Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

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

For the Quarterly Period Ended August 31, 2019

 

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

Commission File No. 814-00732

 

 

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 October 8, 2019 was 9,745,680.

 

 

 


Table of Contents

 

TABLE OF CONTENTS

 

 

 

     Page  

PART I.

  FINANCIAL INFORMATION      3  

Item 1.

  Consolidated Financial Statements      3  
  Consolidated Statements of Assets and Liabilities as of August 31, 2019 (unaudited) and February 28, 2019      3  
  Consolidated Statements of Operations for the three and six months ended August 31, 2019 (unaudited) and August 31, 2018 (unaudited)      4  
  Consolidated Schedules of Investments as of August 31, 2019 (unaudited) and February 28, 2019      5  
  Consolidated Statements of Changes in Net Assets for the six months ended August 31, 2019 (unaudited) and August 31, 2018 (unaudited)      7  
  Consolidated Statements of Cash Flows for the six months ended August 31, 2019 (unaudited) and August 31, 2018 (unaudited)      8  
  Notes to Consolidated Financial Statements as of August 31, 2019 (unaudited)      9  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      39  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      67  

Item 4.

  Controls and Procedures      68  

PART II.

  OTHER INFORMATION      69  

Item 1.

  Legal Proceedings      69  

Item 1A.

  Risk Factors      69  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      69  

Item 3.

  Defaults Upon Senior Securities      69  

Item 4.

  Mine Safety Disclosures      69  

Item 5.

  Other Information      69  

Item 6.

  Exhibits      70  

Signatures

     72  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 

     August 31, 2019     February 28, 2019  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Non-control/Non-affiliate investments (amortized cost of $376,936,296 and $307,136,188, respectively)

   $ 379,070,267     $ 306,511,427  

Affiliate investments (amortized cost of $23,901,306 and $18,514,716, respectively)

     17,750,919       11,463,081  

Control investments (amortized cost of $80,491,992 and $76,265,189, respectively)

     90,059,037       84,045,212  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $481,329,594 and $401,916,093, respectively)

     486,880,223       402,019,720  

Cash and cash equivalents

     2,846,767       30,799,068  

Cash and cash equivalents, reserve accounts

     21,271,658       31,295,326  

Interest receivable (net of reserve of $1,098,807 and $647,210, respectively)

     4,896,769       3,746,604  

Due from affiliate (See Note 6)

     —         1,673,747  

Management and incentive fee receivable

     279,960       542,094  

Other assets

     665,227       595,543  
  

 

 

   

 

 

 

Total assets

   $ 516,840,604     $ 470,672,102  
  

 

 

   

 

 

 

LIABILITIES

    

Revolving credit facility

   $ —       $ —    

Deferred debt financing costs, revolving credit facility

     (558,655     (605,189

SBA debentures payable

     150,000,000       150,000,000  

Deferred debt financing costs, SBA debentures payable

     (2,152,801     (2,396,931

2023 Notes payable

     74,450,500       74,450,500  

Deferred debt financing costs, 2023 notes payable

     (1,719,614     (1,919,620

2025 Notes payable

     60,000,000       60,000,000  

Deferred debt financing costs, 2025 notes payable

     (2,232,061     (2,377,551

Base management and incentive fees payable

     8,633,468       6,684,785  

Deferred tax liability

     1,001,121       739,716  

Accounts payable and accrued expenses

     1,503,867       1,615,443  

Interest and debt fees payable

     3,200,510       3,224,671  

Directors fees payable

     75,000       62,000  

Due to manager

     302,702       319,091  
  

 

 

   

 

 

 

Total liabilities

   $ 292,504,037     $ 289,796,915  
  

 

 

   

 

 

 

Commitments and contingencies (See Note 8)

    

NET ASSETS

    

Common stock, par value $.001, 100,000,000 common shares authorized, 9,168,056 and 7,657,156 common shares issued and outstanding, respectively

   $ 9,168     $ 7,657  

Capital in excess of par value

     240,296,267       203,552,800  

Total distributable earnings (loss)

     (15,968,868     (22,685,270
  

 

 

   

 

 

 

Total net assets

     224,336,567       180,875,187  
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 516,840,604     $ 470,672,102  
  

 

 

   

 

 

 

NET ASSET VALUE PER SHARE

   $ 24.47     $ 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     For the six months ended  
     August 31, 2019     August 31, 2018     August 31, 2019     August 31, 2018  

INVESTMENT INCOME

        

Interest from investments

        

Interest income:

        

Non-control/Non-affiliate investments

   $ 8,585,609     $ 8,046,730     $ 17,113,349     $ 15,452,639  

Affiliate investments

     267,533       241,607       516,858       480,957  

Control investments

     1,678,326       1,251,573       3,326,472       2,398,238  

Payment-in-kind interest income:

        

Non-control/Non-affiliate investments

     179,847       145,012       331,744       361,022  

Affiliate investments

     41,265       35,482       81,415       69,629  

Control investments

     989,367       594,367       1,975,236       1,159,224  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest from investments

     11,741,947       10,314,771       23,345,074       19,921,709  

Interest from cash and cash equivalents

     145,793       11,455       197,152       27,748  

Management fee income

     629,745       363,962       1,259,261       749,156  

Incentive fee income

     —         147,061       —         346,244  

Other income

     1,370,728       565,525       1,837,910       845,935  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     13,888,213       11,402,774       26,639,397       21,890,792  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES

        

Interest and debt financing expenses

     3,866,722       2,866,414       7,731,298       5,589,206  

Base management fees

     1,997,240       1,645,653       3,809,409       3,178,121  

Incentive management fees

     2,085,486       807,521       4,198,655       1,880,133  

Professional fees

     384,874       468,253       780,000       1,011,050  

Administrator expenses

     518,750       458,333       1,018,750       895,833  

Insurance

     64,619       63,860       129,238       127,719  

Directors fees and expenses

     97,500       75,000       157,500       170,500  

General & administrative

     382,873       206,295       641,474       554,145  

Income tax benefit

     (465,925     (341,232     (463,789     (608,542

Excise tax credit

     —         —         —         (270

Other expense

     —         8,449       —         21,021  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     8,932,139       6,258,546       18,002,535       12,818,916  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     4,956,074       5,144,228       8,636,862       9,071,876  
  

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

        

Net realized gain from investments:

        

Non-control/Non-affiliate investments

     1,870,089       163       1,870,089       212,171  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gain from investments

     1,870,089       163       1,870,089       212,171  

Net change in unrealized appreciation (depreciation) on investments:

        

Non-control/Non-affiliate investments

     365,541       (1,086,162     2,758,732       (782,457

Affiliate investments

     731,304       (855,742     901,248       (1,331,304

Control investments

     361,027       (212,617     1,787,022       602,445  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investments

     1,457,872       (2,154,521     5,447,002       (1,511,316

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

     (704,263     152,546       (725,193     (788,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss) on investments

     2,623,698       (2,001,812     6,591,898       (2,087,145
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 7,579,772     $ 3,142,416     $ 15,228,760     $ 6,984,731  
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.91     $ 0.45     $ 1.89     $ 1.06  

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED

     8,333,570       6,915,966       8,041,365       6,597,324  

 

See accompanying notes to consolidated financial statements.

4


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

August 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—169.0% (b)

             

Apex Holdings Software Technologies, LLC

  Business Services   First Lien Term Loan
(3M USD LIBOR+8.00%), 10.14% Cash, 9/21/2021
  9/21/2016   $ 18,000,000     $ 17,936,901     $ 17,627,400       7.9

Apex Holdings Software Technologies, LLC

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.14% Cash, 9/21/2021
  10/1/2018   $ 1,500,000       1,489,854       1,468,950       0.7

Avionte Holdings, LLC (h)

  Business Services   Class A Units   1/8/2014     100,000       100,000       763,188       0.3

CLEO Communications Holding, LLC

  Business Services   First Lien Term Loan
(3M USD LIBOR+8.00%), 10.14% Cash/2.00% PIK, 3/31/2022
  3/31/2017   $ 13,653,056       13,623,457       13,653,056       6.1

CLEO Communications Holding, LLC

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.14% Cash/2.00% PIK, 3/31/2022
  3/31/2017   $ 15,269,829       15,167,921       15,269,829       6.8

CoConstruct, LLC (d)

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.50%), 10.00% Cash, 7/5/2024
  7/5/2019   $ 4,200,000       4,158,478       4,158,000       1.9

CoConstruct, LLC (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+7.50%), 10.00% Cash, 7/5/2024
  7/5/2019   $ —         —         —         0.0

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       8,432,088       8,617,626       3.8

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       1,105,065       0.5

Emily Street Enterprises, L.L.C.

  Business Services   Senior Secured Note
(3M USD LIBOR+8.50%), 10.64% Cash, 1/23/2020
  12/28/2012   $ 3,300,000       3,299,960       3,305,280       1.5

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

  Business Services   Warrant Membership Interests
Expires 12/28/2022
  12/28/2012     49,318       400,000       415,750       0.2

Erwin, Inc. (d)

  Business Services   Second Lien Term Loan
(3M USD LIBOR+11.50%), 13.64% Cash/1.00% PIK, 8/28/2021
  2/29/2016   $ 15,968,527       15,893,546       15,968,527       7.1

FMG Suite Holdings, LLC (d)

  Business Services   Second Lien Term Loan
(1M USD LIBOR+8.00%), 10.09% Cash, 11/16/2023
  5/16/2018   $ 23,000,000       22,853,318       23,000,000       10.3

GDS Holdings US, Inc. (d)

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.14% Cash, 8/23/2023
  8/23/2018   $ 7,500,000       7,438,092       7,503,814       3.3

GDS Holdings US, Inc. (d), (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+7.00%), 9.14% Cash, 8/23/2023
  8/23/2018   $ 1,000,000       990,243       1,000,509       0.4

GDS Software Holdings, LLC (h)

  Business Services   Common Stock Class A Units   8/23/2018     250,000       250,000       336,139       0.1

Identity Automation Systems (h)

  Business Services   Common Stock Class A Units   8/25/2014     232,616       232,616       910,960       0.4

Identity Automation Systems (d)

  Business Services   First Lien Term Loan
(3M USD LIBOR+9.24%), 11.38% Cash, 3/31/2021
  8/25/2014   $ 15,500,000       15,448,918       15,507,750       6.9

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       12,082,978       12,078,000       5.4

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%), 10.14% Cash, 5/9/2024
  11/9/2018   $ 15,000,000       15,000,000       14,999,123       6.7

National Waste Partners (d)

  Business Services   Second Lien Term Loan
10.00% Cash, 2/13/2022
  2/13/2017   $ 9,000,000       8,950,623       8,905,500       4.0

Omatic Software, LLC

  Business Services   First Lien Term Loan
(3M USD LIBOR+8.00%), 10.14% Cash, 5/29/2023
  5/29/2018   $ 5,500,000       5,455,371       5,534,100       2.5

Omatic Software, LLC (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+8.00%), 10.14% Cash, 5/29/2023
  5/29/2018   $ —         —         —         0.0

Passageways, Inc.

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.75%), 9.89% Cash, 7/5/2023
  7/5/2018   $ 5,000,000       4,956,824       5,064,317       2.2

Passageways, Inc. (h)

  Business Services   Series A Preferred Stock   7/5/2018     2,027,205       1,000,000       1,527,593       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   $ 8,450,856       8,450,177       8,579,309       3.8

Vector Controls Holding Co., LLC (h)

  Business Services   Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027   5/31/2015     343       —         2,507,210       1.1
         

 

 

   

 

 

   

 

 

 
    Total Business Services         184,610,365       189,806,995       84.6
         

 

 

   

 

 

   

 

 

 

Targus Holdings, Inc. (h)

  Consumer Products   Common Stock   12/31/2009     210,456       1,635,969       441,115       0.2
         

 

 

   

 

 

   

 

 

 
    Total Consumer Products         1,635,969       441,115       0.2
         

 

 

   

 

 

   

 

 

 

My Alarm Center, LLC (k)

  Consumer Services   Preferred Equity Class A Units
8.00% PIK
  7/14/2017     2,227       2,357,879       3,081       0.0

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       0.9

My Alarm Center, LLC (h)

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

 

 

   

 

 

   

 

 

 
    Total Consumer Services         4,810,746       2,000,239       0.9
         

 

 

   

 

 

   

 

 

 

C2 Educational Systems (d)

  Education   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.14% Cash, 5/31/2020
  5/31/2017   $ 16,000,000       15,956,091       15,953,600       7.1

EMS LINQ, Inc. (d)

  Education   First Lien Term Loan
(1M USD LIBOR+8.50%), 10.59% Cash, 8/9/2024
  8/9/2019   $ 15,000,000       14,845,166       14,845,500       6.6

Kev Software Inc. (a)

  Education   First Lien Term Loan
(1M USD LIBOR+8.63%), 10.72% Cash, 9/13/2023
  9/13/2018   $ 21,339,426       21,179,711       21,392,774       9.6

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       755,606       0.3

Texas Teachers of Tomorrow, LLC (d)

  Education   First Lien Term Loan
(3M USD LIBOR+7.25%), 9.75% Cash, 6/28/2024
  12/2/2015   $ 19,760,000       19,565,410       19,672,421       8.8
         

 

 

   

 

 

   

 

 

 
    Total Education         73,515,796       72,626,161       32.4
         

 

 

   

 

 

   

 

 

 

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       2,073,911       0.9
         

 

 

   

 

 

   

 

 

 
    Total Food and Beverage         2,216,427       2,073,911       0.9
         

 

 

   

 

 

   

 

 

 

Axiom Parent Holdings, LLC (h)

  Healthcare Services   Common Stock Class A Units   6/19/2018     400,000       400,000       463,092       0.2

Axiom Purchaser, Inc. (d)

  Healthcare Services   First Lien Term Loan
(3M USD LIBOR+6.00%), 8.14% Cash, 6/19/2023
  6/19/2018   $ 10,000,000       9,928,799       9,990,886       4.5

Axiom Purchaser, Inc. (d), (j)

  Healthcare Services   Delayed Draw Term Loan
(3M USD LIBOR+6.00%), 8.14% Cash, 6/19/2023
  6/19/2018   $ 3,000,000       2,974,511       2,997,300       1.4

Censis Technologies, Inc.

  Healthcare Services   First Lien Term Loan B
(1M USD LIBOR+8.30%), 10.39% Cash, 9/28/2022
  7/25/2014   $ 40,000,000       39,731,576       39,928,000       17.8

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

  Healthcare Services   Limited Partner Interests   7/25/2014     999       —         4,262,368       1.9

ComForCare Health Care

  Healthcare Services   First Lien Term Loan
(3M USD LIBOR+7.50%), 9.64% Cash, 1/31/2022
  1/31/2017   $ 15,000,000       14,909,709       15,082,500       6.7

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       5,941,536       5,940,000       2.6

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   $ 10,000,000       9,903,478       9,900,000       4.4

TRC HemaTerra, LLC (h)

  Healthcare Services   Class D Membership Interests   4/15/2019     2,000,000       2,000,000       2,000,000       0.9

Ohio Medical, LLC (h)

  Healthcare Services   Common Stock   1/15/2016     5,000       500,000       515,000       0.2

Ohio Medical, LLC

  Healthcare Services   Senior Subordinated Note
12.00% Cash, 7/15/2021
  1/15/2016   $ 7,300,000       7,269,188       7,300,000       3.3

PDDS Buyer, LLC

  Healthcare Services   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.50% Cash, 7/15/2024
  7/15/2019   $ 12,000,000       11,881,304       11,880,000       5.3

PDDS Buyer, LLC (j)

  Healthcare Services   Delayed Draw Term Loan
(3M USD LIBOR+7.00%), 9.50% Cash, 7/15/2024
  7/15/2019   $ —         —         —         0.0

Roscoe Medical, Inc. (h)

  Healthcare Services   Common Stock   3/26/2014     5,081.0000       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       4,198,815       1,862,700       0.8
         

 

 

   

 

 

   

 

 

 
    Total Healthcare Services         110,146,993       112,121,846       50.0
         

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliate investments

            376,936,296       379,070,267       169.0
       

 

 

   

 

 

   

 

 

 

Affiliate investments—7.9% (b)

         

Top Gun Pressure Washing, LLC (f)

  Business Services   First Lien Term Loan
(3M USD LIBOR+7.00%), 9.50% Cash, 8/12/2024
  8/12/2019   $ 5,000,000       4,950,031       4,950,000       2.2

Top Gun Pressure Washing, LLC (f), (j)

  Business Services   Delayed Draw Term Loan
(3M USD LIBOR+7.00%), 9.50% Cash, 8/12/2024
  8/12/2019   $ —         —         —         0.0

TG Pressure Washing Holdings, LLC (f), (h)

  Business Services   Preferred Equity   8//12/2019     350,000       350,000       350,000       0.1

GreyHeller LLC (f)

  Business Services   First Lien Term Loan
(3M USD LIBOR+11.00%), 13.14% Cash, 11/16/2021
  11/17/2016   $ 7,000,000       6,962,580       7,140,000       3.2

GreyHeller LLC (f), (h)

  Business Services   Series A Preferred Units   11/17/2016     850,000       850,000       2,184,652       1.0
         

 

 

   

 

 

   

 

 

 
    Total Business Services         13,112,611       14,624,652       6.5
         

 

 

   

 

 

   

 

 

 

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

  Metals   Common Stock   7/30/2010     60,000       9,685,028       2,022,600       0.9

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

  Metals   Second Lien Term Loan
15.00% PIK, 8/10/2022
  7/30/2010   $ 1,103,667       1,103,667       1,103,667       0.5
         

 

 

   

 

 

   

 

 

 
    Total Metals         10,788,695       3,126,267       1.4
         

 

 

   

 

 

   

 

 

 

Sub Total Affiliate investments

            23,901,306       17,750,919       7.9
         

 

 

   

 

 

   

 

 

 

Control investments—40.1% (b)

             

Easy Ice, LLC (g)

  Business Services   Preferred Equity
10.00% PIK
  2/3/2017     5,080,000       10,176,602       15,421,173       6.9

Easy Ice, LLC (d), (g)

  Business Services   Second Lien Term Loan
7.03% Cash/5.97% PIK, 2/28/2023
  3/29/2013   $ 22,462,081       22,404,083       22,688,948       10.1

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

  Business Services   Second Lien Term Loan
7.03% Cash/5.97% PIK, 2/28/2023
  10/31/2018   $ 4,159,497       4,139,200       4,201,508       1.8

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   $ 5,110,273       5,066,195       5,212,479       2.3

Netreo Holdings, LLC (g), (h)

  Business Services   Common Stock Class A Unit   7/3/2018     3,150,000       3,150,000       6,641,208       3.0
         

 

 

   

 

 

   

 

 

 
    Total Business Services         44,936,080       54,165,316       24.1
         

 

 

   

 

 

   

 

 

 

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

  Structured Finance Securities   Other/Structured Finance Securities
16.00%, 1/20/2030
  1/22/2008   $ 69,500,000       25,555,912       26,000,216       11.6

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%), 10.89%, 1/20/2030
  12/14/2018   $ 2,500,000       2,500,000       2,473,155       1.1

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%), 12.14%, 1/20/2030
  12/14/2018   $ 7,500,000       7,500,000       7,420,350       3.3
         

 

 

   

 

 

   

 

 

 
    Total Structured Finance Securities         35,555,912       35,893,721       16.0
         

 

 

   

 

 

   

 

 

 

Sub Total Control investments

          80,491,992       90,059,037       40.1
         

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS—217.0% (b)

      $ 481,329,594     $ 486,880,223       217.0
         

 

 

   

 

 

   

 

 

 
                Number of
Shares
    Cost     Fair Value     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts—10.8% (b)

       

U.S. Bank Money Market (l)

          24,118,425     $ 24,118,425     $ 24,118,425       10.8
       

 

 

   

 

 

   

 

 

   

 

 

 

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

    24,118,425     $ 24,118,425     $ 24,118,425       10.8
     

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

Represents a non-qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940, as amended. As of August 31, 2019, non-qualifying assets represent 13.8% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.

(b)

Percentages are based on net assets of $224,336,567 as of August 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 7 to the consolidated financial statements).

(e)

This investment does not have a stated interest rate that is payable thereon. As a result, the 16.00% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.

(f)

As defined in the Investment Company Act, this portfolio company is an Affiliate as we own between 5.0% and 25.0% of the voting securities. Transactions during the six months ended August 31, 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
(Depreciation)
 

GreyHeller LLC

   $ —        $ —        $ 490,543      $ —        $ —        $ 682,879  

Elyria Foundry Company, L.L.C.

     —          —          81,415        —          —          218,400  

Top Gun Pressure Washing, LLC

     5,300,000        —          26,315        —          —          (31
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,300,000      $ —        $ 598,273      $ —        $ —        $ 901,248  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g)

As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the six months ended August 31, 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

   $ —        $ —        $ 1,919,082      $ —        $ —        $ 1,712,826  

Easy Ice Masters, LLC

     —          —          258,458        —          —          10,872  

Netreo Holdings, LLC

     —          —          279,104        —          —          1,536,625  

Saratoga Investment Corp. CLO 2013-1, Ltd.

     —          —          2,212,355        1,259,261        —          (1,432,806

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

     —          —          151,062        —          —          (10,345

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

     —          —          481,647        —          —          (30,150
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 5,301,708      $ 1,259,261      $ —        $ 1,787,022  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(h)

Non-income producing at August 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 August 31, 2019. (see Note 8 to the consolidated financial statements).

(k)

As of August 31, 2019, the investment was on non-accrual status. The fair value of these investments was approximately $3.9 million, which represented 0.8% of the Company’s portfolio (see Note 2 to the consolidated financial statements).

(l)

Included within cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s consolidated statements of assets and liabilities as of August 31, 2019.

LIBOR—London Interbank Offered Rate

1M USD LIBOR—The 1 month USD LIBOR rate as of August 31, 2019 was 2.09%.

3M USD LIBOR—The 3 month USD LIBOR rate as of August 31, 2019 was 2.14%.

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

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

February 28, 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

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
         

 

 

   

 

 

   

 

 

 

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

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

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
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 six months ended  
     August 31, 2019            August 31, 2018  

INCREASE FROM OPERATIONS:

       

Net investment income

   $ 8,636,862        $ 9,071,876  

Net realized gain from investments

     1,870,089          212,171  

Net change in unrealized appreciation (depreciation) on investments

     5,447,002          (1,511,316

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

     (725,193        (788,000
  

 

 

      

 

 

 

Net increase in net assets resulting from operations

     15,228,760          6,984,731  
  

 

 

      

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

       

Total distributions to shareholders

     (8,512,358        (6,332,527
  

 

 

      

 

 

 

Net decrease in net assets from shareholder distributions

     (8,512,358        (6,332,527
  

 

 

      

 

 

 

CAPITAL SHARE TRANSACTIONS:

       

Proceeds from issuance of common stock

     35,875,017          28,750,000  

Stock dividend distribution

     1,381,918          1,016,423  

Offering costs

     (511,957        (1,386,667
  

 

 

      

 

 

 

Net increase in net assets from capital share transactions

     36,744,978          28,379,756  
  

 

 

      

 

 

 

Total increase in net assets

     43,461,380          29,031,960  

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

   $  224,336,567        $  172,658,027  
  

 

 

      

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

     For the six months ended  
     August 31, 2019     August 31, 2018  

Operating activities

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 15,228,760     $ 6,984,731  

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

    

Payment-in-kind and other adjustments to cost

     (3,077,640     (1,604,326

Net accretion of discount on investments

     (480,989     (515,149

Amortization of deferred debt financing costs

     681,292       516,653  

Net deferred income taxes

     —         (608,542

Net realized gain from investments

     (1,870,089     (212,171

Net change in unrealized (appreciation) depreciation on investments

     (5,447,002     1,511,316  

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

     725,193       788,000  

Proceeds from sales and repayments of investments

     45,921,615       37,556,821  

Purchases of investments

     (119,906,398     (86,929,931

(Increase) decrease in operating assets:

    

Interest receivable

     (1,150,165     (1,146,028

Due from affiliate

     1,673,747        

Management and incentive fee receivable

     262,134       61,348  

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

     —         (65,300

Other assets

     (82,701     (133,505

Deferred tax asset

     (463,789     —    

Receivable from unsettled trades

     —         (67,164

Increase (decrease) in operating liabilities:

    

Base management and incentive fees payable

     1,948,683       94,139  

Accounts payable and accrued expenses

     (111,576     289,641  

Interest and debt fees payable

     (24,161     75,614  

Directors fees payable

     13,000       32,000  

Due to manager

     (16,389     49,714  
  

 

 

   

 

 

 

NET CASH USED IN OPERATING ACTIVITIES

     (66,176,475     (43,322,139
  

 

 

   

 

 

 

Financing activities

    

Borrowings on debt

     4,200,000       26,840,000  

Paydowns on debt

     (4,200,000     (14,500,000

Issuance of notes

     —         40,000,000  

Payments of deferred debt financing costs

     (45,132     (1,684,808

Proceeds from issuance of common stock

     35,875,017       28,750,000  

Payments of cash dividends

     (7,130,440     (5,316,104

Payments of offering costs

     (498,939     (1,292,548
  

 

 

   

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

     28,200,506       72,796,540  
  

 

 

   

 

 

 

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

     (37,975,969     29,474,401  

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

   $ 24,118,425     $ 43,251,892  
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid during the period

   $ 7,074,168     $ 4,996,939  

Cash paid for taxes

     16,022       56,562  

Supplemental non-cash information:

    

Payment-in-kind interest income

   $ 3,077,640     $ 1,604,326  

Net accretion of discount on investments

     480,989       515,149  

Amortization of deferred debt financing costs

     681,292       516,653  

Stock dividend distribution

     1,381,918       1,016,423  

See accompanying notes to consolidated financial statements.

 

8


Table of Contents

SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 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-TG, 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 August 14, 2019, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC II LP (“SBIC II LP”), also received an SBIC license from the SBA. The new license will provide up to $175.0 million in additional long-term capital in the form of SBA debentures.

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, SBIC II LP, SIA-Avionte, Inc., SIA-Easy Ice, LLC, SIA-GH, Inc., SIA-HT, Inc., SIA-MAC, Inc., SIA-TG, 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, SBIC LP and SBIC II LP are all 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, SBIC LP or SBIC II LP’s status as investment companies during the six months ended August 31, 2019.

 

9


Table of Contents

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

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

 

   

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

 

   

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

 

   

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

As of August 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.

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

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

 

     August 31,
2019
     August 31,
2018
 

Cash and cash equivalents

   $ 2,846,767      $  37,409,160  

Cash and cash equivalents, reserve accounts

     21,271,658        5,842,732  
  

 

 

    

 

 

 

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

   $  24,118,425      $  43,251,892  
  

 

 

    

 

 

 

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.

 

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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

 

   

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

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

 

   

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

 

   

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

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

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

Derivative Financial Instruments

The Company accounts for derivative financial instruments in accordance with FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires recognizing all derivative instruments as either assets or liabilities on the consolidated statements of assets and liabilities at fair value. The Company values derivative contracts at the closing fair value provided by the counterparty. Changes in the values of derivative contracts are included in the consolidated statements of operations.

Investment Transactions and Income Recognition

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

 

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Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as a reduction in principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At August 31, 2019, certain investments in four portfolio companies, including preferred equity interests, were on non-accrual status with a fair value of approximately $3.9 million, or 0.8% 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.

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 $0.1 million and $0.3 million in incentive fees from the Saratoga CLO for the three and six months ended August 31, 2018, respectively, and is reported as incentive fee income on the Company’s consolidated statement of operations.

 

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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 August 31, 2019 and February 28, 2019 or the consolidated statement of operations for the three and six months ended August 31, 2019.

For the three and six months ended August 31, 2018, the impact on the consolidated statement of operations without the adoption of ASC 606 is shown in the tables below:

Consolidated Statement of Operations

 

     For the three months ended August 31, 2018      For the six months ended August 31, 2018  
     As Reported      Adjustments     Without
Adoption of
ASC 606
     As Reported      Adjustments      Without
Adoption of
ASC 606
 

Incentive fee income

   $ 147,061      $ (22,689   $ 124,372      $ 346,244      $  4,963      $ 351,207  

Total investment income

     11,402,774        (22,689     11,380,085        21,890,792        4,963        21,895,755  

NET INVESTMENT INCOME

     5,144,228        (22,689     5,121,539        9,071,876        4,963        9,076,839  

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

     3,142,416        (22,689     3,119,727        6,984,731        4,963        6,989,694  

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.45      $ —       $ 0.45      $ 1.06      $ —        $ 1.06  

Other Income

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

Payment-in-Kind Interest

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

 

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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 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 U.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 U.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 August 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.

 

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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.

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.

Risk Management

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

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

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

Note 3. Investments

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

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

 

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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.

The following table presents fair value measurements of investments, by major class, as of August 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

   $ —        $ —        $ 304,259      $  304,259  

Second lien term loans

     —          —          100,030        100,030  

Unsecured term loans

     —          —          2,074        2,074  

Structured finance securities

     —          —          35,894        35,894  

Equity interests

     —          —          44,623        44,623  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $  486,880      $ 486,880  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 six months ended August 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

     309       1,795       —         2,040       (1,066     3,078  

Net accretion of discount on investments

     257       224       —         —         —         481  

Net change in unrealized appreciation (depreciation) on investments

     (175     225       (26     (1,474     6,897       5,447  

Purchases

     116,631       —         —         —         3,275       119,906  

Sales and repayments

     (15,669     (28,000     —         —         (2,253     (45,922

Net realized gain (loss) from investments

     60       —         —         —         1,810       1,870  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of August 31, 2019

   $ 304,259     $ 100,030     $ 2,074     $ 35,894     $ 44,623     $ 486,880  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (175   $ 71     $ (26   $ (1,473   $ 3,726     $ 2,123  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

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

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

 

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

Balance as of February 28, 2018

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

Payment-in-kind and other adjustments to cost

     —         295       817       —         —         492       1,604  

Net accretion of discount on investments

     73       283       159       —         —         —         515  

Net change in unrealized appreciation (depreciation) on investments

     (73     (619     (659     (77     281       (364     (1,511

Purchases

     —         49,760       18,910       12,216       245       5,799       86,930  

Sales and repayments

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

Net realized gain from investments

     —         212       —         —         —         —         212  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of August 31, 2018

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

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

 

     Fair Value      Valuation Technique      Unobservable Input     Range      Weighted Average*  

First lien term loans

   $ 304,259        Market Comparables        Market Yield (%)         8.4% - 13.0%          10.5%  
           EBITDA Multiples (x)       3.0x        3.0x  

Second lien term loans

     100,030        Market Comparables        Market Yield (%)       10.1% - 73.8%        12.7%  
           EBITDA Multiples (x)       5.0x        5.0x  

Unsecured term loans

     2,074        Market Comparables        Market Yield (%)       19.8%        19.8%  
           EBITDA Multiples (x)       5.2x        5.2x  

Structured finance securities

     35,894        Discounted Cash Flow        Discount Rate (%)       9.25% - 17.0%        15.1%  
           Recovery Rate (%)       70.0%        70.0%  
           Prepayment Rate (%)       20.0%        20.0%  

Equity interests

     44,623        Market Comparables        EBITDA Multiples (x)       4.0x - 14.0x        7.2x  
           Revenue Multiples (x)       0.7x - 38.4x        7.2x  
  

 

 

            

Total

   $ 486,880             
  

 

 

            
             

 

*

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

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%  
           Recovery Rate (%)       70.0%        70.0%  
           Prepayment Rate (%)       20.0%        20.0%  

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 and prepayment rate, in isolation, would result in a significantly lower (higher) fair value measurement while a significant increase (decrease) in recovery rate, in isolation, would result in a significantly higher (lower) 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 August 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

   $ 303,917        63.1   $ 304,259        62.5

Second lien term loans

     101,812        21.1       100,030        20.5  

Unsecured term loans

     2,217        0.5       2,074        0.4  

Structured finance securities

     35,556        7.4       35,894        7.4  

Equity interests

     37,828        7.9       44,623        9.2  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $  481,330        100.0   $  486,880        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

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
  

 

 

    

 

 

   

 

 

    

 

 

 

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

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

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

 

   

Default rate: 2.0%

 

   

Recovery rate: 35-70%

 

   

Discount rate: 17.0%

 

   

Prepayment rate: 20.0%

 

   

Reinvestment rate / price: L+370bps / $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 August 31, 2019 and August 31, 2018, we accrued management fee income of $0.6 million and $0.4 million, respectively, and interest income of $1.1 million and $0.7 million, respectively, from the Saratoga CLO. For the three months ended August 31, 2018, we accrued $0.1 million related to the incentive management fee from Saratoga CLO.

For the six months ended August 31, 2019 and August 31, 2018, we accrued management fee income of $1.3 million and $0.7 million, respectively, and interest income of $2.2 million and $1.5 million, respectively, from the Saratoga CLO. For the six months ended August 31, 2018, we accrued $0.3 million related to the incentive management fee from Saratoga CLO.

As of August 31, 2019, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $26.0 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 August 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 $7.4 million, respectively. As of August 31, 2019, Saratoga CLO had investments with a principal balance of $505.8 million and a weighted average spread over LIBOR of 4.1% 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 August 31, 2019, the present value of the projected future cash flows of the subordinated notes was approximately $26.5 million, using a 17.0% 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 $56.4 million, management fees of $20.9 million and incentive fees of $1.2 million. In conjunction with the third refinancing of 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.

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 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 August 31, 2019 (unaudited) and February 28, 2019 and for the three and six months ended August 31, 2019 (unaudited) and August 31, 2018 (unaudited).

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities

 

     August 31, 2019     February 28, 2019  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Loans at fair value (amortized cost of $500,997,086 and $506,145,483, respectively)

   $ 487,911,991     $ 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 $503,563,838 and $509,676,701, respectively)

     487,912,142       498,405,060  

Cash and cash equivalents

     7,669,413       18,495,653  

Receivable from open trades

     6,375,641       7,855,309  

Interest receivable (net of reserve of $379,017 and $168,443, respectively)

     2,140,276       2,104,495  
  

 

 

   

 

 

 

Total assets

   $ 504,097,472     $ 526,860,517  
  

 

 

   

 

 

 

LIABILITIES

    

Interest payable

   $ 2,363,001     $ 4,963,472  

Payable from open trades

     12,394,738       26,232,247  

Accrued base management fee

     55,992       108,419  

Accrued subordinated management fee

     223,968       433,675  

Due to affiliate

     —         1,673,747  

Accounts payable and accrued expenses

     95,650       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

     (557,604     (585,059

Class D-R-2 Deferrable Mezzanine Floating Rate Notes

     31,000,000       31,000,000  

Discount on Class D-R-2 Notes

     (1,014,676     (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

     (2,351,840     (2,465,897

Subordinated Notes

     69,500,000       69,500,000  

Discount on Subordinated Notes

     (24,071,667     (25,256,892
  

 

 

   

 

 

 

Total liabilities

   $ 526,637,562     $ 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)

     (22,540,340     (17,899,919
  

 

 

   

 

 

 

Total net assets (deficit)

     (22,540,090     (17,899,669
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 504,097,472     $ 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     For the six months ended  
     August 31, 2019     August 31, 2018     August 31, 2019     August 31, 2018  

INVESTMENT INCOME

        

Interest from investments

   $ 8,304,492     $ 4,856,814     $ 16,508,199     $ 9,889,239  

Interest from cash and cash equivalents

     26,440       4,074       33,803       8,089  

Other income

     40,845       30,214       180,968       173,171  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     8,371,777       4,891,102       16,722,970       10,070,499  
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Interest and debt financing expenses

     6,748,508       4,106,438       13,167,316       8,100,614  

Base management fee

     125,949       72,792       251,852       149,831  

Subordinated management fee

     503,796       291,170       1,007,409       599,325  

Incentive fees

     —         124,372       —         351,207  

Professional fees

     88,204       87,558       212,712       113,446  

Trustee expenses

     118,136       15,228       138,015       60,696  

Miscellaneous fee expense

     11,196       2,418       43,734       29,807  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     7,595,789       4,699,976       14,821,038       9,404,926  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     775,988       191,126       1,901,932       665,573  
  

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

        

Net realized gain (loss) on investments

     (1,218,364     2,237       (2,162,298     (1,155,692

Net change in unrealized depreciation on investments

     (2,174,060     (440,254     (4,380,055     (550,429
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized loss on investments

     (3,392,424     (438,017     (6,542,353     (1,706,121
  

 

 

   

 

 

   

 

 

   

 

 

 

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ (2,616,436   $ (246,891   $ (4,640,421   $ (1,040,548
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Schedule of Investments

August 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     5.59     5/30/2025     $  2,974,975       2,964,144       2,885,726  

ABB Con-Cise Optical Group LLC

  Consumer goods: Non-durable   Term Loan B     Loan       6M USD LIBOR+       5.00     1.00     7.04     6/15/2023       2,092,686       2,070,089       1,935,734  

Acosta Inc.

  Media: Advertising Printing & Publishing   Term Loan B (1st Lien)     Loan       1M USD LIBOR+       3.25     1.00     5.34     9/27/2021       1,905,425       1,900,195       650,226  

ADMI Corp.

  Services: Consumer   Term Loan B     Loan       1M USD LIBOR+       2.75     0.00     4.84     4/30/2025       1,980,000       1,971,574       1,950,300  

Advantage Sales & Marketing Inc.

  Services: Business   First Lien Term Loan     Loan       3M USD LIBOR+       3.25     1.00     5.39     7/23/2021       2,383,643       2,382,376       2,220,960  

Advantage Sales & Marketing Inc.

  Services: Business   Term Loan B Incremental     Loan       3M USD LIBOR+       3.25     1.00     5.39     7/23/2021       492,462       486,664       454,119  

Aegis Toxicology Sciences
Corporation

  Healthcare & Pharmaceuticals   Term Loan     Loan       3M USD LIBOR+       5.50     1.00     7.64     5/9/2025       3,970,000       3,937,022       3,776,463  

Agiliti Health Inc.

  Healthcare & Pharmaceuticals   Term Loan (1/19)     Loan       1M USD LIBOR+       3.00     0.00     5.09     1/5/2026       498,750       498,750       499,373  

Agrofresh Inc.

  Beverage Food & Tobacco   Term Loan     Loan       6M USD LIBOR+       4.75     1.00     6.79     7/30/2021       2,904,615       2,901,243       2,744,862  

AI Mistral (Luxembourg)
Subco Sarl

  High Tech Industries   Term Loan     Loan       1M USD LIBOR+       3.00     1.00     5.09     3/11/2024       488,750       488,750       411,528  

AIS Holdco LLC

  Services: Business   Term Loan     Loan       3M USD LIBOR+       5.00     0.00     7.14     8/15/2025       2,453,125       2,442,234       2,281,406  

Akorn Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       1M USD LIBOR+       6.25     1.00     8.34     4/16/2021       399,011       398,542       367,688  

Albertson’s LLC

  Retail   Term Loan B7 (08/19)     Loan       1M USD LIBOR+       2.75     0.75     4.84     11/17/2025       3,113,633       3,098,737       3,124,157  

Alchemy US Holdco 1 LLC

  Metals & Mining   Term Loan     Loan       1M USD LIBOR+       5.50     0.00     7.59     10/10/2025       1,975,000       1,948,287       1,950,312  

Alera Group Intermediate
Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       4.50     0.00     6.59     8/1/2025       496,250       495,156       495,942  

Alion Science and Technology Corporation

  Aerospace & Defense   Term Loan B (1st Lien)     Loan       1M USD LIBOR+       4.50     1.00     6.59     8/19/2021       3,626,521       3,621,312       3,624,273  

Allen Media LLC

  Media: Diversified & Production   Term Loan B     Loan       4M USD LIBOR+       6.50     1.00     7.50     8/30/2023       2,924,096       2,863,269       2,836,374  

Altisource S.a r.l.

  Banking Finance Insurance & Real Estate   Term Loan B (03/18)     Loan       3M USD LIBOR+       4.00     1.00     6.14     4/3/2024       1,454,873       1,446,552       1,403,952  

Altra Industrial Motion Corp.

  Capital Equipment   Term Loan     Loan       1M USD LIBOR+       2.00     0.00     4.09     10/1/2025       1,850,745       1,846,584       1,842,269  

American Dental Partners Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       3M USD LIBOR+       4.25     1.00     6.39     3/24/2023       995,000       985,849       982,563  

American Greetings Corporation

  Media: Advertising Printing & Publishing   Term Loan     Loan       1M USD LIBOR+       4.50     1.00     6.59     4/5/2024       4,957,349       4,954,568       4,916,055  

American Residential Services LLC

  Services: Consumer   Term Loan B     Loan       1M USD LIBOR+       4.00     1.00     6.09     6/30/2022       3,946,325       3,935,116       3,847,667  

Amynta Agency Borrower Inc.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       4.50     0.00     6.59     2/28/2025       3,479,929       3,440,298       3,314,632  

Anastasia Parent LLC

  Consumer goods: Non-durable   Term Loan     Loan       1M USD LIBOR+       3.75     0.00     5.84     8/11/2025       992,500       988,153       714,600  

Anchor Glass
Container Corporation

  Containers Packaging & Glass   Term Loan (07/17)     Loan       1M USD LIBOR+       2.75     1.00     4.84     12/7/2023       487,550       485,936       422,647  

Arctic Glacier U.S.A. Inc.

  Beverage Food & Tobacco   Term Loan (3/18)     Loan       1M USD LIBOR+       3.50     1.00     5.59     3/20/2024       3,350,967       3,330,876       3,275,570  

Aretec Group Inc.

  Banking Finance Insurance & Real Estate   Term Loan (10/18)     Loan       1M USD LIBOR+       4.25     0.00     6.34     10/1/2025       1,990,000       1,985,589       1,935,275  

ASG Technologies Group Inc.

  High Tech Industries   Term Loan     Loan       1M USD LIBOR+       3.50     1.00     5.59     7/31/2024       491,269       489,407       487,584  

AssetMark Financial Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       3M USD LIBOR+       3.25     0.00     5.39     11/14/2025       1,237,500       1,235,491       1,236,473  

Astoria Energy LLC

  Energy: Electricity   Term Loan     Loan       1M USD LIBOR+       4.00     1.00     6.09     12/24/2021       1,398,888       1,391,776       1,396,553  

Asurion LLC

  Banking Finance Insurance & Real Estate   Term Loan B-4 (Replacement)     Loan       1M USD LIBOR+       3.00     0.00     5.09     8/4/2022       2,049,404       2,043,008       2,049,772  

Asurion LLC

  Banking Finance Insurance & Real Estate   Term Loan B6     Loan       1M USD LIBOR+       3.00     0.00     5.09     11/3/2023       495,364       492,032       495,453  

Athenahealth Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       3M USD LIBOR+       4.50     0.00     6.64     2/11/2026       1,995,000       1,957,484       1,983,788  

Avaya Inc.

  Telecommunications   Term Loan B     Loan       2M USD LIBOR+       4.25     0.00     6.40     12/16/2024       3,479,949       3,443,148       3,408,611  

Avison Young
(Canada) Inc.

  Services: Business   Term Loan     Loan       3M USD LIBOR+       5.00     0.00     7.14     1/30/2026       1,990,000       1,952,058       1,945,225  

Ball Metalpack
Finco LLC

  Containers Packaging & Glass   Term Loan     Loan       3M USD LIBOR+       4.50     0.00     6.64     7/31/2025       3,964,962       3,947,457       3,836,101  

Bausch Health Companies Inc.

  Healthcare & Pharmaceuticals   Term Loan B (05/18)     Loan       1M USD LIBOR+       3.00     0.00     5.09     6/2/2025       1,642,852       1,636,480       1,643,985  

Berry Global
Group Inc.

  Chemicals Plastics & Rubber   Term Loan U     Loan       1M USD LIBOR+       2.50     0.00     4.59     7/1/2026       5,000,000       4,987,553       4,998,850  

Blount International
Inc.

 

Forest Products &

Paper

  Term Loan B (09/18)     Loan       6M USD LIBOR+       3.75     1.00     5.79     4/12/2023       3,471,269       3,468,195       3,466,930  

Blucora Inc.

  Services: Consumer   Term Loan (11/17)     Loan       2M USD LIBOR+       3.00     1.00     5.15     5/22/2024       956,667       953,057       955,873  

Bombardier Recreational Products Inc.

  Consumer goods: Durable   Incremental Term Loan B2     Loan       1M USD LIBOR+       2.50     0.00     4.59     5/23/2025       1,000,000       990,089       998,440  

Boxer Parent Company Inc.

  Services: Business   Term Loan     Loan       3M USD LIBOR+       4.25     0.00     6.39     10/2/2025       2,487,500       2,465,536       2,349,344  

Bracket Intermediate Holding Corp.

  Healthcare & Pharmaceuticals   Term Loan     Loan       1M USD LIBOR+       4.25     0.00     6.34     9/5/2025       992,500       988,129       987,538  

Broadstreet Partners Inc.

  Banking Finance Insurance & Real Estate   Term Loan B2     Loan       1M USD LIBOR+       3.25     1.00     5.34     11/8/2023       1,029,895       1,027,916       1,026,919  

Brookfield WEC Holdings Inc.

  Energy: Electricity   Term Loan     Loan       1M USD LIBOR+       3.50     0.75     5.59     8/1/2025       500,000       498,750       500,180  

Cable & Wireless Communications Limited

  Telecommunications   Term Loan B4     Loan       1M USD LIBOR+       3.25     0.00     5.34     1/30/2026       2,186,667       2,184,433       2,191,215  

Calceus Acquisition Inc.

  Consumer goods: Non-durable   Term Loan B     Loan       1M USD LIBOR+       5.50     0.00     7.59     2/12/2025       987,500       975,964       985,653  

Callaway Golf Company

  Retail   Term Loan B     Loan       1M USD LIBOR+       4.50     0.00     6.59     1/2/2026       701,250       687,564       709,721  

Canyon Valor Companies Inc.

  Media: Advertising Printing & Publishing   Term Loan B     Loan       3M USD LIBOR+       2.75     0.00     4.89     6/16/2023       934,191       931,895       929,912  

Capital Automotive L.P.

  Banking Finance Insurance & Real Estate   First Lien Term Loan     Loan       1M USD LIBOR+       2.50     1.00     4.59     3/25/2024       340,410       339,219       339,559  

CareerBuilder LLC

  Services: Business   Term Loan     Loan       3M USD LIBOR+       6.75     0.00     8.89     7/31/2023       2,266,211       2,228,289       2,252,048  

CareStream Health Inc.

  High Tech Industries   Term Loan     Loan       1M USD LIBOR+       5.75     1.00     7.84     2/28/2021       2,371,293       2,362,900       2,255,693  

Casa Systems Inc.

  Telecommunications   Term Loan     Loan       3M USD LIBOR+       4.00     1.00     6.14     12/20/2023       1,462,500       1,452,719       1,367,438  

CCS-CMGC Holdings Inc.

  Healthcare & Pharmaceuticals   Term Loan     Loan       1M USD LIBOR+       5.50     0.00     7.59     10/1/2025       2,487,500       2,464,857       2,447,078  

Cengage Learning Inc.

  Media: Advertising Printing & Publishing   Term Loan     Loan       1M USD LIBOR+       4.25     1.00     6.34     6/7/2023       1,454,958       1,441,146       1,390,314  

CenturyLink Inc.

  Telecommunications   Term Loan B     Loan       1M USD LIBOR+       2.75     0.00     4.84     1/31/2025       3,949,950       3,928,364       3,892,359  

Charter Communications Operating LLC.

  Media: Broadcasting & Subscription   Term Loan (12/17)     Loan       3M USD LIBOR+       2.00     0.00     4.14     4/30/2025       1,576,000       1,574,361       1,579,231  

Citadel Securities LP

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       3.50     0.00     5.59     2/27/2026       997,500       996,265       997,500  

Compass Power Generation L.L.C.

  Utilities: Electric   Term Loan B (08/18)     Loan       1M USD LIBOR+       3.50     1.00     5.59     12/20/2024       1,943,026       1,938,237       1,944,970  

Compuware Corporation

  High Tech Industries   Term Loan (08/18)     Loan       1M USD LIBOR+       4.00     0.00     6.09     8/22/2025       497,500       496,395       498,535  

Concordia International Corp.

  Healthcare & Pharmaceuticals   Term Loan     Loan       1M USD LIBOR+       5.50     1.00     7.59     9/6/2024       1,195,790       1,138,418       1,135,809  

Consolidated Aerospace Manufacturing LLC

  Aerospace & Defense   Term Loan (1st Lien)     Loan       1M USD LIBOR+       3.75     1.00     5.84     8/11/2022       2,418,750       2,413,003       2,409,680  

Consolidated Communications Inc.

  Telecommunications   Term Loan B     Loan       1M USD LIBOR+       3.00     1.00     5.09     10/5/2023       1,482,989       1,471,194       1,418,108  

Covia Holdings Corporation

  Metals & Mining   Term Loan     Loan       3M USD LIBOR+       4.00     1.00     6.14     6/2/2025       990,000       990,000       812,899  

CPI Acquisition Inc

  Banking Finance Insurance & Real Estate   Term Loan B (1st Lien)     Loan       3M USD LIBOR+       4.50     1.00     6.64     8/17/2022       1,436,782       1,426,338       1,120,388  

Crown Subsea Communications Holding Inc

  Construction & Building   Term Loan     Loan       1M USD LIBOR+       6.00%       0.00     8.09     11/3/2025       3,465,432       3,430,108       3,461,100  

CSC Holdings LLC

  Media: Broadcasting & Subscription   Term Loan B (03/17)     Loan       1M USD LIBOR+       2.25%       0.00     4.34     7/17/2025       1,984,772       1,960,549       1,974,014  

CSC Holdings LLC

  Media: Broadcasting & Subscription   Term Loan B     Loan       1M USD LIBOR+       2.25%       0.00     4.34     1/15/2026       497,500       496,363       494,600  

CT Technologies Intermediate Hldgs Inc

  Healthcare & Pharmaceuticals   New Term Loan     Loan       1M USD LIBOR+       4.25%       1.00     6.34     12/1/2021       1,432,800       1,427,146       1,271,094  

Cumulus Media New Holdings Inc.

  Media: Broadcasting & Subscription   Term Loan     Loan       1M USD LIBOR+       4.50%       1.00     6.59     5/13/2022       152,704       151,605       153,086  

Daseke Companies Inc.

  Transportation: Cargo   Replacement Term Loan     Loan       1M USD LIBOR+       5.00%       1.00     7.09     2/27/2024       1,965,672       1,955,988       1,906,702  

DaVita Inc.

  High Tech Industries   Term Loan B     Loan       3M USD LIBOR+       2.25%       0.00     4.39     8/12/2026       1,000,000       997,500       1,000,530  

Dealer Tire LLC

  Automotive   Term Loan B     Loan       1M USD LIBOR+       5.50%       0.00     7.59     12/12/2025       2,992,500       2,884,710       3,003,722  

Delek US Holdings Inc.

  Utilities: Oil & Gas   Term Loan B     Loan       3M USD LIBOR+       2.25%       0.00     4.39     3/31/2025       4,473,629       4,426,230       4,445,669  

Dell International L.L.C.

  High Tech Industries   Term Loan B     Loan       1M USD LIBOR+       2.00%       0.75     4.09     9/7/2023       3,954,811       3,907,383       3,963,155  

Delta 2 (Lux) SARL

  Hotel Gaming & Leisure   Term Loan B     Loan       1M USD LIBOR+       2.50%       1.00     4.59     2/1/2024       1,318,289       1,315,624       1,289,458  

DHX Media Ltd.

  Media: Broadcasting & Subscription   Term Loan     Loan       1M USD LIBOR+       3.75%       1.00     5.84     12/29/2023       323,254       321,671       308,708  

Diamond Sports Group LLC

  Media: Broadcasting & Subscription   Term Loan     Loan       1M USD LIBOR+       3.25%       0.00     5.34     8/24/2026       1,000,000       995,003       1,000,420  

Digicert Buyer Inc.

  High Tech Industries   Term Loan     Loan       3M USD LIBOR+       4.00%       0.00     6.14     8/7/2026       1,500,000       1,496,250       1,493,745  

Digital Room Holdings Inc.

  Media: Advertising Printing & Publishing   Term Loan     Loan       1M USD LIBOR+       5.00%       0.00     7.09     5/21/2026       3,000,000       2,956,260       2,863,140  

Dole Food Company Inc.

  Beverage Food & Tobacco   Term Loan B     Loan       1M USD LIBOR+       2.75%       1.00     4.84     4/8/2024       475,000       473,393       468,231  

DTZ U.S. Borrower LLC

  Construction & Building   Term Loan B     Loan       1M USD LIBOR+       3.25%       0.00     5.34     8/21/2025       3,965,025       3,947,557       3,961,100  

DynCorp International Inc.

  Aerospace & Defense   Term Loan B     Loan       1M USD LIBOR+       6.00%       1.00     8.09     8/18/2025       3,000,000       2,910,000       2,910,000  

Eagletree-Carbide Acquisition Corp.

  Consumer goods: Durable   Term Loan     Loan       3M USD LIBOR+       4.25%       1.00     6.39     8/28/2024       3,947,432       3,930,114       3,888,221  

EIG Investors Corp.

  High Tech Industries   Term Loan (06/18)     Loan       3M USD LIBOR+       3.75%       1.00     5.89     2/9/2023       2,330,596       2,314,831       2,288,156  

Encapsys LLC

  Chemicals Plastics & Rubber   Term Loan     Loan       1M USD LIBOR+       3.50%       1.00     5.59     11/7/2024       500,000       495,159       499,165  

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

  Healthcare & Pharmaceuticals   Term Loan B (4/17)     Loan       1M USD LIBOR+       4.25%       0.75     6.34     4/29/2024       3,957,215       3,933,535       3,610,959  

Energy Acquisition LP

  Capital Equipment   Term Loan (6/18)     Loan       3M USD LIBOR+       4.25%       0.00     6.39     6/26/2025       1,980,000       1,963,814       1,791,900  

Envision Healthcare Corporation

  Healthcare & Pharmaceuticals   Term Loan B (06/18)     Loan       1M USD LIBOR+       3.75%       0.00     5.84     10/10/2025       4,975,000       4,964,173       3,828,263  

FinCo I LLC

  Banking Finance Insurance & Real Estate   2018 Term Loan B     Loan       1M USD LIBOR+       2.00%       0.00     4.09     12/27/2022       360,542       359,853       360,243  

First Eagle Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan B (10/18)     Loan       3M USD LIBOR+       2.75%       0.00     4.89     12/2/2024       4,975,000       4,950,163       4,959,478  

Fitness International LLC

  Services: Consumer   Term Loan B (4/18)     Loan       1M USD LIBOR+       3.25%       0.00     5.34     4/18/2025       2,410,280       2,396,375       2,406,520  

Franklin Square Holdings L.P.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       2.50%       0.00     4.59     8/1/2025       4,466,250       4,434,143       4,471,833  

Fusion Connect Inc.(a)

  Telecommunications   Term Loan     Loan       1M USD LIBOR+       10.00%       0.00     12.09     10/3/2019       132,539       131,669       129,888  

Fusion Connect Inc.(a)

  Telecommunications   Fusion Connect Bridge T/L     Loan       1M USD LIBOR+       10.00%       0.00     12.09     10/3/2019       67,108       64,763       65,766  

Fusion Connect Inc.(a)

  Telecommunications   Fusion Connect T/L B     Loan       Prime+       0.00%       0.00     5.00     5/4/2023       1,964,623       1,906,653       1,218,066  

GBT Group Services B.V.

  Hotel Gaming & Leisure   Term Loan     Loan       3M USD LIBOR+       2.50%       0.00     4.64     8/13/2025       4,466,250       4,465,172       4,466,250  

GC EOS Buyer Inc.

  Automotive   Term Loan B (06/18)     Loan       2M USD LIBOR+       4.50%       0.00     6.65     8/1/2025       2,977,500       2,951,467       2,921,672  

General Nutrition Centers Inc.

  Retail   Term Loan B2     Loan       2M USD LIBOR+       8.75%       0.75     10.90     3/4/2021       930,446       928,376       875,010  

General Nutrition Centers Inc.

  Retail   FILO Term Loan     Loan       1M USD LIBOR+       7.00%       0.00     9.09     1/3/2023       585,849       584,560       591,157  

GI Chill Acquisition LLC

  Services: Business   Term Loan     Loan       3M USD LIBOR+       4.00%       0.00     6.14     8/6/2025       2,481,250       2,470,436       2,462,641  

GI Revelation Acquisition LLC

  Services: Business   Term Loan     Loan       1M USD LIBOR+       5.00%       0.00     7.09     4/16/2025       1,238,120       1,232,754       1,204,852  

Gigamon Inc.

  Services: Business   Term Loan B     Loan       1M USD LIBOR+       4.25%       1.00     6.34     12/27/2024       1,970,000       1,953,934       1,910,900  

Global Tel*Link Corporation

  Telecommunications   Term Loan B     Loan       1M USD LIBOR+       4.25%       0.00     6.34     11/28/2025       3,055,102       3,055,102       2,913,040  

Go Wireless Inc.

  Telecommunications   Term Loan     Loan       1M USD LIBOR+       6.50%       1.00     8.59     12/22/2024       3,291,558       3,245,572       3,184,583  

GoodRX Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       1M USD LIBOR+       2.75%       0.00     4.84     10/10/2025       1,451,972       1,448,800       1,438,542  

Goodyear Tire & Rubber Company The

  Chemicals Plastics & Rubber   Second Lien Term Loan     Loan       1M USD LIBOR+       2.00%       0.00     4.09     3/7/2025       2,000,000       2,000,000       1,963,760  

Greenhill & Co. Inc.

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       3.25%       0.00     5.34     4/12/2024       2,000,000       1,990,493       1,979,160  

Grosvenor Capital Management Holdings LLLP

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       2.75%       1.00     4.84     3/28/2025       920,941       916,988       918,353  

Guidehouse LLP

  Aerospace & Defense   Term Loan     Loan       1M USD LIBOR+       3.00%       0.00     5.09     5/1/2025       1,980,000       1,975,788       1,960,200  

Harland Clarke Holdings Corp.

  Media: Advertising Printing & Publishing   Term Loan     Loan       3M USD LIBOR+       4.75%       1.00     6.89     11/3/2023       1,778,158       1,770,035       1,372,151  

HD Supply Waterworks Ltd.

  Construction & Building   Term Loan     Loan       3M USD LIBOR+       2.75%       1.00     4.89     8/1/2024       491,250       490,233       490,022  

Helix Acquisition Holdings Inc.

  Capital Equipment   Term Loan (2019 Incremental)     Loan       3M USD LIBOR+       3.75%       0.00     5.89     9/30/2024       2,992,500       2,935,481       2,895,244  

Helix Gen Funding LLC

  Energy: Electricity   Term Loan B (02/17)     Loan       1M USD LIBOR+       3.75%       1.00     5.84     6/3/2024       264,030       263,649       251,929  

HLF Financing SaRL LLC

  Consumer goods: Non-durable   Term Loan B (08/18)     Loan       1M USD LIBOR+       3.25%       0.00     5.34     8/18/2025       3,970,000       3,954,112       3,970,000  

Holley Purchaser Inc.

  Automotive   Term Loan B     Loan       3M USD LIBOR+       5.00%       0.00     7.14     10/24/2025       2,487,500       2,465,267       2,412,875  

Hostess Brands LLC

  Beverage Food & Tobacco   Cov-Lite Term Loan B     Loan       3M USD LIBOR+       2.25%       0.75     4.39     8/3/2022       1,460,321       1,457,435       1,457,196  

Hudson River Trading LLC

  Banking Finance Insurance & Real Estate   Term Loan B (10/18)     Loan       3M USD LIBOR+       3.50%       0.00     5.64     4/3/2025       4,458,819       4,436,871       4,456,946  

Hyperion Refinance S.a.r.l.

  Banking Finance Insurance & Real Estate   Tem Loan (12/17)     Loan       1M USD LIBOR+       3.50%       1.00     5.59     12/20/2024       1,718,505       1,710,015       1,715,497  

Idera Inc.

  High Tech Industries   Term Loan B     Loan       1M USD LIBOR+       4.50%       1.00     6.59     6/28/2024       2,954,812       2,932,840       2,942,491  

IG Investments Holdings LLC

  Services: Business   Term Loan     Loan       1M USD LIBOR+       4.00%       1.00     6.09     5/23/2025       1,386,218       1,380,076       1,372,647  

Inmar Inc.

  Services: Business   Term Loan B     Loan       3M USD LIBOR+       4.00%       1.00     6.14     5/1/2024       3,474,772       3,387,394       3,280,775  

ION Media Networks Inc.

  Media: Broadcasting & Subscription   Term Loan B     Loan       1M USD LIBOR+       3.00%       0.00     5.09     12/18/2024       1,000,000       995,006       998,440  

Isagenix International LLC

  Beverage Food & Tobacco   Term Loan     Loan       3M USD LIBOR+       5.75%       1.00     7.89     6/16/2025       2,874,359       2,823,488       2,208,456  

Jefferies Finance LLC / JFIN Co-Issuer Corp

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       3.75%       0.00     5.84     6/3/2026       2,000,000       1,995,247       1,994,380  

Jill Holdings LLC

  Retail   Term Loan (1st Lien)     Loan       3M USD LIBOR+       5.00%       1.00     7.14     5/9/2022       1,848,782       1,844,754       1,703,191  

JP Intermediate B LLC

  Consumer goods: Non-durable   Term Loan     Loan       3M USD LIBOR+       5.50%       1.00     7.64     11/20/2025       4,812,500       4,761,716       4,102,656  

Kinetic Concepts Inc.

  Healthcare & Pharmaceuticals   1/17 USD Term Loan     Loan       3M USD LIBOR+       3.25%       1.00     5.39     2/2/2024       2,352,000       2,344,109       2,353,176  

Lakeland Tours LLC

  Hotel Gaming & Leisure   Term Loan B     Loan       3M USD LIBOR+       4.00%       1.00     6.14     12/16/2024       2,469,988       2,462,133       2,475,126  

Lannett Company Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       1M USD LIBOR+       5.38%       1.00     7.47     11/25/2022       2,467,387       2,439,893       2,396,450  

Learfield Communications LLC

  Media: Advertising Printing & Publishing   Initial Term Loan (A-L Parent)     Loan       1M USD LIBOR+       3.25%       1.00     5.34     12/1/2023       487,500       485,952       488,261  

Lighthouse Network LLC

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       3M USD LIBOR+       4.50%       1.00     6.64     12/2/2024       3,398,250       3,386,881       3,391,895  

Lightstone Holdco LLC

  Energy: Electricity   Term Loan B     Loan       1M USD LIBOR+       3.75%       1.00     5.84     1/30/2024       1,322,520