5.00     6/15/2026       5,000,000       4,987,500       4,968,050  

 

39


Table of Contents

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  

Blount International Inc.

  Forest Products & Paper   Term Loan B (09/18)   Loan     1M USD LIBOR+       3.75     1.00     6.18     4/12/2023       3,480,013       3,476,754       3,481,091  

Blucora Inc.

  High Tech Industries   Term Loan (11/17)   Loan     2M USD LIBOR+       3.00     1.00     4.00     5/22/2024       956,667       952,736       954,878  

Boxer Parent Company Inc.

  Services: Business   Term Loan   Loan     3M USD LIBOR+       4.25     0.00     6.75     10/2/2025       2,493,750       2,471,351       2,411,357  

Bracket Intermediate Holding Corp.

  Healthcare & Pharmaceuticals   Term Loan   Loan     3M USD LIBOR+       4.25     0.00     6.75     9/5/2025       995,000       990,507       990,025  

Broadstreet Partners Inc.

  Banking Finance Insurance & Real Estate   Term Loan B2   Loan     1M USD LIBOR+       3.25     1.00     5.68     11/8/2023       1,032,536       1,030,459       1,025,763  

Cable & Wireless Communications Limited

  Telecommunications   Term Loan B4   Loan     1M USD LIBOR+       3.25     0.00     5.68     1/30/2026       2,186,667       2,184,342       2,188,591  

Calceus Acquisition Inc.

  Consumer goods: Non-durable   Term Loan B   Loan     1M USD LIBOR+       5.50     0.00     7.93     2/12/2025       993,750       981,768       985,989  

Callaway Golf Company

  Retail   Term Loan B   Loan     1M USD LIBOR+       4.50     0.00     6.93     1/2/2026       748,125       733,835       754,671  

Canyon Valor Companies Inc.

  Media: Advertising Printing & Publishing   Term Loan B   Loan     3M USD LIBOR+       2.75     0.00     5.25     6/16/2023       936,691       934,349       929,956  

Capital Automotive L.P.

  Banking Finance Insurance & Real Estate   First Lien Term Loan   Loan     1M USD LIBOR+       2.50     1.00     4.93     3/25/2024       476,840       475,124       470,965  

CareerBuilder LLC

  Services: Business   Term Loan   Loan     3M USD LIBOR+       6.75     1.00     9.25     7/31/2023       2,266,211       2,226,525       2,246,382  

CareStream Health Inc.

  High Tech Industries   Term Loan   Loan     1M USD LIBOR+       5.75     1.00     8.18     2/28/2021       2,809,881       2,798,872       2,725,585  

Casa Systems Inc.

  Telecommunications   Term Loan   Loan     1M USD LIBOR+       4.00     1.00     6.43     12/20/2023       1,466,250       1,456,054       1,319,625  

CCS-CMGC Holdings Inc.

  Healthcare & Pharmaceuticals   Term Loan   Loan     1M USD LIBOR+       5.25     0.00     7.68     10/1/2025       2,493,750       2,471,156       2,428,288  

Cengage Learning Inc.

  Media: Advertising Printing & Publishing   Term Loan   Loan     1M USD LIBOR+       4.25     1.00     6.68     6/7/2023       1,458,708       1,444,248       1,390,338  

CenturyLink Inc.

  Telecommunications   Term Loan B   Loan     1M USD LIBOR+       2.75     0.00     5.18     1/31/2025       3,959,975       3,937,524       3,849,214  

Charter Communications Operating LLC.

  Media: Broadcasting & Subscription   Term Loan (12/17)   Loan     1M USD LIBOR+       2.00     0.00     4.43     4/30/2025       1,580,000       1,578,463       1,578,562  

Compass Power Generation L.L.C.

  Utilities: Electric   Term Loan B (08/18)   Loan     1M USD LIBOR+       3.50     1.00     5.93     12/20/2024       1,948,039       1,943,458       1,948,039  

Compuware Corporation

  High Tech Industries   Term Loan (08/18)   Loan     1M USD LIBOR+       3.50     0.00     5.93     8/22/2025       498,750       497,630       498,336  

Concordia International Corp.

  Healthcare & Pharmaceuticals   Term Loan   Loan     1M USD LIBOR+       5.50     1.00     7.93     9/6/2024       1,201,860       1,142,088       1,121,636  

Consolidated Aerospace Manufacturing LLC

  Aerospace & Defense   Term Loan (1st Lien)   Loan     1M USD LIBOR+       3.75     1.00     6.18     8/11/2022       2,418,750       2,412,778       2,400,609  

Consolidated Communications Inc.

  Telecommunications   Term Loan B   Loan     1M USD LIBOR+       3.00     1.00     5.43     10/5/2023       1,486,781       1,474,512       1,454,726  

Covia Holdings Corporation

  Metals & Mining   Term Loan   Loan     3M USD LIBOR+       4.00     1.00     6.50     6/2/2025       992,500       992,500       836,181  

 

40


Table of Contents

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  

CPI Acquisition Inc

  Banking Finance Insurance & Real Estate   Term Loan B (1st Lien)   Loan     3M USD LIBOR+       4.50     1.00     7.00     8/17/2022       1,436,782       1,425,623       1,149,425  

Crown Subsea Communications Holding Inc

  Construction & Building   Term Loan   Loan     1M USD LIBOR+       6.00     0.00     8.43     11/3/2025       3,950,000       3,908,672       3,903,904  

CSC Holdings LLC

  Media: Broadcasting & Subscription   Term Loan B (03/17)   Loan     1M USD LIBOR+       2.25     0.00     4.68     7/17/2025       1,989,848       1,966,492       1,946,569  

CSC Holdings LLC

  Media: Broadcasting & Subscription   Term Loan B   Loan     1M USD LIBOR+       2.25     0.00     4.68     1/15/2026       498,750       497,591       486,072  

CT Technologies Intermediate Hldgs Inc

  Healthcare & Pharmaceuticals   New Term Loan   Loan     1M USD LIBOR+       4.25     1.00     6.68     12/1/2021       1,436,531       1,430,430       1,147,070  

Cumulus Media New Holdings Inc.

  Media: Broadcasting & Subscription   Term Loan   Loan     1M USD LIBOR+       4.50     1.00     6.93     5/13/2022       334,968       332,401       333,504  

Daseke Companies Inc.

  Transportation: Cargo   Replacement Term Loan   Loan     1M USD LIBOR+       5.00     1.00     7.43     2/27/2024       1,970,662       1,960,592       1,966,346  

Dealer Tire LLC

  Automotive   Term Loan B   Loan     1M USD LIBOR+       5.50     0.00     7.93     12/12/2025       3,000,000       2,895,065       3,000,000  

Delek US Holdings Inc.

  Utilities: Oil & Gas   Term Loan B   Loan     1M USD LIBOR+       2.25     0.00     4.68     3/31/2025       4,484,924       4,438,638       4,440,075  

Dell International L.L.C.

  High Tech Industries   Term Loan B   Loan     1M USD LIBOR+       2.00     0.75     4.43     9/7/2023       3,964,874       3,914,817       3,940,966  

Delta 2 (Lux) SARL

  Hotel Gaming & Leisure   Term Loan B   Loan     1M USD LIBOR+       2.50     1.00     4.93     2/1/2024       1,318,289       1,315,604       1,286,505  

DHX Media Ltd.

  Media: Broadcasting & Subscription   Term Loan   Loan     Prime+       3.72     1.00     4.72     12/29/2023       332,042       330,617       325,401  

Digital Room Holdings Inc.

  Media: Advertising Printing & Publishing   Term Loan   Loan     1M USD LIBOR+       5.00     0.00     7.43     5/21/2026       3,000,000       2,955,000       2,947,500  

Dole Food Company Inc.

  Beverage Food & Tobacco   Term Loan B   Loan     Prime+       2.75     1.00     3.75     4/8/2024       478,125       476,404       466,024  

Drew Marine Group Inc.

  Transportation: Consumer   First Lien Term Loan   Loan     1M USD LIBOR+       3.25     1.00     5.68     11/19/2020       2,833,564       2,822,926       2,817,639  

DTZ U.S. Borrower LLC

  Construction & Building   Term Loan B   Loan     1M USD LIBOR+       3.25     0.00     5.68     8/21/2025       3,975,013       3,957,093       3,961,338  

Eagletree-Carbide Acquisition Corp.

  High Tech Industries   Term Loan   Loan     3M USD LIBOR+       4.25     1.00     6.75     8/28/2024       3,957,456       3,939,756       3,878,307  

Education Management II LLC (a)

  Services: Consumer   Term Loan B   Loan     Prime+       8.50     1.00     9.50     7/2/2020       954,307       947,426       477  

Education Management II LLC (a)

  Services: Consumer   Term Loan A   Loan     Prime+       5.50     1.00     6.50     7/2/2020       423,861       420,013       8,477  

EIG Investors Corp.

  High Tech Industries   Term Loan (06/18)   Loan     3M USD LIBOR+       3.75     1.00     6.25     2/9/2023       2,370,640       2,354,858       2,362,058  

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

  Environmental Industries   Term Loan   Loan     3M USD LIBOR+       4.00     1.00     6.50     5/14/2021       988,553       984,749       985,152  

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

  Healthcare & Pharmaceuticals   Term Loan B (4/17)   Loan     1M USD LIBOR+       4.25     0.75     6.68     4/29/2024       3,967,310       3,943,497       3,853,250  

 

41


Table of Contents

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  

Energy Acquisition LP

  Capital Equipment   Term Loan (6/18)   Loan     3M USD LIBOR+       4.25     0.00     6.75     6/26/2025       1,985,000       1,967,240       1,875,825  

Envision Healthcare Corporation

  Healthcare & Pharmaceuticals   Term Loan B (06/18)   Loan     1M USD LIBOR+       3.75     0.00     6.18     10/10/2025       4,987,500       4,976,718       4,518,125  

Fastener Acquisition Inc.

  Construction & Building   Term Loan B   Loan     Prime+       3.25     1.00     4.25     3/28/2025       495,000       492,889       490,050  

FinCo I LLC

  Banking Finance Insurance & Real Estate   2018 Term Loan B   Loan     1M USD LIBOR+       2.00     0.00     4.43     12/27/2022       360,542       359,822       359,576  

First Eagle Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan B (10/18)   Loan     3M USD LIBOR+       2.75     0.00     5.25     12/2/2024       4,987,500       4,961,905       4,968,796  

Fitness International LLC

  Services: Consumer   Term Loan B (4/18)   Loan     1M USD LIBOR+       3.25     0.00     5.68     4/18/2025       2,717,217       2,699,813       2,702,788  

Franklin Square Holdings L.P.

  Banking Finance Insurance & Real Estate   Term Loan   Loan     2M USD LIBOR+       2.50     0.00     2.50     8/1/2025       4,477,500       4,447,102       4,477,500  

Fusion Connect Inc. (a)

  Telecommunications   Term Loan B   Loan     Prime+       7.00     1.00     8.00     5/4/2023       1,964,623       1,900,115       1,326,120  

Fusion Connect Inc.

  Telecommunications   Bridge Term Loan   Loan     1M USD LIBOR+       10.00     0.00     12.43     6/3/2019       67,108       64,843       62,746  

GBT Group Services B.V.

  Hotel Gaming & Leisure   Term Loan   Loan     3M USD LIBOR+       2.50     0.00     5.00     8/13/2025       4,477,500       4,476,395       4,466,306  

GC EOS Buyer Inc.

  Automotive   Term Loan B (06/18)   Loan     1M USD LIBOR+       4.50     0.00     6.93     8/1/2025       2,985,000       2,957,516       2,970,075  

General Nutrition Centers Inc.

  Retail   Term Loan B2   Loan     1M USD LIBOR+       8.75     0.75     11.18     3/4/2021       930,446       928,194       840,193  

General Nutrition Centers Inc.

  Retail   FILO Term Loan   Loan     1M USD LIBOR+       7.00     0.00     9.43     1/3/2023       585,849       584,477       590,243  

GI Chill Acquisition LLC

  Services: Business   Term Loan   Loan     3M USD LIBOR+       4.00     0.00     6.50     8/6/2025       2,487,500       2,476,465       2,475,063  

GI Revelation Acquisition LLC

  Services: Business   Term Loan   Loan     1M USD LIBOR+       5.00     0.00     7.43     4/16/2025       1,241,247       1,235,779       1,225,731  

Gigamon Inc.

  Services: Business   Term Loan B   Loan     3M USD LIBOR+       4.25     1.00     6.75     12/27/2024       1,975,000       1,958,439       1,910,813  

Global Tel*Link Corporation

  Telecommunications   Term Loan B   Loan     1M USD LIBOR+       4.25     0.00     6.68     11/28/2025       3,062,779       3,062,779       3,069,150  

Go Wireless Inc.

  Telecommunications   Term Loan   Loan     1M USD LIBOR+       6.50     1.00     8.93     12/22/2024       3,336,039       3,288,820       3,242,897  

GoodRX Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     1M USD LIBOR+       3.00     0.00     5.43     10/10/2025       2,959,472       2,952,670       2,947,457  

Goodyear Tire & Rubber Company The

  Chemicals Plastics & Rubber   Second Lien Term Loan   Loan     1M USD LIBOR+       2.00     0.00     4.43     3/7/2025       2,000,000       2,000,000       1,968,120  

Greenhill & Co. Inc.

  Banking Finance Insurance & Real Estate   Term Loan B   Loan     1M USD LIBOR+       3.25     0.00     5.68     4/12/2024       2,000,000       1,990,279       1,988,760  

Grosvenor Capital Management Holdings LLLP

  Banking Finance Insurance & Real Estate   Term Loan B   Loan     1M USD LIBOR+       2.75     1.00     5.18     3/28/2025       920,941       916,908       916,337  

Guidehouse LLP

  Aerospace & Defense   Term Loan   Loan     1M USD LIBOR+       3.00     0.00     5.43     5/1/2025       1,985,000       1,980,727       1,960,188  

Harland Clarke Holdings Corp.

  Media: Advertising Printing & Publishing   Term Loan   Loan     3M USD LIBOR+       4.75     1.00     7.25     11/3/2023       1,805,702       1,797,111       1,497,974  

 

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Table of Contents