UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 8-K

 

CURRENT REPORT

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

 

Date of report (Date of earliest event reported) May 23, 2011

 

SARATOGA INVESTMENT CORP.

(Exact Name of Registrant as Specified in Charter)

 

Maryland

 

1-33376

 

20-8700615

(State or Other Jurisdiction
of Incorporation)

 

(Commission
File Number)

 

(IRS Employer
Identification No.)

 

535 Madison Avenue

New York, New York

 

10022

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (212) 750-3343

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02.  Results of Operation and Financial Condition.

 

On May 23, 2011, the Registrant issued a press release announcing its financial results for the quarter and year ended February 28, 2011. The text of the press release is included as Exhibit 99.1 to this Form 8-K.

 

Item 9.01   Financial Statements and Exhibits

 

(a)

Not Applicable.

 

 

(b)

Not Applicable.

 

 

(c)

Not Applicable.

 

 

(d)

Exhibits

 

Exhibit
Number

 

Description

 

 

 

99.1

 

Press release dated May 23, 2011

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

SARATOGA INVESTMENT CORP.

 

 

 

Date:  May 23, 2011

 

 

 

 

 

 

By:

/s/ Richard A. Petrocelli

 

Name:

Richard A. Petrocelli

 

Title:

Chief Financial Officer

 

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Exhibit 99.1

 

 

 

Contact: Richard Petrocelli

Saratoga Investment Corp.

212-906-7800

 

Roland Tomforde

Broadgate Consultants

212-232-2222

 

Saratoga Investment Corp. Announces Fiscal Fourth Quarter and Year End 2011 Financial Results

 


 

NEW YORK, May 23, 2011 — Saratoga Investment Corp. (NYSE:SAR) (“Saratoga Investment” or “the Company”), a business development company, today announced financial results for its 2011 fiscal fourth quarter and year end.

 

Operating Results

 

For the fiscal year ended February 28, 2011, Saratoga Investment reported net investment income of $5.2 million, or $2.15 per share, and net gain on investments of $11.7 million, or $4.81 per share, resulting in a net increase in net assets from operations of $17.0 million, or $6.96 per share. The $11.7 million net gain on investments was comprised of $36.4 million in net unrealized appreciation on investments, partially offset by $24.7 million in net realized losses.

 

Net asset value was $86.1 million as of February 28, 2011, a substantial increase from the net asset value of $55.5 million as of February 28, 2010. The increase is a result of the $17.0 million net increase in net assets from operations for the 2011 fiscal year end and the $15.0 million equity contribution made in connection with the $55.0 million equity and debt recapitalization transaction undertaken by Saratoga Investment on July 30, 2010, partially offset by distributions to stockholders of $1.2 million in December.

 

Net asset value per share was $26.26 as of February 28, 2011.  Given the recapitalization transaction and the stock split and dividend effected by Saratoga Investment in the 2011 fiscal year, it is not meaningful for comparative purposes to present the net asset value per share for the 2010 fiscal year.

 



 

For the quarter ended February 28, 2011, Saratoga Investment reported net investment income of $0.8 million, or $0.25 per share, and net gain on investments of $3.5 million, or $1.06 per share, resulting in a net increase in net assets from operations of $4.3 million, or $1.31 per share. The $3.5 million net gain on investments was comprised of $11.9 million in net unrealized appreciation on investments, partially offset by $8.4 million in net realized losses on investments.

 

“Fiscal year 2011 has been an important year for us,” said Christian L. Oberbeck, Chairman, Chief Executive Officer and President of Saratoga Investment. “We are a stronger and healthier business now than we were 12 months ago.  Key performance metrics such as the increase in net assets resulting from operations and earnings per share are positive for the first time since the Company went public in 2007. We currently have the lowest total debt outstanding since our inception.  Our investment pipeline is substantial, and we expect to put meaningful capital to work in the near term. Combined with the continued credit market stabilization and the general improvement in the overall U.S. economy, we have good reason to be optimistic about our future prospects.”

 

Portfolio and Investment Activity

 

As of February 28, 2011, the fair value of Saratoga Investment’s investment portfolio was $80.0 million, principally invested in 24 portfolio companies and one collateralized loan obligation fund (“CLO”). The overall portfolio composition consisted of 23.1% of first lien term loans, 25.3% of second lien term loans, 12.4% of senior secured notes, 2.4% of unsecured notes, and 28.4% of subordinated notes of a CLO.

 

During the fiscal year 2011, Saratoga Investment invested $9.0 million in new or existing portfolio companies and had $32.0 million in aggregate amount of exits and repayments, resulting in net repayments of $23.0 million.

 

As of February 28, 2011, the weighted average current yield on Saratoga Investment’s first lien term loans, second lien term loans, senior secured notes, unsecured notes and the CLO subordinated notes were 9.5%, 10.1%, 15.9%, 13.8%, and 15.8%, respectively, which resulted in an aggregate weighted average current yield of 11.5%.

 

2



 

Liquidity and Capital Resources

 

As of February 28, 2011, Saratoga Investment had $4.5 million in outstanding borrowings under its $40 million senior secured revolving credit facility with Madison Capital Funding LLC.  In addition, Saratoga Investment had an aggregate of $15.1 million in cash and cash equivalents at February 28, 2011. Currently Saratoga Investment has no outstanding borrowings and has purchasing power of approximately $50 million.

 

Dividend

 

Given the size of Saratoga Investment’s asset base and its growing pipeline of attractive investments, the Company’s board of directors believes that using capital resources to build and diversify the portfolio best serves stockholders’ interests at this time by positioning the Company to generate current income and capital appreciation on an increasing scale in future periods. Therefore, the Company’s board of directors has determined not to pay a dividend at this time.

 

2011 Fiscal Fourth Quarter and Year End Conference Call/Webcast Information

 

When:  Monday, May 23, 2011 at 5:30 p.m.  Eastern Time (ET)

 

Call: Interested parties may participate by dialing (877) 312-9208 (U.S. and Canada) or (678) 224-7872 (outside U.S. and Canada).

 

A replay of the call will be available from 8:30 p.m. ET on Monday, May 23, 2011 through 11:59 p.m. ET on Monday, May 30, 2011 by dialing (800) 642-1687 (U.S. and Canada) or (706) 645-9291 (outside U.S. and Canada), passcode for both replay numbers: 70161742.

 

Webcast: Interested parties may also access a simultaneous webcast of the call by going to http://ir.saratogainvestmentcorp.com/events.cfm.

 

3



 

About Saratoga Investment Corp.

 

Saratoga Investment Corp. is a specialty finance company that invests primarily in leveraged loans and mezzanine debt issued by U.S. middle-market companies, both through direct lending and through participation in loan syndicates. It has elected to be regulated as a business development company under the Investment Company Act of 1940.  Saratoga Investment Corp. is traded on the New York Stock Exchange under the symbol “SAR.”

 

Forward-Looking Statements

 

This press release may contain certain forward-looking statements, including statements with regard to the future performance of Saratoga Investment Corp.  Words such as “believes,” “expects,” “projects,” “anticipates,” and “future” or similar expressions are intended to identify forward-looking statements.  These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions.  Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and these factors are identified from time to time in Saratoga Investment Corp.’s filings with the Securities and Exchange Commission.   Saratoga Investment Corp. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

4



 

Saratoga Investment Corp.

 

Consolidated Statements of Assets and Liabilities

 

 

 

As of

 

 

 

February 28, 2011

 

February 28, 2010

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Investments at fair value

 

 

 

 

 

Non-control/non-affiliate investments (amortized cost of $73,779,271 and $117,678,275, respectively)

 

$

57,292,723

 

$

72,674,847

 

Control investments (cost of $27,364,350 and $29,233,097, respectively)

 

22,732,038

 

16,698,303

 

Total investments at fair value (amortized cost of $101,143,621 and $146,911,372, respectively)

 

80,024,761

 

89,373,150

 

Cash and cash equivalents

 

10,735,755

 

3,352,434

 

Cash and cash equivalents, securitization accounts

 

4,369,987

 

225,424

 

Outstanding interest rate cap at fair value (cost of $131,000 and $131,000, respectively)

 

16,265

 

42,147

 

Interest receivable, (net of reserve of $14,796 and $2,120,309, respectively)

 

1,666,083

 

3,473,961

 

Deferred credit facility financing costs, net

 

1,638,768

 

 

Management fee receivable

 

231,753

 

327,928

 

Other assets

 

85,166

 

140,272

 

Total assets

 

$

98,768,538

 

$

96,935,316

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Revolving credit facility

 

$

4,500,000

 

$

36,992,222

 

Payable for unsettled trades

 

4,900,000

 

 

Management and incentive fees payable

 

2,203,806

 

3,071,093

 

Accounts payable and accrued expenses

 

785,486

 

1,111,081

 

Interest and credit facility fees payable

 

67,792

 

267,166

 

Due to manager

 

240,000

 

15,602

 

Total liabilities

 

$

12,697,084

 

$

41,457,164

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

Common stock, par value $.001 and $.001 per share, respectively, 100,000,000 common shares authorized, 3,277,077 and 1,694,011* common shares issued and outstanding, respectively

 

$

3,277

 

$

1,694

 

Capital in excess of par value

 

153,768,680

 

128,339,497

 

Distribution in excess of net investment income

 

(8,918,890

)

(2,846,135

)

Accumulated net realized loss from investments and derivatives

 

(37,548,016

)

(12,389,830

)

Net unrealized depreciation on investments and derivatives

 

(21,233,597

)

(57,627,074

)

Total Net Assets

 

86,071,454

 

55,478,152

 

Total liabilities and Net Assets

 

$

98,768,538

 

$

96,935,316

 

 

 

 

 

 

 

NET ASSET VALUE PER SHARE*

 

$

26.26

 

$

32.75

 

 


*Net Asset Value per share and end of period shares outstanding for the year ended February 28, 2010 has been adjusted to reflect a one-for-ten reverse stock split in

August 2010.

 

5



 

Saratoga Investment Corp.

 

Consolidated Statements of Operations

 

 

 

For the year ended

 

For the year ended

 

For the year ended

 

 

 

February 28, 2011

 

February 28, 2010

 

February 28, 2009

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME

 

 

 

 

 

 

 

Interest from investments

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

$

8,745,939

 

$

10,902,482

 

$

16,572,973

 

Control investments

 

3,295,359

 

2,397,514

 

4,393,818

 

Total interest income

 

12,041,298

 

13,299,996

 

20,966,791

 

Interest from cash and cash equivalents

 

8,857

 

23,624

 

175,567

 

Management fee income

 

2,032,357

 

2,057,397

 

2,049,717

 

Other income

 

90,503

 

236,259

 

195,135

 

Total investment income

 

14,173,015

 

15,617,276

 

23,387,210

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

Interest and credit facility financing expenses

 

2,611,839

 

4,096,041

 

2,605,367

 

Base management fees

 

1,645,552

 

1,950,760

 

2,680,231

 

Professional fees

 

3,325,475

 

2,071,027

 

1,166,111

 

Administrator expenses

 

810,416

 

670,720

 

960,701

 

Incentive management fees

 

1,868,503

 

327,684

 

1,752,254

 

Insurance

 

704,800

 

869,969

 

682,154

 

Directors fees and expenses

 

373,385

 

294,932

 

295,017

 

General & administrative

 

478,730

 

265,575

 

289,477

 

Expenses before expense waiver and reimbursement

 

11,818,700

 

10,546,708

 

10,431,312

 

Expense reimbursement

 

(258,562

)

(670,720

)

(1,010,416

)

Waiver of deferred incentive management fees

 

(2,636,146

)

 

 

Total expenses net of expense waiver and reimbursement

 

8,923,992

 

9,875,988

 

9,420,896

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME BEFORE INCOME TAXES

 

5,249,023

 

5,741,288

 

13,966,314

 

 

 

 

 

 

 

 

 

Income tax expense, including excise tax

 

 

(27,445

)

(140,322

)

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

5,249,023

 

5,713,843

 

13,825,992

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

 

 

 

 

 

 

 

Net realized loss from investments

 

(24,684,262

)

(6,653,983

)

(7,173,118

)

Net realized gain from derivatives

 

 

 

30,454

 

Net unrealized appreciation/(depreciation) on investments

 

36,419,362

 

(9,525,054

)

(27,961,244

)

Net unrealized appreciation/(depreciation) on derivatives

 

(25,882

)

2,634

 

(37,221

)

Net gain/(loss) on investments

 

11,709,218

 

(16,176,403

)

(35,141,129

)

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

16,958,241

 

$

(10,462,560

)

$

(21,315,137

)

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE*

 

$

6.96

 

$

(9.86

)

$

(25.71

)

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED*

 

2,437,577

 

1,061,351

 

829,138

 

 


*Earnings per share and Weighted average shares outstanding for the years ended February 28, 2010 and February 28, 2009 have been adjusted to reflect a one-for-ten reverse stock split in August 2010.

 

6