Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended November 30, 2012

 

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

 

Commission File Number: 1-33376

 

SARATOGA INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

 

Maryland

 

20-8700615

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

535 Madison Avenue
New York, New York

 

10022

(Address of principal executive office)

 

(Zip Code)

 

(212) 906-7800

(Registrant’s telephone number, including area code)

 

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large Accelerated Filer o

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer x

 

Smaller Reporting Company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of January 14, 2013 was 4,730,116.

 

 

 



Table of Contents

 

SARATOGA INVESTMENT CORP.

FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 2012

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Statements of Assets and Liabilities as of November 30, 2012 (unaudited) and February 29, 2012

3

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended November 30, 2012 and 2011 (unaudited)

4

 

 

 

 

Consolidated Schedules of Investments as of November 30, 2012 (unaudited) and February 29, 2012

5

 

 

 

 

Consolidated Statements of Changes in Net Assets for the nine months ended November 30, 2012 and 2011 (unaudited)

8

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended November 30, 2012 and 2011 (unaudited)

9

 

 

 

 

Notes to Consolidated Financial Statements as of November 30, 2012 (unaudited)

10

 

 

 

Item 2.

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

33

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

 

 

 

Item 4.

Controls and Procedures

47

 

 

 

PART II

OTHER INFORMATION

48

 

 

 

Item 1.

Legal Proceedings

48

 

 

 

Item 1A.

Risk Factors

48

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

 

 

 

Item 3.

Defaults upon Senior Securities

48

 

 

 

Item 4.

Mine Safety Disclosures

48

 

 

 

Item 5.

Other Information

48

 

 

 

Item 6.

Exhibits

48

 

 

 

Signatures

 

50

 

2



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Assets and Liabilities

 

 

 

As of

 

 

 

November 30, 2012

 

February 29, 2012

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Investments at fair value

 

 

 

 

 

Non-control/non-affiliate investments (amortized cost of $97,083,018 and $73,161,722, respectively)

 

$

94,649,656

 

$

69,513,434

 

Control investments (cost of $20,361,593 and $23,540,517, respectively)

 

24,641,107

 

25,846,414

 

Total investments at fair value (amortized cost of $117,444,611 and $96,702,239, respectively)

 

119,290,763

 

95,359,848

 

Cash and cash equivalents

 

2,494,552

 

1,325,698

 

Cash and cash equivalents, reserve accounts

 

3,787,183

 

25,534,195

 

Outstanding interest rate cap at fair value (cost of $0 and $131,000, respectively)

 

 

75

 

Interest receivable, (net of reserve of $228,113 and $273,361, respectively)

 

1,906,186

 

1,689,404

 

Deferred credit facility financing costs, net

 

1,453,985

 

1,199,490

 

Management fee receivable

 

216,947

 

227,581

 

Other assets

 

18,973

 

94,823

 

Receivable from unsettled trades

 

 

59,511

 

Total assets

 

$

129,168,589

 

$

125,490,625

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Revolving credit facility

 

$

14,850,000

 

$

20,000,000

 

SBA debentures payable

 

4,000,000

 

 

Payable for unsettled trades

 

 

4,072,500

 

Dividend payable

 

3,295,306

 

 

Management and incentive fees payable

 

3,364,719

 

2,885,670

 

Accounts payable and accrued expenses

 

508,042

 

704,949

 

Interest and credit facility fees payable

 

140,424

 

53,262

 

Due to manager

 

117,877

 

394,094

 

Total liabilities

 

$

26,276,368

 

$

28,110,475

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

Common stock, par value $.001, 100,000,000 common shares authorized, 4,730,116 and 3,876,661 common shares issued and outstanding, respectively

 

$

4,730

 

$

3,877

 

Capital in excess of par value

 

174,824,076

 

161,644,426

 

Distribution in excess of net investment income

 

(25,319,688

)

(13,920,068

)

Accumulated net realized loss from investments and derivatives

 

(48,463,047

)

(48,874,767

)

Net unrealized appreciation (depreciation) on investments and derivatives

 

1,846,150

 

(1,473,318

)

Total Net Assets

 

102,892,221

 

97,380,150

 

 

 

 

 

 

 

Total liabilities and Net Assets

 

$

129,168,589

 

$

125,490,625

 

 

 

 

 

 

 

NET ASSET VALUE PER SHARE

 

$

21.75

 

$

25.12

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Operations

 

 

 

For the three months ended
November 30,

 

For the nine months ended
November 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

Interest from investments

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

$

2,466,595

 

$

1,877,650

 

$

6,951,338

 

$

5,212,182

 

Control investments

 

1,046,285

 

1,155,241

 

3,186,751

 

3,095,304

 

Total interest income

 

3,512,880

 

3,032,891

 

10,138,089

 

8,307,486

 

Interest from cash and cash equivalents

 

731

 

1,567

 

5,368

 

6,815

 

Management fee income

 

500,454

 

501,920

 

1,500,519

 

1,512,091

 

Other income

 

19,750

 

92,671

 

172,310

 

238,579

 

Total investment income

 

4,033,815

 

3,629,049

 

11,816,286

 

10,064,971

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

Interest and credit facility financing expenses

 

529,858

 

307,221

 

1,808,586

 

987,042

 

Base management fees

 

528,735

 

393,888

 

1,492,345

 

1,203,820

 

Professional fees

 

347,459

 

356,144

 

986,781

 

1,282,009

 

Administrator expenses

 

250,000

 

250,000

 

750,000

 

730,000

 

Incentive management fees

 

(412,654

)

1,178,750

 

887,020

 

842,097

 

Insurance

 

128,891

 

145,105

 

389,506

 

448,786

 

Directors fees and expenses

 

53,705

 

51,000

 

155,705

 

153,000

 

General & administrative

 

117,357

 

121,019

 

265,720

 

290,232

 

Other expense

 

1,311

 

2,150

 

4,434

 

5,340

 

Total expenses

 

1,544,662

 

2,805,277

 

6,740,097

 

5,942,326

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

2,489,153

 

823,772

 

5,076,189

 

4,122,645

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

 

 

 

 

 

 

 

 

 

Net realized gain (loss) from investments

 

95,372

 

(5,831,905

)

542,720

 

(5,839,864

)

Net realized loss from derivatives

 

 

 

(131,000

)

 

Net unrealized appreciation (depreciation) on investments

 

(1,838,957

)

11,221,387

 

3,188,543

 

11,927,052

 

Net unrealized appreciation (depreciation) on derivatives

 

 

166

 

130,925

 

(15,108

)

Net gain (loss) on investments

 

(1,743,585

)

5,389,648

 

3,731,188

 

6,072,080

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

745,568

 

$

6,213,420

 

$

8,807,377

 

$

10,194,725

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

 

$

0.19

 

$

1.88

 

$

2.25

 

$

3.10

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED

 

3,970,447

 

3,310,021

 

3,907,696

 

3,287,979

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Schedule of Investments

 

November 30, 2012

(unaudited)

 

Company (a)

 

Industry

 

Investment Interest
Rate/Maturity

 

Principal/
Number of Shares

 

Cost

 

Fair Value (c)

 

% of
Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments - 92.0% (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coast Plating, Inc. (d)

 

Aerospace

 

First Lien Term Loan
11.71% Cash, 9/13/2014

 

$

2,550,000

 

$

2,550,000

 

$

2,550,000

 

2.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coast Plating, Inc. (d)

 

Aerospace

 

First Lien Term Loan
12.46% Cash, 9/13/2014

 

$

950,000

 

950,000

 

950,000

 

0.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Aerospace

 

 

 

3,500,000

 

3,500,000

 

3.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Truck Protection Co., Inc. (d, h)

 

Automotive

 

Common Stock

 

589

 

500,000

 

564,507

 

0.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Truck Protection Co., Inc. (d)

 

Automotive

 

First Lien Term Loan, 15.50% Cash, 8/10/2017

 

$

5,500,000

 

5,500,000

 

5,500,000

 

5.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Take 5 Oil Change, L.L.C. (d)

 

Automotive

 

First Lien Term Loan
9.00% Cash, 11/28/2016

 

$

6,400,000

 

6,400,000

 

6,400,000

 

6.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Take 5 Oil Change, L.L.C. (d, h)

 

Automotive

 

Common Stock

 

7,128

 

712,800

 

742,738

 

0.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Automotive

 

 

 

13,112,800

 

13,207,245

 

12.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Cabinets Holdings (d, h)

 

Building Products

 

Common Stock Voting A-1

 

2,535

 

220,900

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Cabinets Holdings (d, h)

 

Building Products

 

Common Stock  Voting B-1

 

1,600

 

139,424

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Cabinets, Inc. (d)

 

Building Products

 

First Lien Term Loan
7.25% (1.00% Cash/6.25% PIK), 5/3/2014

 

$

326,980

 

326,980

 

255,731

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Building Products

 

 

 

687,304

 

255,731

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Knowland Technology Holdings, L.L.C. (d)

 

Business Services

 

First Lien Term Loan
11.00% Cash, 11/29/2017

 

$

6,200,000

 

6,076,136

 

6,200,000

 

6.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sourcehov LLC (d)

 

Business Services

 

Second Lien Term Loan
10.50% Cash, 4/30/2018

 

$

3,000,000

 

2,631,515

 

2,715,000

 

2.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Business Services

 

 

 

8,707,651

 

8,915,000

 

8.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C.H.I. Overhead Doors, Inc. (CHI) (d)

 

Consumer Products

 

First Lien Term Loan
7.25% Cash, 8/17/2017

 

$

4,987,374

 

4,940,497

 

4,987,374

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Group International, Inc. (d)

 

Consumer Products

 

First Lien Term Loan
11.00% Cash, 5/24/2016

 

$

3,950,000

 

3,894,385

 

3,959,875

 

3.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Holdings, Inc. (d)

 

Consumer Products

 

Unsecured Notes
10.00% PIK, 6/14/2019

 

$

1,799,479

 

1,799,479

 

1,027,683

 

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Holdings, Inc. (d)

 

Consumer Products

 

Unsecured Notes
16.00% Cash, 10/26/2018

 

$

319,711

 

312,359

 

292,631

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Holdings, Inc. (d, h)

 

Consumer Products

 

Common Stock

 

62,413

 

566,765

 

3,731,673

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Consumer Products

 

 

 

11,513,485

 

13,999,236

 

13.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFF Acquisition LLC (d)

 

Consumer Services

 

First Lien Term Loan
7.50% Cash, 7/31/2015

 

$

2,435,516

 

2,274,911

 

2,353,439

 

2.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PrePaid Legal Services, Inc. (d)

 

Consumer Services

 

First Lien Term Loan
11.00% Cash, 12/31/2016

 

$

3,000,000

 

2,932,804

 

2,919,900

 

2.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Consumer Services

 

 

 

5,207,715

 

5,273,339

 

5.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M/C Acquisition Corp., LLC (d)

 

Education

 

First Lien Term Loan
8.75% (6.75% Cash/2.00% PIK), 12/31/2012

 

$

2,780,315

 

1,626,380

 

323,629

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M/C Acquisition Corp., LLC (d, h)

 

Education

 

Class A Common Stock

 

544,761

 

30,242

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Education

 

 

 

1,656,622

 

323,629

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group Dekko, Inc. (d)

 

Electronics

 

Second Lien Term Loan
10.50% (6.50% Cash/4.00% PIK), 5/1/2013

 

$

7,804,794

 

7,804,794

 

7,323,238

 

7.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Electronics

 

 

 

7,804,794

 

7,323,238

 

7.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USS Parent Holding Corp. (d, h)

 

Environmental

 

Non Voting Common Stock

 

765

 

133,002

 

115,681

 

0.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USS Parent Holding Corp. (d, h)

 

Environmental

 

Voting Common Stock

 

17,396

 

3,025,798

 

2,631,735

 

2.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Environmental

 

 

 

3,158,800

 

2,747,416

 

2.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DS Waters of America, Inc. (d)

 

Food and Beverage

 

First Lien Term Loan
10.50% Cash, 8/29/2017

 

$

3,980,000

 

4,006,126

 

4,089,450

 

4.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HOA Restaurant Group, LLC. (d)

 

Food and Beverage

 

Senior Secured Notes
11.25% Cash, 4/1/2017

 

$

4,000,000

 

3,892,643

 

3,560,000

 

3.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TM Restaurant Group LLC (d)

 

Food and Beverage

 

First Lien Term Loan
7.75% Cash, 7/16/2017

 

$

2,981,250

 

2,960,569

 

2,977,672

 

2.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Food and Beverage

 

 

 

10,859,338

 

10,627,122

 

10.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maverick Healthcare Group (d)

 

Healthcare Services

 

First Lien Term Loan
10.75% Cash, 12/31/2016

 

$

4,912,500

 

4,843,563

 

4,887,937

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Healthcare Services

 

 

 

4,843,563

 

4,887,937

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

McMillin Companies LLC (d, h)

 

Homebuilding

 

Senior Secured Notes
0% Cash, 12/31/2013

 

$

550,000

 

530,535

 

289,465

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Homebuilding

 

 

 

530,535

 

289,465

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capstone Logistics, LLC (d)

 

Logistics

 

First Lien Term Loan
7.50% Cash, 9/16/2016

 

$

987,809

 

976,102

 

987,809

 

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capstone Logistics, LLC (d)

 

Logistics

 

First Lien Term Loan
13.50% Cash, 9/16/2016

 

$

4,000,000

 

3,952,596

 

4,000,000

 

3.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Worldwide Express Operations, LLC (d)

 

Logistics

 

First Lien Term Loan
7.50% Cash, 6/30/2013

 

$

6,546,441

 

6,430,154

 

6,465,920

 

6.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Logistics

 

 

 

11,358,852

 

11,453,729

 

11.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elyria Foundry Company, LLC (d)

 

Metals

 

Senior Secured Notes
17.00% (13.00% Cash/4.00% PIK), 3/1/2013

 

$

7,728,566

 

7,657,604

 

6,641,156

 

6.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elyria Foundry Company, LLC (d, h)

 

Metals

 

Warrants to Purchase Limited Liability Company Interests

 

3,000

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Metals

 

 

 

7,657,604

 

6,641,156

 

6.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Communications, Inc. (d)

 

Publishing

 

Unsecured Notes
8.60% PIK, 1/14/2020

 

$

2,494,810

 

2,042,031

 

920,585

 

0.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Communications, Inc. (d, h)

 

Publishing

 

Common Stock

 

211,429

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Penton Media, Inc. (d)

 

Publishing

 

First Lien Term Loan
5.00% Cash, 8/1/2014

 

$

4,838,880

 

4,441,924

 

4,284,828

 

4.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Publishing

 

 

 

6,483,955

 

5,205,413

 

5.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

97,083,018

 

94,649,656

 

92.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Control investments - 23.9% (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP (g, h)

 

Financial Services

 

100% General
Partnership Interest

 

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Investment Corp. CLO 2007 LTD. (d, e, g)

 

Structured Finance Securities

 

Other/Structured
Finance Securities
18.81%, 1/21/2020

 

$

30,000,000

 

20,361,593

 

24,641,107

 

23.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control investments

 

 

 

 

 

 

 

20,361,593

 

24,641,107

 

23.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 0.0% (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP (f, h)

 

Financial Services

 

6.24% Limited
Partnership Interest

 

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

 

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS - 115.9% (b)

 

 

 

 

 

 

 

$

117,444,611

 

$

119,290,763

 

115.9

%

 


(a)  All of our equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except GSC Investment Corp. CLO 2007 Ltd. and GSC Partners CDO GP III, LP.

(b)  Percentages are based on net assets of $102,892,221 as of November 30, 2012.

(c)  Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors. (see Note 3 to the consolidated financial statements).

(d)  These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).

(e) 18.81% represents the modeled effective interest rate that is expected to be earned over the life of the investment.

(f)  As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

 

 

 

 

 

 

 

 

 

Interest

 

Management

 

Net Realized

 

Net Unrealized

 

Company

 

Purchases

 

Redemptions

 

Sales (cost)

 

Income

 

fee income

 

gains/(losses)

 

gains/(losses)

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(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 period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

 

 

 

 

 

 

 

 

Interest

 

Management

 

Net Realized

 

Net Unrealized

 

Company

 

Purchases

 

Redemptions

 

Sales (cost)

 

Income

 

fee income

 

gains/(losses)

 

gains/(losses)

 

GSC Investment Corp. CLO 2007 LTD.

 

$

 

$

 

$

 

$

3,186,751

 

$

1,500,519

 

$

 

$

4,279,514

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(h) Non-income producing at November 30, 2012.

 

5



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Schedule of Investments

 

February 29, 2012

 

Company(a)

 

Industry

 

Investment Interest Rate/Maturity

 

Principal/
Number of
Shares

 

Cost

 

Fair Value(c)

 

% of
Net
Assets

 

Non-control/Non-affiliated investments—71.4%(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

Coast Plating, Inc.(d)

 

Aerospace

 

First Lien Term Loan 11.77% Cash, 9/13/2014

 

$

2,550,000

 

$

2,550,000

 

$

2,550,000

 

2.6

%

Coast Plating, Inc.(d)

 

Aerospace

 

First Lien Term Loan 12.52% Cash, 9/13/2014

 

$

950,000

 

950,000

 

950,000

 

1.0

%

 

 

 

 

Total Aerospace

 

 

 

3,500,000

 

3,500,000

 

3.6

%

Legacy Cabinets Holdings(d)(h)

 

Building Products

 

Common Stock Voting A-1

 

2,535

 

220,900

 

 

0.0

%

Legacy Cabinets Holdings(d)(h)

 

Building Products

 

Common Stock Voting B-1

 

1,600

 

139,424

 

 

0.0

%

Legacy Cabinets, Inc.(d)

 

Building Products

 

First Lien Term Loan 7.25% (1.00% Cash/6.25% PIK), 5/3/2014

 

$

312,198

 

312,198

 

221,629

 

0.2

%

 

 

 

 

Total Building Products

 

 

 

672,522

 

221,629

 

0.2

%

Targus Group International, Inc.(d)

 

Consumer Products

 

First Lien Term Loan 11.00% Cash, 5/24/2016

 

$

3,980,000

 

3,911,828

 

3,944,976

 

4.1

%

Targus Holdings, Inc.(d)

 

Consumer Products

 

Unsecured Notes 10.00% PIK, 6/14/2019

 

$

1,799,479

 

1,799,479

 

963,621

 

1.0

%

Targus Holdings, Inc.(d)(h)

 

Consumer Products

 

Common Stock

 

62,413

 

566,765

 

2,675,645

 

2.7

%

 

 

 

 

Total Consumer Products

 

 

 

6,278,072

 

7,584,242

 

7.8

%

CFF Acquisition LLC(d)

 

Consumer Services

 

First Lien Term Loan 7.50% Cash, 7/31/2015

 

$

2,684,141

 

2,462,831

 

2,448,205

 

2.5

%

PrePaid Legal Services, Inc.(d)

 

Consumer Services

 

First Lien Term Loan 11.00% Cash, 12/31/2016

 

$

3,000,000

 

2,920,411

 

2,940,000

 

3.0

%

 

 

 

 

Total Consumer Services

 

 

 

5,383,242

 

5,388,205

 

5.5

%

M/C Acquisition Corp., LLC(d)

 

Education

 

First Lien Term Loan 10.00% (4.25% Cash/5.75% PIK), 12/31/2012

 

$

2,944,596

 

1,790,662

 

591,864

 

0.6

%

M/C Acquisition Corp., LLC(d)(h)

 

Education

 

Class A Common Stock

 

544,761

 

30,242

 

 

0.0

%

 

 

 

 

Total Education

 

 

 

1,820,904

 

591,864

 

0.6

%

Advanced Lighting Technologies, Inc.(d)

 

Electronics

 

Second Lien Term Loan 6.25% Cash, 6/1/2014

 

$

2,000,000

 

1,902,053

 

1,910,400

 

2.0

%

Group Dekko, Inc.(d)

 

Electronics

 

Second Lien Term Loan 10.50% (6.50% Cash/4.00% PIK), 5/1/2013

 

$

7,571,152

 

7,571,152

 

7,003,316

 

7.2

%

 

 

 

 

Total Electronics

 

 

 

9,473,205

 

8,913,716

 

9.2

%

USS Parent Holding Corp.(d)(h)

 

Environmental

 

Non Voting Common Stock

 

765

 

133,002

 

97,810

 

0.1

%

USS Parent Holding Corp.(d)(h)

 

Environmental

 

Voting Common Stock

 

17,396

 

3,025,798

 

2,225,180

 

2.3

%

 

 

 

 

Total Environmental

 

 

 

3,158,800

 

2,322,990

 

2.4

%

DCS Business Services, Inc.(d)

 

Financial Services

 

First Lien Term Loan 14.00% Cash, 9/30/2012

 

$

1,600,000

 

1,604,464

 

1,600,000

 

1.6

%

Big Train, Inc.(d)

 

Food and Beverage

 

First Lien Term Loan 7.75% Cash, 3/31/2012

 

$

1,406,768

 

1,389,640

 

1,368,785

 

1.4

%

HOA Restaurant Group, LLC.(d)

 

Food and Beverage

 

Senior Secured Notes 11.25% Cash, 4/1/2017

 

$

4,000,000

 

3,880,000

 

3,880,000

 

4.0

%

 

 

 

 

Total Food and Beverage

 

 

 

5,269,640

 

5,248,785

 

5.4

%

Maverick Healthcare Group(d)

 

Healthcare Services

 

First Lien Term Loan 10.75% Cash, 12/31/2016

 

$

4,950,000

 

4,867,725

 

4,824,270

 

5.0

%

McMillin Companies LLC(d)(h)

 

Homebuilding

 

Senior Secured Notes 0% Cash, 12/31/2013

 

$

550,000

 

511,952

 

288,915

 

0.3

%

Capstone Logistics, LLC(d)

 

Logistics

 

First Lien Term Loan 7.50% Cash, 9/16/2016

 

$

997,118

 

982,954

 

997,118

 

1.0

%

Capstone Logistics, LLC(d)

 

Logistics

 

First Lien Term Loan 13.50% Cash, 9/16/2016

 

$

4,000,000

 

3,943,183

 

4,000,000

 

4.1

%

Worldwide Express Operations, LLC(d)

 

Logistics

 

First Lien Term Loan 7.50% Cash, 6/30/2013

 

$

6,680,276

 

6,412,355

 

6,103,100

 

6.3

%

 

 

 

 

Total Logistics

 

 

 

11,338,492

 

11,100,218

 

11.4

%

Sabre Industries, Inc(d)

 

Manufacturing

 

Senior Unsecured Loan 15.00% (12.00% Cash/3.00% PIK), 6/6/2016

 

$

6,000,000

 

5,852,741

 

6,000,000

 

6.2

%

Elyria Foundry Company, LLC(d)

 

Metals

 

Senior Secured Notes 17.00% (13.00% Cash/4.00% PIK), 3/1/2013

 

$

7,428,456

 

7,224,787

 

6,537,041

 

6.7

%

Elyria Foundry Company, LLC(d)(h)

 

Metals

 

Warrants to Purchase Limited Liability Company Interests

 

3,000

 

 

 

0.0

%

 

 

 

 

Total Metals

 

 

 

7,224,787

 

6,537,041

 

6.7

%

Network Communications, Inc.(d)

 

Publishing

 

Unsecured Notes 8.60% PIK, 1/14/2020

 

$

2,422,095

 

1,924,577

 

1,044,892

 

1.0

%

Network Communications, Inc.(d)(h)

 

Publishing

 

Common Stock

 

211,429

 

 

691,373

 

0.7

%

Penton Media, Inc.(d)

 

Publishing

 

First Lien Term Loan 5.00% (4.00% Cash/ 1.00% PIK), 8/1/2014

 

$

4,839,526

 

4,280,599

 

3,655,294

 

3.8

%

 

 

 

 

Total Publishing

 

 

 

6,205,176

 

5,391,559

 

5.5

%

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

73,161,722

 

69,513,434

 

71.4

%

Control investments—26.5%(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP(g)(h)

 

Financial Services

 

100% General Partnership Interest

 

 

 

 

0.0

%

GSC Investment Corp. CLO 2007 LTD.(d)(e)(g)

 

Structured Finance Securities

 

Other/Structured Finance Securities 17.38%, 1/21/2020

 

$

30,000,000

 

23,540,517

 

25,846,414

 

26.5

%

Sub Total Control investments

 

 

 

 

 

 

 

23,540,517

 

25,846,414

 

26.5

%

Affiliate investments—0.0%(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP(f)(h)

 

Financial Services

 

6.24% Limited Partnership Interest

 

 

 

 

0.0

%

Sub Total Affiliate investments

 

 

 

 

 

 

 

 

 

0.0

%

TOTAL INVESTMENTS—97.9%(b)

 

 

 

 

 

 

 

$

96,702,239

 

$

95,359,848

 

97.9

%

 

6



Table of Contents

 

Outstanding interest rate cap

 

Interest
rate

 

Maturity

 

Notional

 

Cost

 

Fair
Value

 

% of
Net
Assets

 

Interest rate cap

 

8.0

%

2/9/2014

 

$

19,591,837

 

$

87,000

 

$

54

 

0.0

%

Interest rate cap

 

8.0

%

11/30/2013

 

10,332,000

 

44,000

 

21

 

0.0

%

Total Outstanding interest rate cap

 

 

 

 

 

 

 

$

131,000

 

$

75

 

0.0

%

 


*

Amounts to less than 0.05%

 

 

(a)

All of our equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except GSC Investment Corp. CLO 2007 Ltd. and GSC Partners CDO GP III, LP.

 

 

(b)

Percentages are based on net assets of $97,380,150 as of February 29, 2012.

(c)

Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors. (see Note 3 to the consolidated financial statements).

 

 

(d)

These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).

 

 

(e)

17.38% represents the modeled effective interest rate that is expected to be earned over the life of the investment.

 

 

(f)

As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

 

Company

 

Purchases

 

Redemptions

 

Sales
(cost)

 

Interest
Income

 

Management
fee income

 

Net Realized
gains/(losses)

 

Net
Unrealized
gains/(losses)

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(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 period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

Company

 

Purchases

 

Redemptions

 

Sales
(cost)

 

Interest
Income

 

Management
fee income

 

Net Realized
gains/(losses)

 

Net
Unrealized
gains/(losses)

 

GSC Investment Corp. CLO 2007 LTD.

 

$

 

$

 

$

 

$

4,198,007

 

$

2,011,516

 

$

 

$

6,938,209

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(h)

Non-income producing at February 29, 2012.

 

7



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Changes in Net Assets

 

 

 

For the nine months ended
November 30, 2012

 

For the nine months ended
November 30, 2011

 

 

 

(unaudited)

 

(unaudited)

 

INCREASE FROM OPERATIONS:

 

 

 

 

 

Net investment income

 

$

5,076,189

 

$

4,122,645

 

Net realized gain (loss) from investments

 

542,720

 

(5,839,864

)

Net realized loss from derivatives

 

(131,000

)

 

Net unrealized appreciation on investments

 

3,188,543

 

11,927,052

 

Net unrealized appreciation (depreciation) on derivatives

 

130,925

 

(15,108

)

Net increase in net assets from operations

 

8,807,377

 

10,194,725

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

 

 

 

 

 

Distributions declared

 

(16,475,809

)

(9,831,231

)

Net decrease in net assets from shareholder distributions

 

(16,475,809

)

(9,831,231

)

CAPITAL SHARE TRANSACTIONS:

 

 

 

 

 

Stock dividend distribution

 

13,180,503

 

7,864,784

 

Net increase in net assets from capital share transactions

 

13,180,503

 

7,864,784

 

 

 

 

 

 

 

Total increase in net assets

 

5,512,071

 

8,228,278

 

Net assets at beginning of period

 

97,380,150

 

86,071,454

 

Net assets at end of period

 

$

102,892,221

 

$

94,299,732

 

 

 

 

 

 

 

Net asset value per common share

 

$

21.75

 

$

24.32

 

Common shares outstanding at end of period

 

4,730,116

 

3,876,661

 

 

 

 

 

 

 

Distribution in excess of net investment income

 

$

(25,319,688

)

$

(14,627,476

)

 

See accompanying notes to consolidated financial statements.

 

8



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Cash Flows

 

 

 

For the nine months ended
November 30, 2012

 

For the nine months ended
November 30, 2011

 

 

 

(unaudited)

 

(unaudited)

 

Operating activities

 

 

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

 

$

8,807,377

 

$

10,194,725

 

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

 

 

 

 

 

Paid-in-kind interest income

 

(821,830

)

(1,188,674

)

Net accretion of discount on investments

 

(710,418

)

(1,002,986

)

Amortization of deferred credit facility financing costs

 

342,505

 

510,376

 

Net realized (gain) loss from investments

 

(542,720

)

5,839,864

 

Net realized loss from derivatives

 

131,000

 

 

Net unrealized appreciation on investments

 

(3,188,543

)

(11,927,052

)

Net unrealized (appreciation) depreciation on derivatives

 

(130,925

)

15,108

 

Proceeds from sale and redemption of investments

 

15,990,963

 

31,873,349

 

Purchase of investments

 

(34,658,367

)

(28,948,936

)

(Increase) decrease in operating assets:

 

 

 

 

 

Cash and cash equivalents, reserve accounts

 

21,747,012

 

3,536,441

 

Interest receivable

 

(216,782

)

370,286

 

Management fee receivable

 

10,634

 

4,291

 

Other assets

 

75,850

 

(2,880,897

)

Receivable from unsettled trades

 

59,511

 

 

Increase (decrease) in operating liabilities:

 

 

 

 

 

Payable for unsettled trades

 

(4,072,500

)

(4,900,000

)

Management and incentive fees payable

 

479,049

 

287,095

 

Accounts payable and accrued expenses

 

(196,907

)

(99,496

)

Interest and credit facility fees payable

 

87,162

 

(21,959

)

Due to manager

 

(276,217

)

44,580

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

2,915,854

 

1,706,115

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Borrowings on debt

 

7,350,000

 

 

Paydowns on debt

 

(8,500,000

)

(4,500,000

)

Credit facility financing cost

 

(597,000

)

 

NET CASH USED BY FINANCING ACTIVITIES

 

(1,747,000

)

(4,500,000

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

1,168,854

 

(2,793,885

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

1,325,698

 

10,735,755

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

2,494,552

 

$

7,941,870

 

 

 

 

 

 

 

Supplemental Information:

 

 

 

 

 

Interest paid during the period

 

$

1,378,919

 

$

498,625

 

 

 

 

 

 

 

Supplemental non-cash information:

 

 

 

 

 

Paid-in-kind interest income

 

$

821,830

 

$

1,188,674

 

Net accretion of discount on investments

 

$

710,418

 

$

1,002,986

 

Amortization of deferred credit facility financing costs

 

$

342,505

 

$

510,376

 

Stock dividend distribution

 

$

13,180,503

 

$

7,864,784

 

Cash dividend payable

 

$

3,295,306

 

$

1,966,447

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

SARATOGA INVESTMENT CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

November 30, 2012

 

(unaudited)

 

Note 1. Organization and Basis of Presentation

 

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”). We commenced operations on March 23, 2007 as GSC Investment Corp. and completed our initial public offering (“IPO”) on March 28, 2007. We have elected to be treated as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code (the “Code”). We expect to continue to qualify and to elect to be treated for tax purposes as a RIC. Our investment objective is to generate current income and, to a lesser extent, capital appreciation from our 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 conjunction with the transaction described in “Note 12. Recapitalization Transaction” below.

 

We are externally managed and advised by our investment adviser, Saratoga Investment Advisors, LLC (the “Manager”), pursuant to an investment advisory and management agreement. Prior to July 30, 2010, we were managed and advised by GSCP (NJ), L.P.

 

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”).

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, Saratoga Investment Funding, LLC (previously known as GSC Investment Funding LLC) and SBIC LP. 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.

 

Note 2. Summary of Significant Accounting Policies

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of the accompanying consolidated financial statements in conformity with 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. Pursuant to 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:

 

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·                  we were to own more than 3% 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% of the value of our total assets; 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% of the value of our total assets.

 

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 our $45 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.

 

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% of the voting securities or maintain greater than 50% 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% and 25% 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that its investments are to be sold at the statement of assets and liabilities date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

 

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

 

We undertake 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 our Manager and preliminary valuation conclusions are documented and discussed with the senior management of our Manager; and

 

·                  An independent valuation firm engaged by our board of directors reviews approximately one quarter 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 annually.

 

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

 

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·                  The audit committee of our board of directors reviews 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.

 

Our investment in GSC Investment Corp. CLO 2007, 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 rate 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. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flows 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. Our 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

 

We account for derivative financial instruments in accordance with 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 amortizations of premium on investments.

 

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest 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.

 

Interest income on our investment in Saratoga CLO is recorded using the effective interest method in accordance with the provisions of ASC Topic 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, 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.

 

Paid-in-Kind Interest

 

The Company holds debt 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

 

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maturity, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We stop accruing PIK interest if we do not expect the issuer to be able to pay all principal and interest when due.

 

Deferred Credit Facility Financing Costs

 

Financing costs incurred in connection with our credit facility are deferred and amortized using the straight line method over the life of the facility.

 

Contingencies

 

In the ordinary course of its 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.

 

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 filed an election to be treated for tax purposes as a RIC under Subchapter M of 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 the obligation to pay federal income taxes.

 

In order to qualify as a RIC, among other requirements, the Company is required to timely distribute to its stockholders at least 90% 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% on undistributed income if it does not distribute at least 98% 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% 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 Treasury regulations and private letter rulings issued by the Internal Revenue Service, 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% 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% 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.

 

ASC 740, Income Taxes 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 in the consolidated statement of operations. As of November 30, 2012 and February 29, 2012, there were no uncertain tax positions.

 

Dividends

 

Dividends to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is approved 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 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 our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends. If our common stock is trading below net asset value at the time of valuation, the plan administrator may receive the dividend or distribution in cash and purchase common stock in the open market, on the New York Stock Exchange or elsewhere, for the account of each participant in our dividend reinvestment plan.

 

Capital Gains Incentive Fee

 

The Company records an expense accrual relating to the capital gains incentive fee payable by the Company to its investment adviser when the unrealized gains on its investments exceed all realized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the investment adviser if the Company were to liquidate its investment portfolio at such time.  The actual incentive fee payable to the Company’s investment adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains for the period.

 

New Accounting Pronouncements

 

In December 2011, the FASB issued (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which requires entities to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented. The adoption of this guidance, which is related to disclosure only, is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

Risk Management

 

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

 

Credit risk is the risk of default or non-performance by portfolio companies, equivalent to the investment’s carrying amount.

 

The Company is also exposed to credit risk related to maintaining all of its cash and cash equivalents, including those in reserve accounts, at a major financial institution and credit risk related to any of its derivative counterparties.

 

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

 

Note 3. Investments

 

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

 

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

 

Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability

 

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Table of Contents

 

of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

 

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

 

·                  Level 2—Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.

 

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

 

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

 

The following table presents fair value measurements of investments, by major class, as of November 30, 2012 (dollars in thousands), according to the fair value hierarchy:

 

 

 

Fair Value Measurements

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

First lien term loans

 

$

 

$

 

$

64,094

 

$

64,094

 

Second lien term loans

 

 

 

10,038

 

10,038

 

Senior secured notes

 

 

 

10,491

 

10,491

 

Unsecured notes

 

 

 

2,241

 

2,241

 

Structured finance securities

 

 

 

24,641

 

24,641

 

Equity interests

 

 

 

7,786

 

7,786

 

Limited partnership interests

 

 

 

 

 

Total

 

$

 

$

 

$

119,291

 

$

119,291

 

 

The following table presents fair value measurements of investments, by major class, as of February 29, 2012 (dollars in thousands), according to the fair value hierarchy:

 

 

 

Fair Value Measurements

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

First lien term loans

 

$

 

$

 

$

36,196

 

$

36,196

 

Second lien term loans

 

 

 

8,914

 

8,914

 

Senior secured notes

 

 

 

10,706

 

10,706

 

Senior unsecured loans

 

 

 

6,000

 

6,000

 

Unsecured notes

 

 

 

2,008

 

2,008

 

Structured finance securities

 

 

 

25,846

 

25,846

 

Equity interests

 

 

 

5,690

 

5,690

 

Limited partnership interests

 

 

 

 

 

Total

 

$

 

$

 

$

95,360

 

$

95,360

 

 

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Table of Contents

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine months ended November 30, 2012 (dollars in thousands):

 

 

 

First lien
term loans

 

Second lien
term loans

 

Senior
secured
notes

 

Senior
unsecured
loans

 

Unsecured
notes

 

Structured
finance
securities

 

Common
stock/equities

 

Total

 

Balance as of February 29, 2012

 

$

36,196

 

$

8,914

 

$

10,706

 

$

6,000

 

$

2,008

 

$

25,846

 

$

5,690

 

$

95,360

 

Net unrealized gains (losses)

 

1,194

 

161

 

(679

)

(148

)

(197

)

1,974

 

884

 

3,189

 

Purchases and other adjustments to cost

 

31,069

 

2,908

 

464

 

107

 

430

 

 

1,212

 

36,190

 

Sales and redemptions

 

(4,544

)

(2,032

)

 

(6,090

)

 

(3,179

)

(146

)

(15,991

)

Net realized gain from investments

 

179

 

87

 

 

131

 

 

 

146

 

543

 

Balance as of November 30, 2012

 

$

64,094

 

$

10,038

 

$

10,491

 

$

 

$

2,241

 

$

24,641

 

$

7,786

 

$

119,291

 

 

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

 

The net change in unrealized gain/(loss) on investments held as of November 30, 2012 is $3.3 million and is included in net unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

 

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of November 30, 2012 were as follows (dollars in thousands):

 

 

 

Fair Value

 

Valuation Technique

 

Unobservable Input

 

Range

 

 

 

 

 

 

 

 

 

 

 

First lien term loans

 

$

64,094

 

Market Comparables

 

Market Yield (%)

 

6.4% - 25.6%

 

 

 

 

 

 

 

EBITDA Multiples (x)

 

3.0x

 

 

 

 

 

Market Quotes

 

Third-Party Bid

 

88.6 - 102.8

 

 

 

 

 

 

 

 

 

 

 

Second lien term loans

 

10,038

 

Market Comparables

 

Market Yield (%)

 

13.7%

 

 

 

 

 

Market Quotes

 

Third-Party Bid

 

90.5

 

 

 

 

 

 

 

 

 

 

 

Senior secured notes

 

10,491

 

Market Comparables

 

Market Yield (%)

 

42.5%

 

 

 

 

 

 

 

EBITDA Multiples (x)

 

4.8x

 

 

 

 

 

Market Quotes

 

Third-Party Bid

 

89.0

 

 

 

 

 

 

 

 

 

 

 

Unsecured notes

 

2,241

 

Market Comparables

 

Market Yield (%)

 

18.0% - 24.2%

 

 

 

 

 

 

 

 

 

 

 

Structured finance securities

 

24,641

 

Discounted Cash Flow

 

Discount Rate (%)

 

13.0%

 

 

 

 

 

 

 

 

 

 

 

Equity interests

 

7,786

 

Market Comparables

 

EBITDA Multiples (x)

 

3.0x - 7.0x

 

 

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 EBITDA valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement.

 

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The composition of our investments as of November 30, 2012, at amortized cost and fair value were 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

 

$

65,083

 

55.4

%

$

64,094

 

53.7

%

Second lien term loans

 

10,436

 

8.9

 

10,038

 

8.4

 

Senior secured notes

 

12,081

 

10.3

 

10,491

 

8.8

 

Unsecured notes

 

4,154

 

3.5

 

2,241

 

1.9

 

Structured finance securities

 

20,362

 

17.4

 

24,641

 

20.7

 

Equity interests

 

5,329

 

4.5

 

7,786

 

6.5

 

Limited partnership interests

 

 

 

 

 

Total

 

$

117,445

 

100

%

$

119,291

 

100

%

 

The composition of our investments as of February 29, 2012, at amortized cost and fair value were 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

 

$

38,379

 

39.7

%

$

36,196

 

38.0

%

Second lien term loans

 

9,473

 

9.8

 

8,914

 

9.4

 

Senior secured notes

 

11,617

 

12.0

 

10,706

 

11.2

 

Senior unsecured loans

 

5,852

 

6.1

 

6,000

 

6.3

 

Unsecured notes

 

3,724

 

3.8

 

2,008

 

2.1

 

Structured finance securities

 

23,541

 

24.3

 

25,846

 

27.1

 

Equity interests

 

4,116

 

4.3

 

5,690

 

5.9

 

Limited partnership interests

 

 

 

 

 

Total

 

$

96,702

 

100.0

%

$

95,360

 

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 of the portfolio company 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

 

17



Table of Contents

 

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 rate 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. We used the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flows analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO at November 30, 2012. The significant inputs for the valuation model included:

 

·                  Default rates: 3.0%

 

·                  Recovery rates: 70% loans; 35% bonds

 

·                  Reinvestment rates: LIBOR plus 350 basis points

 

·                  Prepayment rate: 20%

 

Note 4. Investment in GSC Investment Corp. CLO 2007, Ltd. (“Saratoga CLO”)

 

On January 22, 2008, we invested $30 million in all of the outstanding subordinated notes of Saratoga CLO (which are referred in the unaudited balance sheet of Saratoga CLO below as “Preference shares”), a collateralized loan obligation fund managed by us that invests primarily in senior secured loans. Additionally, we entered into a collateral management agreement with Saratoga CLO pursuant to which we act as collateral manager to it. In return for our collateral management services, we are entitled to a senior collateral management fee of 0.10% and a subordinate collateral management fee of 0.40% of the outstanding principal amount of Saratoga CLO’s assets, to be paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20% of excess cash flow to the extent the Saratoga CLO subordinated notes receive an internal rate of return equal to or greater than 12%. For the three months ended November 30, 2012 and 2011, we accrued $0.5 million and $0.5 million in collateral management fee income, respectively, due from Saratoga CLO and $1.0 million and $1.2 million in interest income, respectively, due from Saratoga CLO. For the nine months ended November 30, 2012 and 2011, we accrued $1.5 million and $1.5 million in collateral management fee income, respectively, due from Saratoga CLO and $3.2 million and $3.1 million in interest income, respectively, due from Saratoga CLO. We did not accrue any amounts related to the incentive management fee as the 12% hurdle rate has not yet been achieved.

 

At November 30, 2012, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $24.6 million, whereas the net asset value of Saratoga CLO on such date was $28.8 million. The Company does not believe that the net asset value of Saratoga CLO, which is the difference between Saratoga CLO’s assets and liabilities at a given point in time, necessarily equates to the fair value of its investment in the subordinated notes of Saratoga CLO. Specifically, the Company determines the fair value of its investment in the subordinated notes of Saratoga CLO based on the present value of the projected future cash flows of the subordinated notes over the life of Saratoga CLO. At November 30, 2012, Saratoga CLO had investments with a principal balance of $393.4 million and a weighted average spread over LIBOR of 4.2%, and had debt with a principal balance of $366.0 million with a weighted average spread over LIBOR of 1.4%. As a result, Saratoga CLO earns a “spread” between the interest income it receives on its investments and the interest expense it pays on its debt and other operating expenses, which is distributed quarterly to the Company as the holder of its subordinated notes. At November 30, 2012, the total “spread”, or projected future cash flows of the subordinated notes, over the life of Saratoga CLO was $37.2 million, which had a present value of approximately $25.1 million, using a 13% discount rate. At November 30, 2012, the fair value of the subordinated notes, which we based upon the present value of the projected cash flows, was $24.6 million, which was less than the net asset value of Saratoga CLO on such date by approximately $4.2 million.

 

Below is certain summary financial information from the separate unaudited financial statements of Saratoga CLO as of November 30, 2012 and February 29, 2012 and for the three and nine months ended November 30, 2012 and 2011.

 

18



Table of Contents

 

GSC Investment Corp. CLO 2007

 

Statements of Assets and Liabilities

(unaudited)

 

 

 

As of

 

 

 

November 30, 2012

 

February 29, 2012

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

Fair Value Loans

 

$

366,614,963

 

$

365,780,893

 

Fair Value Other/Structured finance securities

 

15,583,573

 

15,583,573

 

Total investments at fair value

 

382,198,536

 

381,364,466

 

Cash and cash equivalents

 

13,403,783

 

17,815,082

 

Receivable from open trades

 

2,877,531

 

10,046,640

 

Interest receivable

 

1,652,532

 

1,581,438

 

Deferred bond issuance

 

2,274,369

 

2,819,118

 

Total assets

 

$

402,406,751

 

$

413,626,744

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Interest payable

 

$

707,991

 

$

826,741

 

Payable from open trades

 

8,823,095

 

24,857,147

 

Accrued senior collateral monitoring fee

 

43,389

 

45,516

 

Accrued subordinate collateral monitoring fee

 

173,557

 

182,064

 

Class A notes

 

296,000,000

 

296,000,000

 

Class B notes

 

22,000,000

 

22,000,000

 

Discount on class B notes

 

(431,922

)

(477,483

)

Class C notes

 

14,000,000

 

14,000,000

 

Class D notes

 

16,000,000

 

16,000,000

 

Discount on class D notes

 

(456,909

)

(505,106

)

Class E notes

 

17,960,044

 

17,960,044

 

Discount on class E notes

 

(1,175,354

)

(1,299,337

)

Total liabilities

 

$

373,643,891

 

$

389,589,586

 

 

 

 

 

 

 

PARTNERS’ CAPITAL

 

 

 

 

 

 

 

 

 

 

 

Preference shares principal

 

$

30,000,000

 

$

30,000,000

 

Preferred shares

 

14,577,740

 

9,478,573

 

Partners distributions

 

(26,936,112

)

(20,540,583

)

Net income

 

11,121,232

 

5,099,168

 

Total capital

 

28,762,860

 

24,037,158

 

 

 

 

 

 

 

Total liabilities and partners’ capital

 

$

402,406,751

 

$

413,626,744

 

 

19



Table of Contents

 

GSC Investment Corp. CLO 2007

 

Statement of Operations

(unaudited)

 

 

 

For the three months ended
November 30

 

For the nine months ended
November 30

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

Interest from investments

 

$

4,843,433

 

$

4,938,100

 

$

14,699,180

 

$

15,158,477

 

Interest from cash and cash equivalents

 

2,718

 

1,283

 

13,550

 

6,976

 

Other income

 

292,475

 

89,338

 

607,648

 

439,255

 

Total investment income

 

5,138,626

 

5,028,721

 

15,320,378

 

15,604,708

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

Interest expense

 

1,681,369

 

1,615,662

 

5,256,854

 

4,793,580

 

Professional fees

 

46,134

 

50,075

 

293,392

 

307,156

 

Misc. Fee Expense

 

15,494

 

11,757

 

83,081

 

158,416

 

Senior collateral monitoring fee

 

100,091

 

100,384

 

300,104

 

302,418

 

Subordinate collateral monitoring fee

 

400,363

 

401,536

 

1,200,415

 

1,209,673

 

Trustee expenses

 

25,778

 

25,291

 

75,646

 

75,374

 

Amortization expense

 

253,635

 

253,635

 

762,489

 

762,489

 

Total expenses

 

2,522,864

 

2,458,340

 

7,971,981

 

7,609,106

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

2,615,762

 

2,570,381

 

7,348,397

 

7,995,602

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

 

 

 

 

 

 

 

 

 

Net realized gain/(loss) on investments

 

269,472

 

106,318

 

1,681,602

 

(5,075,060

)

Net unrealized appreciation/(depreciation) on investments

 

782,564

 

6,446,956

 

2,091,233

 

(7,191,712

)

Net gain/(loss) on investments

 

1,052,036

 

6,553,274

 

3,772,835

 

(12,266,772

)

 

 

 

 

 

 

 

 

 

 

NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

3,667,798

 

$

9,123,655

 

$

11,121,232

 

$

(4,271,170

)

 

20



Table of Contents

 

GSC Investment Corp. CLO 2007

 

Consolidated Schedule of Investments

 

November 30, 2012

 

(unaudited)

 

Issuer_Name

 

Asset_Name

 

Asset_Type

 

Current
Rate

 

Maturity
Date

 

Principal /
Number of
Shares

 

Cost

 

Fair Value

 

Elyria Foundry Company, LLC

 

Warrants

 

Equity

 

0.00

%

 

 

 

$

 

$

 

Network Communications, Inc.

 

Common

 

Equity

 

0.00

%

 

 

169,143

 

169,143

 

659,658

 

OLD AII, Inc (fka Aleris International Inc.)

 

Common

 

Equity

 

0.00

%

 

 

2,624

 

224,656

 

128,576

 

PATS Aircraft, LLC

 

Common

 

Equity

 

0.00

%

 

 

51,813

 

282,326

 

282,329

 

SuperMedia Inc. (fka Idearc Inc.)

 

Common Stock

 

Equity

 

0.00

%

 

 

10,821

 

28,784

 

5,411

 

Academy, LTD.

 

Initial Term Loan (2012)

 

Loan

 

4.75

%

8/3/2018

 

$

1,985,000

 

1,970,290

 

1,992,444

 

ACCO Brands Corporation

 

Term B Loan

 

Loan

 

4.25

%

5/1/2019

 

$

375,278

 

371,841

 

378,561

 

Acosta, Inc.

 

Term D Loan

 

Loan

 

5.00

%

3/2/2018

 

$

4,183,659

 

4,117,676

 

4,220,266

 

Aeroflex Incorporated

 

Tranche B Term Loan

 

Loan

 

5.75

%

5/9/2018

 

$

3,345,517

 

3,332,491

 

3,339,529

 

Alere Inc. (fka IM US Holdings, LLC)

 

Incremental B-1 Term Loan

 

Loan

 

4.75

%

6/30/2017

 

$

1,985,000

 

1,944,046

 

1,993,516

 

Aptalis Pharma, Inc. (fka Axcan Intermediate Holdings Inc.)

 

Term B-1 Loan

 

Loan

 

5.50

%

2/10/2017

 

$

1,965,000

 

1,958,114

 

1,963,782

 

Aramark Corporation

 

LC-2 Facility

 

Loan

 

3.46

%

7/26/2016

 

$

79,187

 

79,187

 

79,336

 

Aramark Corporation

 

LC-3 Facility

 

Loan

 

3.46

%

7/26/2016

 

$

43,961

 

43,961

 

44,043

 

Aramark Corporation

 

U.S. Term B Loan (Extending)

 

Loan

 

3.46

%

7/26/2016

 

$

1,204,093

 

1,204,093

 

1,206,357

 

Aramark Corporation

 

U.S. Term C Loan

 

Loan

 

3.57

%

7/26/2016

 

$

2,545,700

 

2,545,700

 

2,550,486

 

Armstrong World Industries, Inc

 

Term Loan B-1

 

Loan

 

4.00

%

3/10/2018

 

$

2,128,332

 

2,114,455

 

2,139,315

 

Ashland Inc.

 

Term B Loan

 

Loan

 

3.75

%

8/23/2018

 

$

740,000

 

738,482

 

745,624

 

Asurion, LLC (fka Asurion Corporation)

 

Amortizing Term Loan

 

Loan

 

4.75

%

7/23/2017

 

$

1,000,000

 

990,707

 

1,003,750

 

Asurion, LLC (fka Asurion Corporation)

 

Term Loan (First Lien)

 

Loan

 

5.50

%

5/24/2018

 

$

5,659,091

 

5,614,478

 

5,702,440

 

Aurora Diagnostics, LLC

 

Tranche B Term Loan

 

Loan

 

6.25

%

5/26/2016

 

$

3,188,889

 

3,198,996

 

3,180,917

 

Autotrader.com, Inc.

 

Tranche B-1 Term Loan

 

Loan

 

4.00

%

12/15/2016

 

$

3,840,515

 

3,840,515

 

3,865,478

 

Avantor Performance Materials Holdings, Inc.

 

Term Loan

 

Loan

 

5.00

%

6/24/2017

 

$

4,937,500

 

4,918,555

 

4,912,813

 

AZ Chem US Inc.

 

Term Loan

 

Loan

 

7.25

%

12/22/2017

 

$

1,574,545

 

1,534,359

 

1,597,676

 

BakerCorp International, Inc. (f/k/a B-Corp Holdings, Inc.)

 

Term Loan

 

Loan

 

5.00

%

6/1/2018

 

$

2,585,841

 

2,585,109

 

2,585,841

 

Biomet, Inc.

 

Dollar Term B-1 Loan

 

Loan

 

3.96

%

7/25/2017

 

$

1,995,000

 

1,995,000

 

2,009,963

 

Bombardier Recreational Products Inc.

 

Term B-2 Loan

 

Loan

 

4.46

%

6/28/2016

 

$

2,000,000

 

1,990,340

 

2,005,840

 

Burlington Coat Factory Warehouse Corporation

 

Term B-1 Loan

 

Loan

 

5.50

%

2/23/2017

 

$

3,000,000

 

2,989,629

 

3,020,880

 

C.H.I. Overhead Doors, Inc. (CHI)

 

Term Loan (First Lien)

 

Loan

 

7.25

%

8/17/2017

 

$

2,983,844

 

2,936,520

 

2,983,844

 

Camp International Holding Company

 

Refinanced Term Loan (First Lien)

 

Loan

 

5.25

%

5/31/2019

 

$

1,000,000

 

990,243

 

1,005,000

 

Capital Automotive L.P.

 

Tranche B Term Loan

 

Loan

 

0.00

%

3/11/2017

 

$

2,879,345

 

2,886,543

 

2,884,153

 

Capstone Logistics, LLC

 

Term Note A

 

Loan

 

7.50

%

9/16/2016

 

$

2,963,427

 

2,928,307

 

2,918,975

 

Capsugel Holdings US, Inc.

 

Initial Term Loan (New)

 

Loan

 

4.75

%

8/1/2018

 

$

3,700,642

 

3,690,746

 

3,729,507

 

Celanese US Holdings LLC

 

Dollar Term C Loan (Extended)

 

Loan

 

3.11

%

10/31/2016

 

$

2,204,172

 

2,226,295

 

2,219,887

 

Cenveo Corporation

 

Term B Facility

 

Loan

 

6.63

%

12/21/2016

 

$

2,443,617

 

2,427,099

 

2,449,726

 

Charter Communications Operating, LLC

 

Term C Loan

 

Loan

 

3.46

%

9/6/2016

 

$

3,062,577

 

3,057,871

 

3,075,103

 

Charter Communications Operating, LLC

 

Term D Loan

 

Loan

 

4.00

%

5/15/2019

 

$

1,990,000

 

1,980,945

 

2,004,428

 

CHS/ Community Health Systems, Inc.

 

Extended Term Loan

 

Loan

 

3.81

%

1/25/2017

 

$

4,064,516

 

3,957,287

 

4,089,431

 

Cinedigm Digital Funding I, LLC

 

Term Loan

 

Loan

 

5.25

%

4/29/2016

 

$

1,164,109

 

1,157,458

 

1,164,109

 

Cinemark USA, Inc.

 

Extended Term Loan

 

Loan

 

3.46

%

4/30/2016

 

$

5,545,125

 

5,350,619

 

5,570,521

 

Contec, LLC

 

Second Lien Term Notes

 

Loan

 

10.00

%

11/2/2016

 

$

401,202

 

2,534,998

 

2,578,210

 

Covanta Energy Corporation

 

Term Loan

 

Loan

 

4.00

%

3/28/2019

 

$

497,500

 

495,252

 

497,813

 

CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)

 

Term B Loan

 

Loan

 

5.00

%

2/13/2017

 

$

4,912,500

 

4,895,268

 

4,937,063

 

Crown Castle Operating Company

 

Tranche B Term Loan

 

Loan

 

4.00

%

1/31/2019

 

$

1,985,000

 

1,967,373

 

1,993,694

 

CSC Holdings, LLC (fka CSC Holdings Inc. (Cablevision))

 

Term A-3 Loan

 

Loan

 

2.46

%

3/31/2015

 

$

1,195,614

 

1,191,958

 

1,180,669

 

Culligan International Company

 

Dollar Loan (First Lien)

 

Loan

 

6.25

%

12/19/2017

 

$

797,680

 

731,052

 

727,883

 

Culligan International Company

 

Dollar Loan (Second Lien)

 

Loan

 

9.50

%

6/19/2018

 

$

783,162

 

717,261

 

593,895

 

DaVita HealthCare Partners Inc. (fka DaVita Inc.)

 

Tranche B Term Loan

 

Loan

 

4.50

%

10/20/2016

 

$

3,959,698

 

3,959,698

 

3,979,496

 

DCS Business Services, Inc.

 

Term B Loan

 

Loan

 

7.25

%

3/16/2018

 

$

3,980,005

 

3,927,317

 

3,920,305

 

Dean Foods Company

 

2016 Tranche B Term Loan (extending)

 

Loan

 

3.21

%

4/2/2016

 

$

3,000,000

 

3,003,701

 

2,991,750

 

Del Monte Foods Company

 

Initial Term Loan

 

Loan

 

4.50

%

3/8/2018

 

$

1,438,139

 

1,435,434

 

1,433,350

 

Dollar General Corporation

 

Tranche B-1 Term Loan

 

Loan

 

2.96

%

7/7/2014

 

$

5,378,602

 

5,254,601

 

5,401,784

 

DS Waters of America, Inc.

 

Term Loan (First Lien)

 

Loan

 

10.50

%

8/29/2017

 

$

2,985,000

 

2,933,196

 

3,003,656

 

DynCorp International Inc.

 

Term Loan

 

Loan

 

6.25

%

7/7/2016

 

$

626,793

 

619,258

 

628,987

 

Education Management LLC

 

Tranche C-2 Term Loan

 

Loan

 

4.50

%

6/1/2016

 

$

3,935,720

 

3,722,533

 

3,219,930

 

eInstruction Corporation

 

Initial Term Loan

 

Loan

 

0.00

%

7/2/2013

 

$

2,997,722

 

2,931,236

 

899,317

 

Electrical Components International, Inc.

 

Synthetic Revolving Loan

 

Loan

 

6.75

%

2/4/2016

 

$

117,647

 

116,524

 

117,647

 

Electrical Components International, Inc.

 

Term Loan

 

Loan

 

6.75

%

2/4/2017

 

$

1,791,033

 

1,772,299

 

1,791,033

 

Evergreen Acqco 1 LP

 

New Term Loan

 

Loan

 

5.00

%

7/9/2019

 

$

498,750

 

493,882

 

498,905

 

Federal-Mogul Corporation

 

Tranche B Term Loan

 

Loan

 

2.15

%

12/29/2014

 

$

2,595,849

 

2,493,239

 

2,381,692

 

Federal-Mogul Corporation

 

Tranche C Term Loan

 

Loan

 

2.15

%

12/28/2015

 

$

1,324,413

 

1,262,570

 

1,215,149

 

First Data Corporation

 

2017 Dollar Term Loan

 

Loan

 

5.21

%

3/24/2017

 

$

2,111,028

 

2,022,364

 

2,066,168

 

First Data Corporation

 

2018 Dollar Term Loan

 

Loan

 

4.21

%

3/23/2018

 

$

2,290,451

 

2,213,243

 

2,180,693

 

FR Acquisitions Holding Corporation (Luxembourg), S.A.R.L.

 

Facility B (Dollar)

 

Loan

 

4.86

%

12/18/2015

 

$

1,295,106

 

1,292,610

 

1,281,080

 

FR Acquisitions Holding Corporation (Luxembourg), S.A.R.L.

 

Facility C (Dollar)

 

Loan

 

5.36

%

12/20/2016

 

$

1,295,106

 

1,292,160

 

1,287,556

 

Freescale Semiconductor, Inc.

 

Tranche B-1 Term Loan

 

Loan

 

4.46

%

12/1/2016

 

$

2,534,348

 

2,444,611

 

2,451,982

 

FTD Group, Inc.

 

Initial Term Loan

 

Loan

 

4.75

%

6/11/2018

 

$

3,715,723

 

3,682,030

 

3,738,760

 

Generac Power Systems, Inc.

 

Term Loan

 

Loan

 

6.25

%

5/30/2018

 

$

997,500

 

979,109

 

1,017,450

 

General Nutrition Centers, Inc.

 

Amended Tranche B Term Loan

 

Loan

 

3.75

%

3/2/2018

 

$

3,748,295

 

3,748,295

 

3,752,981

 

Goodyear Tire & Rubber Company, The

 

Loan (Second Lien)

 

Loan

 

4.75

%

4/30/2019

 

$

4,000,000

 

3,926,815

 

4,016,680

 

Grifols Inc.

 

New U.S. Tranche B Term Loan

 

Loan

 

4.50

%

6/1/2017

 

$

2,975,704

 

2,960,017

 

3,005,461

 

Grosvenor Capital Management Holdings, LLLP

 

Tranche C Term Loan

 

Loan

 

4.25

%

12/5/2016

 

$

3,342,748

 

3,253,094

 

3,288,429

 

Hanger Orthopedic Group, Inc.

 

Term C Loan

 

Loan

 

4.00

%

12/1/2016

 

$

3,920,667

 

3,930,935

 

3,920,667

 

HCA Inc.

 

Tranche B-3 Term Loan

 

Loan

 

3.46

%

5/1/2018

 

$

5,734,690

 

5,426,252

 

5,734,002

 

Health Management Associates, Inc.

 

Term B Loan

 

Loan

 

4.50

%

11/16/2018

 

$

2,977,500

 

2,951,738

 

3,003,523

 

HIBU PLC (fka Yell Group PLC)

 

Facility B1 - YB (USA) LLC (11/2009)

 

Loan

 

4.46

%

7/31/2014

 

$

3,030,606

 

2,983,167

 

596,029

 

HMH Holdings (Delaware) Inc.

 

Term Loan (Exit Facility)

 

Loan

 

7.25

%

5/22/2018

 

$

995,000

 

976,550

 

1,002,463

 

Hologic, Inc.

 

Tranche A Term Loan

 

Loan

 

3.21

%

8/1/2017

 

$

2,468,750

 

2,462,943

 

2,470,305

 

Hunter Defense Technologies, Inc.

 

Term Loan

 

Loan

 

3.52

%

8/22/2014

 

$

3,679,939

 

3,642,211

 

3,201,547

 

Huntsman International LLC

 

Extended Term B Loan

 

Loan

 

2.76

%

4/19/2017

 

$

3,920,000

 

3,881,526

 

3,918,589

 

Infor (US), Inc. ((fka Lawson Software Inc.)

 

Tranche B-2 Term Loan

 

Loan

 

5.25

%

4/5/2018

 

$

1,995,000

 

1,975,693

 

2,012,456

 

Inventiv Health, Inc. (fka Ventive Health, Inc)

 

Consolidated Term Loan

 

Loan

 

6.50

%

8/4/2016

 

$

492,090

 

492,090

 

465,640

 

J. Crew Group, Inc.

 

Loan

 

Loan

 

4.50

%

3/7/2018

 

$

985,000

 

985,000

 

984,448

 

Kalispel Tribal Economic Authority

 

Term Loan

 

Loan

 

7.50

%

2/25/2017

 

$

3,675,323

 

3,623,375

 

3,601,817

 

Key Safety Systems, Inc.

 

Term Loan (First Lien)

 

Loan

 

2.51

%

3/8/2014

 

$

3,790,786

 

3,654,834

 

3,749,732

 

Kinetic Concepts, Inc.

 

Dollar Term C-1 Loan

 

Loan

 

5.50

%

5/4/2018

 

$

496,250

 

479,089

 

498,731

 

Kronos Worldwide, Inc.

 

Initial Term Loan

 

Loan

 

5.75

%

6/13/2018

 

$

1,975,000

 

1,961,430

 

1,984,875

 

MetroPCS Wireless, Inc.

 

Tranche B-2 Term Loan

 

Loan

 

4.07

%

11/3/2016

 

$

2,495,830

 

2,498,490

 

2,505,190

 

Microsemi Corporation

 

Term Loan

 

Loan

 

4.00

%

2/2/2018

 

$

2,781,389

 

2,775,257

 

2,795,991

 

National CineMedia, LLC

 

Term Loan

 

Loan

 

3.46

%

11/26/2019

 

$

1,086,207

 

1,049,619

 

1,085,305

 

Newsday, LLC

 

Term Loan

 

Loan

 

0.00

%

10/12/2016

 

$

3,000,000

 

2,996,250

 

2,958,750

 

Novelis, Inc.

 

Term B-2 Loan

 

Loan

 

4.00

%

3/10/2017

 

$

990,000

 

969,828

 

991,228

 

Novelis, Inc.

 

Term Loan

 

Loan

 

4.00

%

3/10/2017

 

$

3,930,000

 

3,957,969

 

3,936,131

 

NPC International, Inc.

 

Term Loan

 

Loan

 

4.50

%

12/28/2018

 

$

490,833

 

490,833

 

493,901

 

NRG Energy, Inc.

 

Term Loan

 

Loan

 

4.00

%

7/1/2018

 

$

3,950,000

 

3,925,294

 

3,983,338

 

NuSil Technology LLC.

 

Term Loan

 

Loan

 

5.25

%

4/7/2017

 

$

823,729

 

823,729

 

823,729

 

OEP Pearl Dutch Acquisition B.V.

 

Initial BV Term Loan

 

Loan

 

6.50

%

3/30/2018

 

$

149,250

 

146,575

 

149,437

 

On Assignment, Inc.

 

Initial B Loan

 

Loan

 

5.00

%

5/15/2019

 

$

2,745,925

 

2,728,373

 

2,759,654

 

Onex Carestream Finance LP

 

Term Loan

 

Loan

 

5.00

%

2/25/2017

 

$

4,922,804

 

4,905,385

 

4,884,357

 

OpenLink International, Inc.

 

Initial Term Loan

 

Loan

 

7.75

%

10/30/2017

 

$

992,500

 

976,239

 

992,500

 

P.F. Chang’s China Bistro, Inc. (Wok Acquisition Corp.)

 

Term Borrowing

 

Loan

 

5.25

%

6/22/2019

 

$

1,000,000

 

990,534

 

1,008,700

 

PATS Aircraft, LLC

 

Term Loan

 

Loan

 

8.50

%

10/6/2016

 

$

384,131

 

248,245

 

345,718

 

Penn National Gaming, Inc.

 

Term A Facility

 

Loan

 

1.72

%

7/14/2016

 

$

2,812,500

 

2,750,784

 

2,792,812

 

Penn National Gaming, Inc.

 

Term B Facility

 

Loan

 

3.75

%

7/16/2018

 

$

987,500

 

985,519

 

990,176

 

PetCo Animal Supplies, Inc.

 

New Loan

 

Loan

 

4.50

%

11/24/2017

 

$

1,500,000

 

1,498,357

 

1,505,820

 

Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)

 

Term Loan

 

Loan

 

6.25

%

12/5/2018

 

$

1,985,000

 

1,959,370

 

2,012,691

 

Physician Oncology Services, LP

 

Delayed Draw Term Loan

 

Loan

 

7.75

%

1/31/2017

 

$

51,020

 

50,661

 

48,724

 

Physician Oncology Services, LP

 

Effective Date Term Loan

 

Loan

 

7.75

%

1/31/2017

 

$

419,961

 

417,003

 

401,062

 

Pinnacle Foods Finance LLC

 

Extended Initial Term Loan

 

Loan

 

3.71

%

10/2/2016

 

$

5,741,004

 

5,489,048

 

5,761,269

 

Polyone Corporation

 

Loan

 

Loan

 

5.00

%

12/20/2017

 

$

496,250

 

492,069

 

498,235

 

 

21



Table of Contents

 

Preferred Proppants, LLC

 

Term B Loan

 

Loan

 

7.50

%

12/15/2016

 

$

1,985,000

 

1,952,084

 

1,826,200

 

Prestige Brands, Inc.

 

Term B Loan

 

Loan

 

5.27

%

1/31/2019

 

$

734,848

 

725,056

 

742,329

 

Pro Mach, Inc.

 

Term Loan

 

Loan

 

5.00

%

7/6/2017

 

$

1,956,155

 

1,941,042

 

1,957,387

 

Quintiles Transnational Corp.

 

Term B Loan

 

Loan

 

5.00

%

6/8/2018

 

$

3,950,000

 

3,918,848

 

3,956,913

 

Ranpak Corp.

 

USD Term Loan (First Lien)

 

Loan

 

4.75

%

4/20/2017

 

$

2,402,108

 

2,393,280

 

2,366,077

 

Rexnord LLC/RBS Global, Inc.

 

Term B Loan Refinancing

 

Loan

 

4.50

%

4/1/2018

 

$

1,985,000

 

1,985,000

 

2,001,952

 

Reynolds Group Holdings Inc.

 

U.S. Term Loan

 

Loan

 

4.75

%

9/28/2018

 

$

2,000,000

 

2,000,000

 

2,012,280

 

Rocket Software, Inc.

 

Term Loan (First Lien)

 

Loan

 

5.75

%

2/8/2018

 

$

1,985,000

 

1,950,427

 

1,991,451

 

Roundy’s Supermarkets, Inc.

 

Tranche B Term Loan

 

Loan

 

5.75

%

2/13/2019

 

$

995,000

 

981,722

 

936,544

 

Rovi Solutions Corporation / Rovi Guides, Inc.

 

Tranche A-2 Loan

 

Loan

 

2.46

%

3/29/2017

 

$

2,000,000

 

1,981,202

 

1,945,000

 

Rovi Solutions Corporation / Rovi Guides, Inc.

 

Tranche B-2 Loan

 

Loan

 

4.00

%

3/29/2019

 

$

1,492,500

 

1,485,740

 

1,466,381

 

Royal Adhesives and Sealants, LLC

 

Term A Loan

 

Loan

 

7.25

%

11/29/2015

 

$

4,560,234

 

4,517,413

 

4,493,515

 

RPI Finance Trust

 

6.75 Year Term Loan(2012)

 

Loan

 

3.50

%

5/9/2018

 

$

5,412,536

 

5,386,241

 

5,435,106

 

Scientific Games International Inc.

 

Tranche B-1 Term Loan

 

Loan

 

3.21

%

6/30/2015

 

$

1,983,357

 

1,969,898

 

1,980,878

 

Scitor Corporation

 

Term Loan

 

Loan

 

5.00

%

2/15/2017

 

$

463,977

 

462,349

 

459,917

 

Scotsman Industries, Inc.

 

Term Loan

 

Loan

 

5.75

%

4/30/2016

 

$

1,700,114

 

1,696,124

 

1,702,240

 

Securus Technologies Holdings, Inc (fka Securus Technologies, Inc.)

 

Tranche 2 Term Loan (First Lien)

 

Loan

 

6.50

%

5/31/2017

 

$

1,990,000

 

1,971,927

 

1,996,229

 

Sensata Technology BV/Sensata Technology Finance Company, LLC

 

Term Loan

 

Loan

 

4.00

%

5/12/2018

 

$

2,977,387

 

2,977,387

 

2,986,855

 

Sensus USA Inc. (fka Sensus Metering Systems)

 

Term Loan (First Lien)

 

Loan

 

4.75

%

5/9/2017

 

$

1,970,000

 

1,962,687

 

1,966,316

 

ServiceMaster Company, The

 

Tranche B Term Loan

 

Loan

 

4.46

%

1/31/2017

 

$

2,858,551

 

2,869,200

 

2,850,061

 

SI Organization, Inc., The

 

New Tranche B Term Loan

 

Loan

 

4.50

%

11/22/2016

 

$

3,930,000

 

3,903,944

 

3,900,525

 

Sonneborn, LLC

 

Initial US Term Loan

 

Loan

 

6.50

%

3/30/2018

 

$

845,750

 

830,589

 

846,807

 

Sophia, L.P.

 

Initial Term Loan

 

Loan

 

6.25

%

7/19/2018

 

$

981,047

 

968,291

 

992,329

 

SRA International Inc.

 

Term Loan

 

Loan

 

6.50

%

7/20/2018

 

$

3,268,571

 

3,160,663

 

3,092,886

 

SRAM, LLC

 

Term Loan (First Lien)

 

Loan

 

4.76

%

6/7/2018

 

$

3,604,195

 

3,572,993

 

3,622,216

 

SS&C Technologies, Inc., /Sunshine Acquisition II, Inc.

 

Funded Term B-1 Loan

 

Loan

 

5.00

%

6/7/2019

 

$

849,906

 

841,983

 

859,110

 

SS&C Technologies, Inc., /Sunshine Acquisition II, Inc.

 

Funded Term B-2 Loan

 

Loan

 

5.00

%

6/7/2019

 

$

87,921

 

87,102

 

88,873

 

SunCoke Energy, Inc.

 

Tranche B Term Loan

 

Loan

 

4.00

%

7/26/2018

 

$

4,451,185

 

4,423,081

 

4,434,493

 

SunGard Data Systems Inc (Solar Capital Corp.)

 

Tranche B U.S. Term Loan

 

Loan

 

3.86

%

2/28/2016

 

$

4,253,748

 

4,178,443

 

4,251,111

 

SunGard Data Systems Inc (Solar Capital Corp.)

 

Tranche C Term Loan

 

Loan

 

3.96

%

2/28/2017

 

$

497,687

 

492,723

 

498,001

 

SuperMedia Inc. (fka Idearc Inc.)

 

Loan

 

Loan

 

11.00

%

12/31/2015

 

$

296,243

 

288,174

 

187,818

 

Syniverse Holdings, Inc.

 

Initial Term Loan

 

Loan

 

5.00

%

4/23/2019

 

$

498,750

 

494,178

 

501,244

 

Taminco Global Chemical Corporation

 

Tranche B-1 Dollar Term Loan

 

Loan

 

5.25

%

2/15/2019

 

$

1,492,500

 

1,483,406

 

1,502,455

 

Team Health, Inc.

 

Tranche B Term Loan

 

Loan

 

3.75

%

6/29/2018

 

$

4,443,750

 

4,425,954

 

4,399,313

 

Texas Competitive Electric Holdings Company, LLC (TXU)

 

2014 Term Loan (Non-Extending)

 

Loan

 

3.74

%

10/10/2014

 

$

5,580,862

 

5,519,373

 

3,770,207

 

Tomkins, LLC / Tomkins, Inc. (f/k/a Pinafore, LLC / Pinafore, Inc.)

 

Term B-1 Loan

 

Loan

 

4.25

%

9/29/2016

 

$

2,438,057

 

2,443,634

 

2,446,688

 

TransDigm Inc.

 

Tranche B-1 Term Loan

 

Loan

 

4.00

%

2/14/2017

 

$

3,958,561

 

3,969,794

 

3,971,545

 

TransDigm Inc.

 

Tranche B-2 Term Loan

 

Loan

 

4.00

%

2/14/2017

 

$

1,000,000

 

995,136

 

1,003,960

 

TransFirst Holdings, Inc.

 

Term Loan (First Lien)

 

Loan

 

2.96

%

6/16/2014

 

$

2,368,750

 

2,344,405

 

2,346,247

 

Tricorbraun Inc. (fka Kranson Industries, Inc.)

 

Term Loan

 

Loan

 

5.50

%

5/3/2018

 

$

1,995,000

 

1,985,941

 

1,997,494

 

Truven Health Analytics Inc. (fka Thomson Reuters (Healthcare) Inc.)

 

New Tranche B Term Loan

 

Loan

 

5.75

%

6/6/2019

 

$

498,750

 

489,016

 

498,625

 

Tube City IMS Corporation

 

Term Loan

 

Loan

 

5.75

%

3/20/2019

 

$

995,000

 

985,990

 

1,003,706

 

U.S. Security Associates Holdings, Inc.

 

Delayed Draw Term Loan

 

Loan

 

6.00

%

7/28/2017

 

$

162,185

 

160,924

 

162,590

 

U.S. Security Associates Holdings, Inc.

 

Term Loan B

 

Loan

 

6.00

%

7/28/2017

 

$

124,060

 

123,527

 

124,371

 

U.S. Security Associates Holdings, Inc.

 

Term Loan B

 

Loan

 

6.00

%

7/28/2017

 

$

828,632

 

822,188

 

830,703

 

U.S. Silica Company

 

Loan

 

Loan

 

4.75

%

6/8/2017

 

$

1,975,000

 

1,967,550

 

1,977,469

 

U.S. Xpress Enterprises, Inc.

 

Extended Term Loan

 

Loan

 

0.00

%

11/13/2016

 

$

3,000,000

 

2,940,000

 

2,940,000

 

United Surgical Partners International, Inc.

 

New Tranche B Term Loan

 

Loan

 

6.00

%

4/3/2019

 

$

2,487,500

 

2,453,627

 

2,493,719

 

Univar Inc.

 

Term B Loan

 

Loan

 

5.00

%

6/30/2017

 

$

3,934,937

 

3,933,968

 

3,900,113

 

UPC Financing Partnership

 

Facility AF

 

Loan

 

4.00

%

1/31/2021

 

$

1,000,000

 

970,050

 

998,330

 

USI Holdings Corporation

 

Tranche B Term Loan

 

Loan

 

2.71

%

5/5/2014

 

$

4,744,655

 

4,681,546

 

4,725,391

 

Valeant Pharmaceuticals International, Inc.

 

Series D Tranche B Term Loan

 

Loan

 

4.25

%

2/13/2019

 

$

2,985,000

 

2,972,883

 

2,994,045

 

Vantiv, LLC (fka Fifth Third Processing Solutions, LLC)

 

Tranche B Term Loan

 

Loan

 

3.75

%

3/27/2019

 

$

1,066,071

 

1,061,243

 

1,066,071

 

Verint Systems Inc.

 

Term Loan 2011

 

Loan

 

4.50

%

10/27/2017

 

$

1,970,000

 

1,962,531

 

1,979,023

 

Vertafore, Inc.

 

Term Loan (First Lien)

 

Loan

 

5.25

%

7/29/2016

 

$

2,992,390

 

2,992,390

 

2,996,879

 

Visant Corporation (fka Jostens)

 

Tranche B Term Loan (2011)

 

Loan

 

5.25

%

12/22/2016

 

$

3,767,519

 

3,767,519

 

3,405,837

 

Weight Watchers International, Inc.

 

Term D Loan

 

Loan

 

2.63

%

6/30/2016

 

$

2,707,453

 

2,671,765

 

2,699,547

 

Wendy’s International, Inc

 

Term Loan

 

Loan

 

4.75

%

5/15/2019

 

$

1,000,000

 

990,653

 

1,007,320

 

Wolverine World Wide, Inc.

 

Tranche B Term Loan

 

Loan

 

4.00

%

7/31/2019

 

$

928,571

 

919,286

 

933,799

 

Yankee Candle Company, Inc., The

 

Initial Term Loan

 

Loan

 

5.25

%

4/2/2019

 

$

2,487,500

 

2,464,981

 

2,507,922

 

ALM 2010-1A

 

Floating - 05/2020 - B - 00162VAE5

 

ABS

 

2.61

%

5/20/2020

 

$

4,000,000

 

3,742,563

 

3,657,600

 

BABSN 2007-1A

 

Floating - 01/2021 - D1 - 05617AAA9

 

ABS

 

3.71

%

1/18/2021

 

$

1,500,000

 

1,251,353

 

1,050,000

 

GALE 2007-3A

 

Floating - 04/2021 - E - 363205AA3

 

ABS

 

3.96

%

4/19/2021

 

$

4,000,000

 

3,367,988

 

2,800,000

 

KATO 2006-9A

 

Floating - 01/2019 - B2L - 486010AA9

 

ABS

 

3.82

%

1/25/2019

 

$

5,000,000

 

4,311,758

 

3,500,000

 

STCLO 2007-6A

 

Floating - 04/2021 - D- 86176YAG7

 

ABS

 

3.93

%

4/17/2021

 

$

5,000,000

 

4,025,572

 

3,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

$

388,766,439

 

$

382,198,536

 

 

22



Table of Contents

 

GSC Investment Corp. CLO 2007

 

Consolidated Schedule of Investments

 

February 29, 2012

 

(unaudited)

 

Issuer_Name

 

Asset_Name

 

Asset_Type

 

Current
Rate

 

Maturity
Date

 

Principal /
Number of
Shares

 

Cost

 

Fair Value

 

Elyria Foundry Company, LLC

 

Warrants

 

Equity

 

0.00

%

 

2,000

 

$

 

$

 

Network Communications, Inc.

 

Common

 

Equity

 

0.00

%

 

169,143

 

169,143

 

659,658

 

OLD All, Inc (fka Aleris International Inc.)

 

Common

 

Equity

 

0.00

%

 

2,624

 

224,656

 

128,576

 

PATS Aircraft, LLC

 

Common

 

Equity

 

0.00

%

 

51,813

 

282,326

 

282,329

 

SuperMedia Inc. (fka Idearc Inc.)

 

Common Stock

 

Equity

 

0.00

%

 

10,821

 

28,784

 

5,411

 

Academy, LTD.

 

Initial Term Loan

 

Loan

 

6.00

%

8/3/2018

 

$

2,000,000

 

1,986,129

 

1,999,540

 

Acosta, Inc.

 

Term B Loan

 

Loan

 

4.75

%

3/1/2018

 

$

4,243,447

 

4,177,485

 

4,210,561

 

Advanced Lighting Technologies, Inc.

 

Deferred Draw Term Loan (First Lien)

 

Loan

 

3.00

%

6/1/2013

 

$

251,309

 

241,553

 

240,628

 

Advanced Lighting Technologies, Inc.

 

Term Loan (First Lien)

 

Loan

 

3.00

%

6/1/2013

 

$

4,582,873

 

4,478,009

 

4,388,101

 

Aeroflex Incorporated

 

Tranche B Term Loan

 

Loan

 

4.25

%

5/9/2018

 

$

3,814,483

 

3,797,573

 

3,715,459

 

Aerostructures Acquisition LLC

 

Term Loan

 

Loan

 

7.25

%

3/1/2013

 

$

554,722

 

543,949

 

542,240

 

Alere Inc. (fka IM US Holdings, LLC)

 

Incremental B-1 Term Loan

 

Loan

 

4.50

%

6/30/2017

 

$

2,000,000

 

1,951,950

 

1,992,500

 

Aptalis Pharma, Inc. (fka Axcan Intermediate Holdings Inc.)

 

Term Loan

 

Loan

 

5.50

%

2/10/2017

 

$

1,980,000

 

1,971,816

 

1,963,170

 

Ashland Inc.

 

Term B Loan

 

Loan

 

3.75

%

8/23/2018

 

$

996,964

 

994,651

 

1,000,872

 

Asurion, LLC (fka Asurion Corporation)

 

Term Loan (First Lien)

 

Loan

 

5.50

%

5/24/2018

 

$

5,659,091

 

5,608,344

 

5,635,040

 

Aurora Diagnostics, LLC

 

Tranche B Term Loan

 

Loan

 

6.25

%

5/26/2016

 

$

508,611

 

508,611

 

499,288

 

Autotrader.com, Inc.

 

Tranche B-1 Term Loan

 

Loan

 

4.00

%

12/15/2016

 

$

3,869,758

 

3,869,758

 

3,868,790

 

Avantor Performance Materials Holdings, Inc.

 

Term Loan

 

Loan

 

5.00

%

6/24/2017

 

$

4,975,000

 

4,952,760

 

4,875,500

 

AZ Chem US Inc.

 

Term Loan

 

Loan

 

7.25

%

12/22/2017

 

$

2,000,000

 

1,941,354

 

2,014,720

 

BakerCorp International, Inc. (f/k/a B-Corp Holdings, Inc.)

 

Term Loan

 

Loan

 

5.00

%

6/1/2018

 

$

497,500

 

495,278

 

496,754

 

Bass Pro Group, LLC

 

Term Loan

 

Loan

 

5.25

%

6/13/2017

 

$

2,985,000

 

2,958,694

 

2,977,000

 

BJ’s Wholesale Club, Inc.

 

Initial Loan (First Lien) Retired 03/14/2012

 

Loan

 

7.00

%

9/28/2018

 

$

1,995,000

 

1,901,076

 

2,013,015

 

C.H.I. Overhead Doors, Inc. (CHI)

 

Term Loan (First Lien)

 

Loan

 

7.25

%

8/17/2017

 

$

3,079,513

 

3,022,863

 

3,035,876

 

Capstone Logistics, LLC

 

Term Note A

 

Loan

 

7.50

%

9/16/2016

 

$

2,991,353

 

2,948,863

 

2,946,483

 

Capsugel Holdings US, Inc.

 

Initial Term Loan

 

Loan

 

5.25

%

8/1/2018

 

$

3,990,000

 

3,979,634

 

4,012,783

 

Celanese US Holdings LLC

 

Dollar Term C Loan (Extended)

 

Loan

 

3.33

%

10/31/2016

 

$

3,464,824

 

3,506,288

 

3,478,198

 

Cenveo Corporation

 

Term B Facility

 

Loan

 

6.25

%

12/21/2016

 

$

2,737,105

 

2,715,168

 

2,719,150

 

Charter Communications Operating, LLC

 

Term C Loan

 

Loan

 

3.83

%

9/6/2016

 

$

3,979,695

 

3,972,997

 

3,949,291

 

CHS/ Community Health Systems, Inc.

 

Extended Term Loan

 

Loan

 

4.08

%

1/25/2017

 

$

4,170,088

 

4,042,207

 

4,120,589

 

Cinedigm Digital Funding I, LLC

 

Term Loan

 

Loan

 

5.25

%

4/29/2016

 

$

1,482,007

 

1,471,669

 

1,468,121

 

Cinemark USA, Inc.

 

Extended Term Loan

 

Loan

 

3.63

%

4/30/2016

 

$

5,587,889

 

5,348,623

 

5,576,546

 

Consolidated Container Company LLC

 

Loan (First Lien)

 

Loan

 

2.50

%

3/28/2014

 

$

5,195,532

 

4,906,062

 

5,052,655

 

Contec, LLC

 

Tranche B Term Loan

 

Loan

 

0.00

%

7/28/2014

 

$

2,644,318

 

2,613,795

 

1,057,727

 

Covanta Energy Corporation

 

Funded Letter of Credit

 

Loan

 

1.98

%

2/10/2014

 

$

877,007

 

860,931

 

871,525

 

Covanta Energy Corporation

 

Term Loan

 

Loan

 

1.79

%

2/10/2014

 

$

1,698,170

 

1,666,874

 

1,687,557

 

CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)

 

Term B Loan

 

Loan

 

5.00

%

2/13/2017

 

$

4,950,000

 

4,929,526

 

4,912,875

 

CRC Health Corporation

 

Term B-2 Loan

 

Loan

 

5.08

%

11/16/2015

 

$

1,991,877

 

1,896,087

 

1,782,730

 

Crown Castle Operating Company

 

Tranche B Term Loan

 

Loan

 

4.00

%

1/31/2019

 

$

2,000,000

 

1,980,071

 

1,990,540

 

CSC Holdings, LLC (fka CSC Holdings Inc (Cablevision))

 

Term A-3 Loan

 

Loan

 

2.24

%

3/31/2015

 

$

1,360,526

 

1,355,021

 

1,333,316

 

Culligan International Company

 

Dollar Loan

 

Loan

 

2.50

%

11/24/2012

 

$

2,393,216

 

$

2,360,219

 

$

1,714,141

 

DaVita Inc.

 

Tranche B Term Loan

 

Loan

 

0.00

%

10/20/2016

 

$

3,989,924

 

3,989,924

 

3,999,061

 

Del Monte Foods Company

 

Initial Term Loan

 

Loan

 

4.50

%

3/8/2018

 

$

1,492,500

 

1,489,291

 

1,464,098

 

Dollar General Corporation

 

Tranche B-1 Term Loan

 

Loan

 

3.14

%

7/7/2014

 

$

5,378,602

 

5,196,110

 

5,382,905

 

DS Waters of America, Inc.

 

Term Loan (First Lien)

 

Loan

 

0.00

%

8/29/2017

 

$

3,000,000

 

2,446,849

 

2,456,712

 

DynCorp International Inc.

 

Term Loan

 

Loan

 

6.25

%

7/7/2016

 

$

732,056

 

721,414

 

729,538

 

Education Management LLC

 

Tranche C-2 Term Loan

 

Loan

 

4.63

%

6/1/2016

 

$

3,967,860

 

3,706,684

 

3,712,448

 

eInstruction Corporation

 

Initial Term Loan

 

Loan

 

6.51

%

7/2/2013

 

$

3,005,574

 

2,923,634

 

2,705,017

 

Electrical Components International, Inc.

 

Synthetic Revolving Loan

 

Loan

 

6.75

%

2/4/2016

 

$

117,647

 

116,257

 

104,118

 

Electrical Components International, Inc.

 

Term Loan

 

Loan

 

6.75

%

2/4/2017

 

$

1,804,706

 

1,782,426

 

1,597,165

 

Federal-Mogul Corporation

 

Tranche B Term Loan

 

Loan

 

2.20

%

12/29/2014

 

$

2,616,289

 

2,475,132

 

2,500,204

 

Federal-Mogul Corporation

 

Tranche C Term Loan

 

Loan

 

2.19

%

12/28/2015

 

$

1,334,841

 

1,257,114

 

1,275,614

 

Fidelity National Information Services, Inc.

 

Term B Loan

 

Loan

 

4.25

%

7/18/2016

 

$

1,000,000

 

990,338

 

1,004,450

 

First Data Corporation

 

2018 Dollar Term Loan

 

Loan

 

4.24

%

3/23/2018

 

$

2,290,451

 

2,202,287

 

2,041,845

 

First Data Corporation

 

Non Extending B-1 Term Loan

 

Loan

 

2.99

%

9/24/2014

 

$

1,971,336

 

1,933,908

 

1,890,472

 

First Data Corporation

 

Non Extending B-2 Term Loan

 

Loan

 

2.99

%

9/24/2014

 

$

990,052

 

971,955

 

949,440

 

FleetPride Corporation

 

Term Loan

 

Loan

 

6.75

%

12/6/2017

 

$

1,000,000

 

980,767

 

995,000

 

FR Acquisitions Holding Corporation (Luxembourg), S.A.R.L.

 

Facility B (Dollar)

 

Loan

 

5.08

%

12/18/2015

 

$

1,295,106

 

1,291,993

 

1,221,454

 

FR Acquisitions Holding Corporation (Luxembourg), S.A.R.L.

 

Facility C (Dollar)

 

Loan

 

5.58

%

12/20/2016

 

$

1,295,106

 

1,291,613

 

1,227,929

 

Freescale Semiconductor, Inc.

 

Tranche B-1 Term Loan

 

Loan

 

4.52

%

12/1/2016

 

$

1,534,348

 

1,468,484

 

1,496,711

 

 

23



Table of Contents

 

Issuer_Name

 

Asset_Name

 

Asset_Type

 

Current
Rate

 

Maturity
Date

 

Principal /
Number of
Shares

 

Cost

 

Fair Value

 

Fresenius Medical Care AG & Co., KGaA/Fresenius Medical Care Holdings, Inc.

 

Tranche B Term Loan

 

Loan

 

1.95

%

3/31/2013

 

$

4,224,718

 

4,206,870

 

4,209,889

 

FTD Group, Inc.

 

Initial Term Loan

 

Loan

 

4.75

%

6/11/2018

 

$

3,982,494

 

3,943,002

 

3,902,844

 

Generac Power System, Inc.

 

Tranche B Term Loan

 

Loan

 

3.75

%

2/9/2019

 

$

500,000

 

497,509

 

497,855

 

General Nutrition Centers, Inc.

 

Tranche B Term Loan

 

Loan

 

4.25

%

3/2/2018

 

$

3,750,000

 

3,621,437

 

3,738,900

 

Goodyear Tire & Rubber Company, The

 

Loan (Second Lien)

 

Loan

 

1.75

%

4/30/2014

 

$

5,700,000

 

5,339,456

 

5,607,375

 

Graphic Packaging International, Inc.

 

Term B Loan Retired 03/16/2012

 

Loan

 

2.34

%

5/16/2014

 

$

3,045,465

 

2,910,836

 

3,041,993

 

Grifols Inc.

 

New U.S. Tranche B Term Loan

 

Loan

 

0.00

%

6/1/2017

 

$

500,000

 

497,500

 

499,530

 

Grosvenor Capital Management Holdings, LLLP

 

Tranche C Term Loan

 

Loan

 

4.31

%

12/5/2016

 

$

3,430,885

 

3,321,594

 

3,276,495

 

Hanger Orthopedic Group, Inc.

 

Term C Loan

 

Loan

 

4.01

%

12/1/2016

 

$

3,960,000

 

3,972,323

 

3,905,550

 

HCA Inc.

 

Tranche B-3 Term Loan

 

Loan

 

3.49

%

5/1/2018

 

$

5,734,690

 

5,383,348

 

5,638,634

 

Health Management Associates, Inc.

 

Term B Loan

 

Loan

 

4.50

%

11/16/2018

 

$

3,000,000

 

2,970,763

 

2,981,640

 

Hilsinger Company, The

 

Term Loan

 

Loan

 

5.26

%

12/31/2013

 

$

1,218,491

 

1,203,274

 

1,072,272

 

Hunter Defense Technologies, Inc.

 

Term Loan

 

Loan

 

3.83

%

8/22/2014

 

$

4,459,263

 

4,388,148

 

3,879,559

 

Huntsman International LLC

 

Extended Term B Loan

 

Loan

 

0.00

%

4/19/2017

 

$

4,000,000

 

3,955,000

 

3,923,200

 

Hygenic Corporation, The

 

Term Loan

 

Loan

 

2.76

%

4/30/2013

 

$

1,563,048

 

1,536,828

 

1,438,004

 

Infor Enterprise Solutions Holdings, Inc. (fka Magellan Holdings, Inc.)(Infor Global Solutions)

 

Extended Delayed Draw Term Loan (First Lien)

 

Loan

 

6.00

%

7/28/2015

 

$

1,314,907

 

1,229,818

 

1,276,828

 

Infor Enterprise Solutions Holdings, Inc. (fka Magellan Holdings, Inc.)(Infor Global Solutions)

 

Extended Initial U.S. Term Loan (First Lien)

 

Loan

 

6.00

%

7/28/2015

 

$

2,520,239

 

2,356,915

 

2,447,253

 

Inventiv Health, Inc. (fka Ventive Health, Inc)

 

Consolidated Term Loan

 

Loan

 

6.50

%

8/4/2016

 

$

494,587

 

494,587

 

475,422

 

J. Crew Group, Inc.

 

Loan

 

Loan

 

4.75

%

3/7/2018

 

$

992,500

 

992,500

 

970,963

 

Kalispel Tribal Economic Authority

 

Term Loan

 

Loan

 

7.50

%

2/25/2017

 

$

3,859,091

 

3,794,849

 

3,627,546

 

Key Safety Systems, Inc.

 

Term Loan (First Lien)

 

Loan

 

2.59

%

3/8/2014

 

$

3,821,774

 

$

3,604,295

 

$

3,667,718

 

Kinetic Concepts, Inc.

 

Dollar Term B-1 Loan

 

Loan

 

7.00

%

5/4/2018

 

$

500,000

 

483,349

 

508,125

 

Leslie’s Poolmart, Inc.

 

Tranche B Term Loan

 

Loan

 

4.50

%

11/21/2016

 

$

3,960,000

 

3,965,615

 

3,920,400

 

Metal Services, LLC

 

Delayed Draw Term Loan

 

Loan

 

9.75

%

9/29/2017

 

$

132,353

 

129,737

 

132,022

 

Metal Services, LLC

 

U.S. Term Loan

 

Loan

 

9.75

%

9/29/2017

 

$

1,367,647

 

1,340,612

 

1,364,228

 

Microsemi Corporation

 

Term Loan

 

Loan

 

0.00

%

2/2/2018

 

$

3,000,000

 

2,992,500

 

2,997,750

 

National CineMedia, LLC

 

Term Loan

 

Loan

 

2.05

%

2/13/2015

 

$

2,655,172

 

2,572,741

 

2,608,707

 

Nielsen Finance LLC

 

Class A Dollar Term Loan

 

Loan

 

2.26

%

8/9/2013

 

$

720,738

 

710,645

 

717,134

 

Novelis, Inc.

 

Term B-2 Loan

 

Loan

 

4.00

%

3/10/2017

 

$

997,500

 

973,592

 

993,141

 

Novelis, Inc.

 

Term Loan

 

Loan

 

4.00

%

3/10/2017

 

$

3,960,000

 

3,993,151

 

3,939,487

 

Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)

 

Term Loan (First Lien)

 

Loan

 

6.50

%

4/27/2017

 

$

4,937,500

 

4,913,011

 

4,873,313

 

NPC International, Inc.

 

Term Loan

 

Loan

 

6.75

%

12/28/2018

 

$

500,000

 

490,246

 

502,970

 

NRG Energy, Inc.

 

Term Loan

 

Loan

 

4.00

%

7/1/2018

 

$

3,980,000

 

3,951,892

 

3,961,334

 

NuSil Technology LLC

 

Term Loan

 

Loan

 

5.25

%

4/7/2017

 

$

905,085

 

905,085

 

902,071

 

Onex Carestream Finance LP

 

Term Loan

 

Loan

 

5.00

%

2/25/2017

 

$

4,961,770

 

4,941,092

 

4,707,479

 

OpenLink International, Inc.

 

Initial Term Loan

 

Loan

 

7.75

%

10/30/2017

 

$

1,000,000

 

981,105

 

1,000,000

 

PATS Aircraft, LLC

 

Term Loan

 

Loan

 

8.50

%

10/6/2016

 

$

431,472

 

248,964

 

388,325

 

Pelican Products, Inc.

 

Term Loan

 

Loan

 

5.00

%

3/7/2017

 

$

2,673,704

 

2,673,704

 

2,653,651

 

Penn National Gaming, Inc.

 

Term A Facility

 

Loan

 

1.79

%

7/14/2016

 

$

2,925,000

 

2,847,453

 

2,837,250

 

Penn National Gaming, Inc.

 

Term B Facility

 

Loan

 

3.75

%

7/16/2018

 

$

995,000

 

992,736

 

996,930

 

PetCo Animal Supplies, Inc.

 

New Loan

 

Loan

 

0.00

%

11/24/2017

 

$

1,500,000

 

1,498,125

 

1,493,115

 

Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)

 

Term Loan

 

Loan

 

6.25

%

12/5/2018

 

$

2,000,000

 

1,970,941

 

2,017,860

 

Pharmaceutical Research Associates Group B.V.

 

Dutch Dollar Term Loan

 

Loan

 

3.81

%

12/15/2014

 

$

799,151

 

753,650

 

775,176

 

Physician Oncology Services, LP

 

Delayed Draw Term Loan

 

Loan

 

6.25

%

1/31/2017

 

$

51,020

 

50,596

 

49,235

 

Physician Oncology Services, LP

 

Effective Date Term Loan

 

Loan

 

6.25

%

1/31/2017

 

$

419,961

 

416,468

 

405,262

 

Pinnacle Foods Finance LLC

 

Term Loan

 

Loan

 

2.84

%

4/2/2014

 

$

4,796,078

 

4,694,850

 

4,766,054

 

Polyone Corporation

 

Loan

 

Loan

 

5.00

%

12/20/2017

 

$

500,000

 

495,160

 

500,730

 

PRA International

 

U.S. Term Loan

 

Loan

 

3.81

%

12/15/2014

 

$

2,512,401

 

2,439,376

 

2,437,029

 

Preferred Proppants, LLC

 

Term B Loan

 

Loan

 

7.50

%

12/15/2016

 

$

2,000,000

 

1,960,652

 

1,945,000

 

Pre-Paid Legal Services, Inc.

 

Tranche A Term Loan

 

Loan

 

7.50

%

12/31/2016

 

$

2,695,122

 

2,659,371

 

2,607,530

 

Prestige Brands, Inc.

 

Term B Loan

 

Loan

 

5.25

%

1/31/2019

 

$

1,000,000

 

985,047

 

1,003,060

 

Pro Mach, Inc.

 

Term Loan

 

Loan

 

6.25

%

7/6/2017

 

$

1,990,000

 

1,972,106

 

1,930,300

 

Quintiles Transnational Corp.

 

Term B Loan

 

Loan

 

5.00

%

6/8/2018

 

$

3,980,000

 

3,944,328

 

3,953,692

 

RailAmerica, Inc.

 

Initial Loan

 

Loan

 

0.00

%

3/1/2019

 

$

500,000

 

497,500

 

497,500

 

Ranpak Corp.

 

USD Term Loan (First Lien)

 

Loan

 

4.75

%

4/20/2017

 

$

2,744,392

 

2,732,572

 

2,716,948

 

Rexnord LLC/RBS Global, Inc.

 

Tranche B-2 Term B Loan Retired 03/15/2012

 

Loan

 

2.50

%

7/19/2013

 

$

1,607,683

 

1,566,832

 

1,590,609

 

Reynolds Group Holdings Inc.

 

Tranche B Term Loan

 

Loan

 

6.50

%

2/9/2018

 

$

1,963,643

 

1,963,643

 

1,977,880

 

Reynolds Group Holdings Inc.

 

Tranche C Term Loan

 

Loan

 

6.50

%

8/9/2018

 

$

1,973,590

 

1,955,434

 

1,992,398

 

Rocket Software, Inc.

 

Term Loan (First Lien)

 

Loan

 

7.00

%

2/8/2018

 

$

2,000,000

 

1,960,110

 

1,997,500

 

Roundy’s Supermarkets, Inc.

 

Tranche B Term Loan

 

Loan

 

5.75

%

2/13/2019

 

$

1,000,000

 

985,035

 

1,000,780

 

Royal Adhesives and Sealants, LLC

 

Term A Loan

 

Loan

 

7.25

%

11/29/2015

 

$

4,785,882

 

4,729,636

 

4,715,862

 

RPI Finance Trust

 

6.75 Year Term Loan

 

Loan

 

4.00

%

5/9/2018

 

$

5,472,500

 

5,447,342

 

5,462,868

 

Safety-Kleen Systems, Inc.

 

Term Loan B

 

Loan

 

5.00

%

2/21/2017

 

$

250,000

 

247,501

 

250,000

 

Savers, Inc.

 

New Term Loan

 

Loan

 

4.25

%

3/4/2017

 

$

464,891

 

464,891

 

464,426

 

Scientific Games International Inc.

 

Tranche B-1 Term Loan

 

Loan

 

0.00

%

6/30/2015

 

$

2,000,000

 

1,985,000

 

1,985,000

 

Scitor Corporation

 

Term Loan

 

Loan

 

5.00

%

2/15/2017

 

$

476,818

 

474,846

 

458,937

 

Scotsman Industries, Inc.

 

Term Loan

 

Loan

 

5.75

%

4/30/2016

 

$

1,873,081

 

1,867,006

 

1,863,716

 

Seminole Tribe of Florida

 

Term B-1 Delay Draw Loan

 

Loan

 

2.13

%

3/5/2014

 

$

616,208

 

605,662

 

607,476

 

Seminole Tribe of Florida

 

Term B-2 Delay Draw Loan

 

Loan

 

2.13

%

3/5/2014

 

$

2,230,224

 

2,192,054

 

2,198,622

 

 

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Table of Contents

 

Issuer_Name

 

Asset_Name

 

Asset_Type

 

Current
Rate

 

Maturity
Date

 

Principal /
Number of
Shares

 

Cost

 

Fair Value

 

Seminole Tribe of Florida

 

Term B-3 Delay Draw Loan

 

Loan

 

2.13

%

3/5/2014

 

$

1,108,287

 

1,082,950

 

1,092,583

 

Sensata Technology BV/Sensata Technology Finance Company, LLC

 

Term Loan

 

Loan

 

0.00

%

5/12/2018

 

$

3,000,000

 

3,000,000

 

2,994,150

 

Sensus USA Inc. (fka Sensus Metering Systems)

 

Term Loan (First Lien)

 

Loan

 

4.75

%

5/9/2017

 

$

1,985,000

 

1,976,380

 

1,981,030

 

SI Organization, Inc., The

 

New Tranche B Term Loan

 

Loan

 

4.50

%

11/22/2016

 

$

3,960,000

 

3,928,772

 

3,794,987

 

Sophia, L.P.

 

Initial Term Loan

 

Loan

 

6.25

%

7/19/2018

 

$

1,000,000

 

$

985,259

 

$

1,010,630

 

SRA International Inc.

 

Term Loan

 

Loan

 

6.52

%

7/20/2018

 

$

3,725,714

 

3,582,427

 

3,665,171

 

SRAM, LLC

 

Term Loan (First Lien)

 

Loan

 

4.76

%

6/7/2018

 

$

3,886,998

 

3,850,268

 

3,882,139

 

SunCoke Energy, Inc.

 

Tranche B Term Loan

 

Loan

 

4.00

%

7/26/2018

 

$

4,484,984

 

4,452,979

 

4,473,771

 

SunGard Data Systems Inc (Solar Capital Corp.)

 

Incremental Term B Loan

 

Loan

 

3.74

%

2/28/2014

 

$

356,996

 

356,996

 

355,911

 

SunGard Data Systems Inc (Solar Capital Corp.)

 

Tranche A U.S. Term Loan

 

Loan

 

2.00

%

2/28/2014

 

$

140,691

 

138,222

 

140,363

 

SunGard Data Systems Inc (Solar Capital Corp.)

 

Tranche B U.S. Term Loan

 

Loan

 

4.06

%

2/28/2016

 

$

3,253,748

 

3,173,463

 

3,246,265

 

Sunquest Information Systems, Inc. (Misys Hospital Systems, Inc.)

 

Term Loan (First Lien)

 

Loan

 

6.25

%

12/16/2016

 

$

992,500

 

980,580

 

986,714

 

SuperMedia Inc. (fka Idearc Inc.)

 

Loan

 

Loan

 

11.00

%

12/31/2015

 

$

326,109

 

317,228

 

164,685

 

Taminco Global Chemical Corporation

 

Dollar Term Loan

 

Loan

 

6.25

%

2/15/2019

 

$

500,000

 

490,024

 

501,875

 

TDG Holding Company (fka Dwyer Acquisition, Inc.)

 

Term Loan

 

Loan

 

7.00

%

12/23/2015

 

$

3,463,273

 

3,422,302

 

3,411,324

 

Team Health, Inc.

 

Tranche B Term Loan

 

Loan

 

3.75

%

6/29/2018

 

$

4,477,500

 

4,457,147

 

4,331,981

 

Texas Competitive Electric Holdings Company, LLC (TXU)

 

2014 Term Loan (Non-Extending)

 

Loan

 

3.76

%

10/10/2014

 

$

5,580,862

 

5,494,432

 

3,406,670

 

TransDigm Inc.

 

Tranche B-1 Term Loan

 

Loan

 

4.00

%

2/14/2017

 

$

3,988,779

 

4,002,125

 

3,985,269

 

TransFirst Holdings, Inc.

 

Term Loan (First Lien)

 

Loan

 

3.00

%

6/16/2014

 

$

2,387,500

 

2,350,983

 

2,282,044

 

U.S. Security Associates Holdings, Inc.

 

Delayed Draw Term Loan

 

Loan

 

6.00

%

7/28/2017

 

$

163,000

 

161,527

 

161,778

 

U.S. Security Associates Holdings, Inc.

 

Term Loan B

 

Loan

 

6.00

%

7/28/2017

 

$

125,000

 

124,375

 

124,688

 

U.S. Security Associates Holdings, Inc.

 

Term Loan B

 

Loan

 

6.00

%

7/28/2017

 

$

834,908

 

827,364

 

832,820

 

U.S. Silica Company

 

Loan

 

Loan

 

4.75

%

6/8/2017

 

$

1,990,000

 

1,981,242

 

1,972,588

 

Univar Inc.

 

Term B Loan

 

Loan

 

5.00

%

6/30/2017

 

$

3,964,975

 

3,963,846

 

3,928,021

 

UPC Financing Partnership

 

Facility AB

 

Loan

 

4.75

%

12/31/2017

 

$

1,000,000

 

971,447

 

998,250

 

USI Holdings Corporation

 

Tranche B Term Loan

 

Loan

 

2.75

%

5/5/2014

 

$

4,782,211

 

4,685,075

 

4,678,581

 

Valeant Pharmaceuticals International, Inc.

 

Tranche B Term Loan

 

Loan

 

3.75

%

2/13/2019

 

$

1,000,000

 

995,002

 

996,880

 

Vantiv, LLC (fka Fifth Third Processing Solutions, LLC)

 

Term B-1 Loan (First Lien)

 

Loan

 

4.50

%

11/3/2016

 

$

3,979,950

 

3,988,810

 

3,982,776

 

Verint Systems Inc.

 

Term Loan 2011

 

Loan

 

4.50

%

10/27/2017

 

$

1,985,000

 

1,976,319

 

1,978,807

 

Visant Corporation (fka Jostens)

 

Tranche B Term Loan (2011)

 

Loan

 

5.25

%

12/22/2016

 

$

3,767,519

 

3,767,519

 

3,611,430

 

Weight Watchers International, Inc.

 

Term B Loan

 

Loan

 

1.88

%

1/26/2014

 

$

1,229,200

 

1,220,261

 

1,221,518

 

Weight Watchers International, Inc.

 

Term D Loan

 

Loan

 

2.88

%

6/30/2016

 

$

2,728,226

 

2,684,697

 

2,714,585

 

Wendy’s/Arby’s Restaurants, LLC

 

Term Loan

 

Loan

 

5.00

%

5/24/2017

 

$

1,122,902

 

1,118,702

 

1,123,745

 

Wil Research Laboratories, LLC

 

Term B Loan

 

Loan

 

4.00

%

9/26/2013

 

$

1,808,039

 

1,726,498

 

1,663,396

 

WireCo WorldGroup Inc.

 

Term Loan

 

Loan

 

5.00

%

2/10/2014

 

$

1,992,943

 

1,967,101

 

1,953,084

 

Yankee Candle Company, Inc., The

 

Term Loan

 

Loan

 

2.25

%

2/6/2014

 

$

2,537,336

 

2,419,753

 

2,523,428

 

Yell Group Plc

 

Facility B1—YB (USA) LLC (11/2009)

 

Loan

 

3.99

%

7/31/2014

 

$

3,139,856

 

3,090,757

 

961,141

 

ALM 2010-1A

 

Floating—05/2020—B—00162VAE5

 

Other/Structured Finance Securities

 

2.78

%

5/20/2020

 

$

4,000,000

 

3,716,602

 

3,657,600

 

BABSN 2007-1A

 

Floating—01/2021—D1—05617AAA9

 

Other/Structured Finance Securities

 

3.81

%

1/18/2021

 

$

1,500,000

 

1,236,977

 

1,050,000

 

GALE 2007-3A

 

Floating—04/2021—E—363205AA3

 

Other/Structured

 

4.06

%

4/19/2021

 

$

4,000,000

 

3,311,208

 

2,800,000

 

KATO 2006-9A

 

Floating—01/2019—B2L—486010AA9

 

Other/Structured Finance Securities

 

4.06

%

1/25/2019

 

$

5,000,000

 

4,227,490

 

3,500,000

 

STCLO 2007-6A

 

Floating—04/2021—D—86176YAG7

 

Other/Structured Finance Securities

 

4.17

%

4/17/2021

 

$

5,000,000

 

4,077,701

 

3,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

$

390,023,603

 

$

381,364,466

 

 

Note 5. Agreements

 

On July 30, 2010, the Company entered into an investment advisory and management agreement (the “Management Agreement”) with our Manager. The initial term of the Management Agreement is two years, with automatic, one-year renewals at the end of each year subject to certain approvals by our board of directors and/or our stockholders. On July 9, 2012, our board of directors approved the renewal of the Management Agreement for an additional one-year term. Pursuant to the Management Agreement, our Manager implements our business strategy on a day-to-day basis and performs certain services for us, subject to oversight by our board of directors. Our Manager is responsible for, among other duties, determining investment criteria, sourcing, analyzing and executing investment transactions, asset sales, financings and performing asset management duties. Under the Management Agreement, we have agreed to pay our Manager a management fee for investment advisory and management services consisting of a base management fee and an incentive fee.

 

The base management fee of 1.75% is calculated based on the average value of our gross assets (other than cash or cash equivalents, but including assets purchased with borrowed funds) at the end of the two most recently completed fiscal quarters, and appropriately adjusted for any share issuances or repurchases during the applicable fiscal quarter.

 

The incentive fee consists of the following two parts:

 

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Table of Contents

 

The first, payable quarterly in arrears, equals 20% of our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding quarter, that exceeds a 1.875% quarterly (7.5% annualized) hurdle rate measured as of the end of each fiscal quarter, subject to a “catch-up” provision. Under this provision, in any fiscal quarter, our Manager receives no incentive fee unless our pre-incentive fee net investment income exceeds the hurdle rate of 1.875%. Our Manager will receive 100% of pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than or equal to 2.344% in any fiscal quarter (9.376% annualized); and 20% of the amount of the our pre-incentive fee net investment income, if any, that exceeds 2.344% in any fiscal quarter (9.376% annualized).

 

The second part of the incentive fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Management Agreement) and equals 20% of our “incentive fee capital gains,” which equals our realized capital gains on a cumulative basis from August 31, 2010 through the end of the year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis from August 31, 2010, less the aggregate amount of any previously paid capital gain incentive fee. Importantly, the capital gains portion of the incentive fee is based on realized gains and realized and unrealized losses from August 31, 2010. Therefore, realized and unrealized losses incurred prior to such time will not be taken into account when calculating the capital gains portion of the incentive fee, and our Manager will be entitled to 20% of incentive fee capital gains that arise after August 31, 2010. In addition, for the purpose of the “incentive fee capital gains” calculations, the cost basis for computing realized gains and losses on investments held by us as of August 31, 2010 will equal the fair value of such investments as of such date.

 

For the three months ended November 30, 2012 and 2011, we accrued $0.5 million and $0.4 million in base management fees, respectively. For the three months ended November 30, 2012 and 2011, we incurred $0.1 million and $0.3 million in incentive fees related to pre-incentive fee net investment income, respectively. For the three months ended November 30, 2012, we reduced the incentive fees related to capital gains by $0.5 million. For the three months ended November 30, 2011, we accrued $0.9 million in incentive fees related to capital gains. For the nine months ended November 30, 2012 and 2011, we accrued $1.5 million and $1.2 million in base management fees, respectively. For the nine months ended November 30, 2012 and 2011, we incurred $0.4 million and $0.3 million in incentive fees related to pre-incentive fee net investment income, respectively. For the nine months ended November 30, 2012 and 2011, we accrued $0.5 million and $0.5 million in incentive fees related to capital gains, respectively. The accruals related to the capital gains incentive fees were calculated using both realized and unrealized capital gains for the period. The actual incentive fee related to capital gains will be determined and payable in arrears at the end of the fiscal year and will include only realized capital gains for the period.  As of November 30, 2012, $0.5 million of base management fees and $2.8 million of incentive fees were accrued and included in management and incentive fees payable in the accompanying consolidated statement of assets and liabilities.

 

On July 30, 2010, the Company entered into a separate administration agreement (the “Administration Agreement”) with our Manager, pursuant to which our Manager, as our administrator, has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide managerial assistance on our behalf to those portfolio companies to which we are required to provide such assistance. The initial term of the Administration Agreement is two years, with automatic, one-year renewals at the end of each year subject to certain approvals by our board of directors and/or our stockholders. The amount of expenses payable or reimbursable thereunder by the Company is capped at $1 million for the initial two year term of the Administration Agreement. On July 9, 2012, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to maintain the cap on the payment or reimbursement of expenses by the Company thereunder to $1 million for the additional one-year term.

 

For the three months ended November 30, 2012 and 2011, we recognized $0.3 million and $0.3 million in administrator expenses for the periods, pertaining to bookkeeping, record keeping and other administrative services provided to us in addition to our allocable portion of rent and other overhead related expenses. For the nine months ended November 30, 2012 and 2011, we recognized $0.8 million and $0.7 million in administrator expenses for the periods, pertaining to bookkeeping, record keeping and other administrative services provided to us in addition to our allocable portion of rent and other overhead related expenses. As of November 30, 2012, $0.1 million of administrator expenses were accrued and included in due to manager in the accompanying consolidated statement of assets and liabilities.

 

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Table of Contents

 

Note 6. Borrowings

 

Credit Facility

 

As a BDC, we are only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200% after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.

 

On April 11, 2007, we entered into a $100.0 million revolving securitized credit facility (the “Revolving Facility”). On May 1, 2007, we entered into a $25.7 million term securitized credit facility (the “Term Facility” and, together with the Revolving Facility, the “Facilities”), which was fully drawn at closing. In December 2007, we consolidated the Facilities by using a draw under the Revolving Facility to repay the Term Facility. In response to the market wide decline in financial asset prices, which negatively affected the value of our portfolio, we terminated the revolving period of the Revolving Facility effective January 14, 2009 and commenced a two-year amortization period during which all principal proceeds from the collateral was used to repay outstanding borrowings. A significant percentage of our total assets had been pledged under the Revolving Facility to secure our obligations thereunder. Under the Revolving Facility, funds were borrowed from or through certain lenders and interest was payable monthly at the greater of the commercial paper rate and our lender’s prime rate plus 4.00% plus a default rate of 2.00% or, if the commercial paper market was unavailable, the greater of the prevailing LIBOR rates and our lender’s prime rate plus 6.00% plus a default rate of 3.00%.

 

In March 2009, we amended the Revolving Facility to increase the portion of the portfolio that could be invested in “CCC” rated investments in return for an increased interest rate and expedited amortization. As a result of these transactions, we expected to have additional cushion under our borrowing base under the Revolving Facility that would allow us to better manage our capital in times of declining asset prices and market dislocation.

 

On July 30, 2009, we exceeded the permissible borrowing limit under the Revolving Facility for 30 consecutive days, resulting in an event of default under the Revolving Facility. As a result of this event of default, our lender had the right to accelerate repayment of the outstanding indebtedness under the Revolving Facility and to foreclose and liquidate the collateral pledged thereunder. Acceleration of the outstanding indebtedness and/or liquidation of the collateral could have had a material adverse effect on our liquidity, financial condition and operations.

 

On July 30, 2010, we used the net proceeds from (i) the stock purchase transaction and (ii) a portion of the funds available to us under a $40.0 million senior secured revolving credit facility (the “Replacement Facility”) with Madison Capital Funding LLC, in each case, described in “Note 12. Recapitalization Transaction” below, to pay the full amount of principal and accrued interest, including default interest, outstanding under the Revolving Facility. As a result, the Revolving Facility was terminated in connection therewith. Substantially all of our total assets have been pledged under the Replacement Facility to secure our obligations thereunder.

 

On February 24, 2012, we amended our senior secured revolving credit facility with Madison Capital Funding LLC to, among other things:

 

·                  expand the borrowing capacity under the credit facility from $40 million to $45 million;

 

·                  extend the period during which we may make and repay borrowings under the credit facility from July 30, 2013 to February 24, 2015 (the “Revolving Period”). The Revolving Period may end upon the occurrence of an event of default, by action of the lenders or automatically. All borrowings and other amounts payable under the credit facility are due and payable five years after the end of the Revolving Period; and

 

·                  remove the condition that we may not acquire additional loan assets without the prior written consent of Madison Capital Funding LLC.

 

As of November 30, 2012, there was $14.9 million outstanding under the Replacement Facility and the Company was in compliance with all of the limitations and requirements of the Replacement Facility. The carrying amount of the amount outstanding under the Replacement Facility approximates its fair value. $2.8 million of financing costs related to the Replacement Facility have been capitalized and are being amortized over the term of the facility. For the three months ended November 30, 2012 and 2011, we recorded $0.4 million and $0.1 million of interest expense related to the Replacement Facility, respectively. For the three months ended November 30, 2012 and 2011, we recorded $0.1 million and $0.2 million of amortization of deferred financing costs related to the Replacement Facility, respectively. The interest rates during the nine months ended November 30, 2012 and 2011 on the outstanding borrowings of the Replacement Facility were 7.50% and

 

27



Table of Contents

 

7.50%, respectively. For the nine months ended November 30, 2012 and 2011, we recorded $1.5 million and $0.5 million of interest expense related to the Replacement Facility, respectively. For the nine months ended November 30, 2012 and 2011, we recorded $0.3 million and $0.5 million of amortization of deferred financing costs related to the Replacement Facility, respectively.

 

The Replacement Facility contains limitations as to how borrowed funds may be used, such as restrictions on industry concentrations, asset size, weighted average life, currency denomination and collateral interests. The Replacement Facility also includes certain requirements relating to portfolio performance, the violation of which could result in the limit of further advances and, in some cases, result in an event of default, allowing the lenders to accelerate repayment of amounts owed thereunder. The Replacement Facility has an eight year term, consisting of a three year period (the “Revolving Period”), under which the Company may make and repay borrowings, and a final maturity five years from the end of the Revolving Period. Availability on the Replacement Facility will be subject to a borrowing base calculation, based on, among other things, applicable advance rates (which vary from 50% to 75% of par or fair value depending on the type of loan asset) and the value of certain “eligible” loan assets included as part of the Borrowing Base. Funds may be borrowed at the greater of the prevailing LIBOR rate and 2.00%, plus an applicable margin of 5.50%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 3.00%, and the applicable margin over such alternative base rate is 4.50%. In addition, the Company will pay the lenders a commitment fee of 0.75% per year on the unused amount of the Replacement Facility for the duration of the Revolving Period.

 

Our borrowing base under the Replacement Facility was $27.7 million at November 30, 2012. For purposes of determining the borrowing base, most assets are assigned the values set forth in our most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q filed with the SEC. Accordingly, the November 30, 2012 borrowing base relies upon the valuations set forth in the Quarterly Report on Form 10-Q for the period ended August 31, 2012. The valuations presented in this Quarterly Report on Form 10-Q will not be incorporated into the borrowing base until after this Quarterly Report on Form 10-Q is filed with the SEC.

 

SBA Debentures

 

SBIC LP is able to borrow funds from the SBA against regulatory capital (which approximates equity capital) that is paid in and is subject to customary regulatory requirements including but not limited to an examination by the SBA. As of November 30, 2012, we have funded SBIC LP with $25.0 million of equity capital, and have $4.0 million of SBA-guaranteed debentures outstanding. SBA debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven spread over 10-year U.S. Treasury Notes. SBA current regulations limit the amount that SBIC LP may borrow to a maximum of $150.0 million, which is up to twice its potential regulatory capital.

 

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses. Under present SBA regulations, eligible small businesses include businesses that have a tangible net worth not exceeding $18 million and have average annual fully taxed net income not exceeding $6 million for the two most recent fiscal years. In addition, an SBIC must devote 25% of its investment activity to ‘‘smaller’’ concerns as defined by the SBA. A smaller concern is one that has a tangible net worth not exceeding $6 million and has average annual fully taxed net income not exceeding $2 million for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services.

 

SBIC LP is subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other covenants. Receipt of an SBIC license does not assure that SBIC LP will receive SBA guaranteed debenture funding, which is dependent upon SBIC LP continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to SBIC LP’s assets over our stockholders in the event we liquidate SBIC LP or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC LP upon an event of default.

 

The Company received exemptive relief from the Securities and Exchange Commission to permit it to exclude the debt of SBIC LP guaranteed by the SBA from the definition of senior securities in the 200% asset coverage test under the 1940 Act. This allows the Company increased flexibility under the 200% asset coverage test by permitting it to borrow up to $150 million more than it would otherwise be able to absent the receipt of this exemptive relief.

 

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As of November 30, 2012, there was $4.0 million outstanding of SBA debentures. The carrying amount of the amount outstanding of SBA debentures approximates its fair value. $0.6 million of financing costs related to the SBA debentures have been capitalized and are being amortized over the term of the commitment and drawdown. For the three months ended November 30, 2012, we recorded $0.001 million of interest expense related to the SBA debentures. For the three months ended November 30, 2012, we recorded $0.03 million of amortization of deferred financing costs related to the SBA debentures. The interest rates during the nine months ended November 30, 2012 on the outstanding borrowings of the SBA debentures was 1.47%. For the nine months ended November 30, 2012, we recorded $0.001 million of interest expense related to the SBA debentures. For the nine months ended November 30, 2012, we recorded $0.04 million of amortization of deferred financing costs related to the SBA debentures. There were no outstanding SBA debentures at November 30, 2011.

 

Note 7. Directors Fees

 

The independent directors receive an annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting. In addition, the chairman of the Audit Committee receives an annual fee of $5,000 and the chairman of each other committee receives an annual fee of $2,000 for their additional services in these capacities. In addition, we have purchased directors’ and officers’ liability insurance on behalf of our directors and officers. Independent directors have the option to receive their directors’ fees in the form of our common stock issued at a price per share equal to the greater of net asset value or the market price at the time of payment. No compensation is paid to directors who are “interested persons” of the Company (as such term is defined in the 1940 Act). For the three months ended November 30, 2012 and 2011, we accrued $0.05 million and $0.05 million for directors’ fees expense, respectively. For the nine months ended November 30, 2012 and 2011, we accrued $0.2 million and $0.2 million for directors’ fees expense, respectively. As of November 30, 2012, $0.05 million in directors’ fees expense were unpaid and included in accounts payable and accrued expenses in the consolidated statements of assets and liabilities. As of November 30, 2012, we had not issued any common stock to our directors as compensation for their services.

 

Note 8. Stockholders’ Equity

 

On May 16, 2006, GSC Group, Inc. (“GSC Group”) capitalized the LLC, by contributing $1,000 in exchange for 6.7 shares, constituting all of the issued and outstanding shares of the LLC.

 

On March 20, 2007, the Company issued 95,995.5 and 8,136.2 shares of common stock, priced at $150.00 per share, to GSC Group and certain individual employees of GSC Group, respectively, in exchange for the general partnership interest and a limited partnership interest in GSC Partners CDO III GP, LP, collectively valued at $15.6 million. At this time, the 6.7 shares owned by GSC Group in the LLC were exchanged for 6.7 shares of the Company.

 

On March 28, 2007, the Company completed its IPO of 725,000 shares of common stock, priced at $150.00 per share, before underwriting discounts and commissions. Total proceeds received from the IPO, net of $7.1 million in underwriter’s discount and commissions, and $1.0 million in offering costs, were $100.7 million.

 

On November 13, 2009, the Company declared a dividend of $18.25 per share payable on December 31, 2009. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.1 million or $2.50 per share. Based on shareholder elections, the dividend consisted of $2.1 million in cash and 864,872.5 of newly issued shares of common stock.

 

On July 30, 2010, our Manager and its affiliates purchased 986,842 shares of common stock at $15.20 per share. Total proceeds received from this sale were $15.0 million. See “Note 12. Recapitalization Transaction.”

 

On August 12, 2010, the Company effected a one-for-ten reverse stock split of our outstanding common stock. As a result of the reverse stock split, every ten shares of our common stock were converted into one share of our common stock. Any fractional shares received as a result of the reverse stock split were redeemed for cash. The total cash payment in lieu of shares was $230. Immediately after the reverse stock split, we had 2,680,842 shares of our common stock outstanding.

 

On November 12, 2010, the Company declared a dividend of $4.40 per share payable on December 29, 2010. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $1.2

 

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million or $0.44 per share.  Based on shareholder elections, the dividend consisted of approximately $1.2 million in cash and 596,235 shares of common stock.

 

On November 15, 2011, the Company declared a dividend of $3.00 per share payable on December 30, 2011. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $2.0 million or $0.60 per share.  Based on shareholder elections, the dividend consisted of approximately $2.0 million in cash and 599,584 shares of common stock.

 

On November 9, 2012, the Company declared a dividend of $4.25 per share payable on December 31, 2012. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $3.3 million or $0.85 per share.  Based on shareholder elections, the dividend consisted of approximately $3.3 million in cash and 853,455 shares of common stock.

 

Note 9. Earnings Per Share

 

In accordance with the provisions of FASB ASC 260, “Earnings per Share” (“ASC 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

 

The following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations for the three and nine months ended November 30, 2012 and 2011 (dollars in thousands except share and per share amounts):

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

November 30,
2012

 

November 30,
2011

 

November 30,
2012

 

November 30,
2011

 

Basic and diluted

 

 

 

 

 

 

 

 

 

Net increase in net assets from operations

 

$

746

 

$

6,213

 

$

8,807

 

$

10,195

 

Weighted average common shares outstanding

 

3,970,447

 

3,310,021

 

3,907,696

 

3,287,979

 

Earnings per common share-basic and diluted

 

$

0.19

 

$

1.88

 

$

2.25

 

$

3.10

 

 

Note 10. Dividend

 

On November 9, 2012, the Company declared a dividend of $4.25 per share payable on December 31, 2012. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $3.3 million or $0.85 per share.

 

Based on shareholder elections, the dividend consisted of approximately $3.3 million in cash and 853,455 shares of common stock, or 22% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.444 per share, which equaled the volume weighted average trading price per share of the common stock on December 14, 17, 19, 2012. The consolidated financial statements for the period ended November 30, 2012 have been retroactively adjusted to reflect the increase in common stock as a result of the dividend in accordance with the provisions of ASC 505-20-S50 regarding disclosure of a capital structure change after the interim balance sheet but before the release of the financial statements.

 

On November 15, 2011, the Company declared a dividend of $3.00 per share payable on December 30, 2011. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $2.0 million or $0.60 per share.

 

Based on shareholder elections, the dividend consisted of approximately $2.0 million in cash and 599,584 shares of common stock, or 18% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be

 

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received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $13.117 per share, which equaled the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2011. The consolidated financial statements for the period ended November 30, 2011 have been retroactively adjusted to reflect the increase in common stock as a result of the dividend in accordance with the provisions of ASC 505-20-S50 regarding disclosure of a capital structure change after the interim balance sheet but before the release of the financial statements.

 

The following tables summarize dividends declared during the nine months ended November 30, 2012 and November 30, 2011 (dollars in thousands except per share amounts):

 

 

 

 

 

 

 

Amount Per

 

 

 

Date Declared

 

Record Date

 

Payment Date

 

Share *

 

Total Amount

 

November 9, 2012

 

November 20, 2012

 

December 31, 2012

 

$

4.25

 

$

16,476

 

 

 

 

 

 

 

 

 

 

 

Total dividends declared

 

 

 

 

 

$

4.25

 

$

16,476

 

 

 

 

 

 

 

 

Amount Per

 

 

 

Date Declared

 

Record Date

 

Payment Date

 

Share *

 

Total Amount

 

November 15, 2011

 

November 25, 2011

 

December 30, 2011

 

$

3.00

 

$

9,831

 

 

 

 

 

 

 

 

 

 

 

Total dividends declared

 

 

 

 

 

$

3.00

 

$

9,831

 

 


*                 Amount per share is calculated based on the number of shares outstanding at the date of declaration.

 

Note 11. Financial Highlights

 

The following is a schedule of financial highlights for the nine months ended November 30, 2012 and 2011:

 

 

 

November 30,
2012

 

November 30,
2011

 

Per share data:

 

 

 

 

 

Net asset value at beginning of period

 

$

25.12

 

$

26.26

 

Net investment income(1)

 

1.30

 

1.25

 

Net realized and unrealized gains and losses on investments and derivatives

 

0.95

 

1.84

 

Net increase in net assets from operations

 

2.25

 

3.09

 

Distributions declared from net investment income

 

(4.25

)

(3.00

)

Other (4)

 

(1.37

)

(2.03

)

Net asset value at end of period

 

$

21.75

 

$

24.32

 

Net assets at end of period

 

$

102,892,221

 

$

94,299,732

 

Shares outstanding at end of period

 

4,730,116

 

3,876,661

 

Per share market value at end of period

 

$

15.70

 

$

12.35

 

Total return based on market value(2)

 

26.07

%

(25.80

)%

Total return based on net asset value(3)

 

10.43

%

13.80

%

Ratio/Supplemental data:

 

 

 

 

 

Ratio of net investment income to average net assets(6)

 

6.63

%

6.04

%

Ratio of operating expenses to average net assets(6)

 

5.29

%

6.03

%

Ratio of incentive management fees to average net assets(6)

 

1.16

%

1.23

%

Ratio of credit facility related expenses to average net assets(6)

 

2.36

%

1.45

%

Ratio of total expenses to average net assets(6)

 

8.81

%

8.71

%

Portfolio turnover rate(5)

 

14.64

%

32.69

%

 

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(1)                                Net investment income per share is calculated using the weighted average shares outstanding during the period.

 

(2)                                Total investment return is calculated assuming a purchase of common shares at the current market value on the first day and a sale at the current market value on the last day of the periods reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions. Total investment returns covering less than a full period are not annualized.

 

(3)                               Total investment return is calculated assuming a purchase of common shares at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions.

 

(4)                                Represents the dilutive effect of issuing common stock below net asset value per share during the period.

 

(5)                               Portfolio turnover rate is calculated using the lesser of year-to-date sales excluding paydowns or year-to-date purchases over the average of the invested assets at fair value. Not annualized.

 

(6)                                 Ratios are annualized.

 

Note 12. Recapitalization Transaction

 

In July 2010, we consummated a recapitalization transaction that was necessitated by the fact that we had exceeded permissible borrowing limits under the Revolving Facility in July 2009, which resulted in an event of default under the Revolving Facility. As a result of the event of default under the Revolving Facility, the lender had the right to accelerate repayment of the outstanding indebtedness under the Revolving Facility and to foreclose and liquidate the collateral pledged thereunder. We engaged the investment banking firm of Stifel, Nicolaus & Company to evaluate strategic transaction opportunities and consider alternatives for us in December 2008. On April 14, 2010, we entered into a stock purchase agreement with our Manager and certain of its affiliates and an assignment, assumption and novation agreement with our Manager, pursuant to which we assumed certain rights and obligations of our Manager under a debt commitment letter our Manager received from Madison Capital Funding LLC, indicating Madison Capital Funding’s willingness to provide us with the Replacement Facility, subject to the satisfaction of certain terms and conditions. In addition, we and GSCP (NJ), L.P., our then external investment adviser, entered into a termination and release agreement, to be effective as of the closing of the transaction contemplated by the stock purchase agreement, pursuant to which GSCP (NJ), L.P., among other things, agreed to waive any and all accrued and unpaid deferred incentive management fees up to and as of the closing of the transaction contemplated by the stock purchase agreement but continued to be entitled to receive the base management fees earned through the date of the closing of the transaction contemplated by the stock purchase agreement.

 

On July 30, 2010, the transactions contemplated by the stock purchase agreement with our Manager and certain of its affiliates was completed, and included the following actions:

 

·                  the private sale of shares of our common stock for $15 million in aggregate purchase price to our Manager and certain of its affiliates;

 

·                  the closing of the $40 million Replacement Facility with Madison Capital Funding;

 

·                  the execution of a registration rights agreement with the investors in the private sale transaction, pursuant to which we agreed to file a registration statement with the SEC to register for resale the shares of our common stock sold in the private sale transaction;

 

·                  the execution of a trademark license agreement with our Manager pursuant to which our Manager granted us a non-exclusive, royalty-free license to use the “Saratoga” name, for so long as our Manager or one of its affiliates remains our investment adviser;

 

·                  replacing GSCP (NJ), L.P. as our investment adviser and administrator with our Manager by executing an investment advisory and management agreement, which was approved by our stockholders, and an administration agreement with our Manager;

 

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·                  the resignations of Robert F. Cummings, Jr. and Richard M. Hayden, both of whom are affiliates of GSCP (NJ) L.P., as members of the board of directors and the election of Christian L. Oberbeck and Richard A. Petrocelli, both of whom are affiliates of our Manager, as members of the board of directors;

 

·                  the resignation of all of our then existing executive officers and the appointment by our board of directors of Mr. Oberbeck as our chief executive officer and president and Mr. Petrocelli as our chief financial officer, secretary and chief compliance officer; and

 

·                  our name change from “GSC Investment Corp.” to “Saratoga Investment Corp.”

 

We used the net proceeds from the private sale transaction and a portion of the funds available to us under the Replacement Facility to pay the full amount of principal and accrued interest, including default interest, outstanding under Revolving Facility. The Revolving Facility with Deutsche Bank was terminated in connection with our payment of all amounts outstanding thereunder on July 30, 2010.

 

Note 13. Subsequent Events

 

Management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the quarter ended November 30, 2012.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, the following discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed in Item 1A in our Annual Report on Form 10-K for the fiscal year ended February 29, 2012.

 

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements.

 

The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:

 

·                  our future operating results;

·                  our business prospects and the prospects of our portfolio companies;

·                  the impact of investments that we expect to make;

·                  our contractual arrangements and relationships with third parties;

·                  the dependence of our future success on the general economy and its impact on the industries in which we invest;

·                  the ability of our portfolio companies to achieve their objectives;

·                  our expected financings and investments;

·                  our regulatory structure and tax treatment, including our ability to operate as a business development company, a regulated investment company and a small business investment company;

·                  the adequacy of our cash resources and working capital;

·                  the timing of cash flows, if any, from the operations of our portfolio companies; and

·                  the ability of our investment adviser to locate suitable investments for us and to monitor and effectively administer our investments.

 

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no

 

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obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

 

OVERVIEW

 

We are a Maryland corporation that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). Our investment objective is to generate current income and, to a lesser extent, capital appreciation from our investments. We invest primarily in leveraged loans and mezzanine debt issued by private U.S. middle market companies, both through direct lending and through participation in loan syndicates. We may also invest up to 30% of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in distressed debt, which may include securities of companies in bankruptcy, foreign debt, private equity, securities of public companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds. We have elected and qualified to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

 

We commenced operations, at the time as GSC Investment Corp., on March 23, 2007, and completed our initial public offering on March 28, 2007. Prior to July 30, 2010, we were externally managed and advised by GSCP (NJ), L.P., an entity affiliated with GSC Group, Inc.  In connection with the consummation of the recapitalization transaction described in “Note 12. Recapitalization Transaction” on July 30, 2010, we engaged Saratoga Investment Advisors, LLC (“SIA”) to replace GSCP (NJ), L.P. as our investment adviser and changed our name to Saratoga Investment Corp.

 

Critical Accounting Policies

 

Basis of Presentation

 

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make certain estimates and assumptions affecting amounts reported in the Company’s consolidated financial statements. We have identified investment valuation, revenue recognition and the recognition of capital gains incentive fee expense as our most critical accounting estimates. We continuously evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.

 

Investment Valuation

 

The Company accounts for its investments at fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that its investments are to be sold at the statement of assets and liabilities date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

 

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from SIA, 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.

 

We undertake 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 SIA and preliminary valuation conclusions are documented and discussed with our senior management of SIA; and

 

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·                  An independent valuation firm engaged by our board of directors reviews approximately one quarter 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 annually.

 

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

 

·                  The audit committee of our board of directors reviews each preliminary valuation and SIA 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 SIA, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

 

Our investment in GSC Investment Corp. CLO 2007, 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 rate 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. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flows analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO.

 

Revenue Recognition

 

Income Recognition

 

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 amortizations of premium on investments.

 

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest 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.

 

Interest income on our investment in Saratoga CLO is recorded using the effective interest method in accordance with the provisions of ASC Topic 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, 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.

 

Paid-in-Kind Interest

 

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We stop accruing PIK interest if we do not expect the issuer to be able to pay all principal and interest when due.

 

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Capital Gains Incentive Fee

 

The Company records an expense accrual relating to the capital gains incentive fee payable by the Company to its investment adviser when the unrealized gains on its investments exceed all realized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the investment adviser if the Company were to liquidate its investment portfolio at such time. The actual incentive fee payable to the Company’s investment adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains for the period.

 

Revenues

 

We generate revenue in the form of interest income and capital gains on the debt investments that we hold and capital gains, if any, on equity interests that we may acquire. We expect our debt investments, whether in the form of first and second lien term loans or mezzanine debt, to have terms of up to ten years, and to bear interest at either a fixed or floating rate. Interest on debt will be payable generally either quarterly or semi-annually. In some cases our debt investments may provide for a portion of the interest to be paid-in-kind (“PIK”). To the extent interest is paid-in-kind, it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation. The principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance or investment management services and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned. We may also invest in preferred equity securities that pay dividends on a current basis.

 

On January 22, 2008, we entered into a collateral management agreement with Saratoga CLO pursuant to which we act as its collateral manager and receive a senior collateral management fee of 0.10% and a subordinate collateral management fee of 0.40% of the outstanding principal amount of Saratoga CLO’s assets, paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20% of excess cash flow to the extent the Saratoga CLO subordinated notes receive an internal rate of return equal to or greater than 12%.

 

We recognize interest income on our investment in the subordinated notes of Saratoga CLO using the effective interest method, 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.

 

Expenses

 

Our primary operating expenses include the payment of investment advisory and management fees, professional fees, directors and officers insurance, fees paid to independent directors and administrator expenses, including our allocable portion of our administrator’s overhead. Our investment advisory and management fees compensate our investment adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions, including those relating to:

 

·                  organization;

·                  calculating our net asset value (including the cost and expenses of any independent valuation firm);

·                  expenses incurred by our investment adviser payable to third parties, including agents, consultants or other advisers, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies;

·                  interest payable on debt, if any, incurred to finance our investments;

·                  offerings of our common stock and other securities;

·                  investment advisory and management fees;

·                  fees payable to third parties, including agents, consultants or other advisers, relating to, or associated with, evaluating and making investments;

·                  transfer agent and custodial fees;

·                  federal and state registration fees;

·                  all costs of registration and listing our common stock on any securities exchange;

·                  federal, state and local taxes;

·                  independent directors’ fees and expenses;

 

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·                  costs of preparing and filing reports or other documents required by governmental bodies (including the SEC and the SBA);

·                  costs of any reports, proxy statements or other notices to common stockholders including printing costs;

·                  our fidelity bond, directors and officers errors and omissions liability insurance, and any other insurance premiums;

·                  direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; and

·                  administration fees and all other expenses incurred by us or, if applicable, the administrator in connection with administering our business (including payments under the administration agreement based upon our allocable portion of the administrator’s overhead in performing its obligations under an administration agreement, including rent and the allocable portion of the cost of our officers and their respective staffs (including travel expenses)).

 

To the extent that any of our leveraged loans are denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of interest rate caps, futures, options and forward contracts. Costs incurred in entering into or settling such contracts will be borne by us.

 

PORTFOLIO AND INVESTMENT ACTIVITY

 

Corporate Debt Portfolio Overview

 

 

 

At November 30,
2012

 

At February 29, 2012

 

 

 

($ in millions)

 

Number of investments(2)

 

36

 

30

 

Number of portfolio companies(2)

 

23

 

21

 

Average investment size(2)

 

$

2.6

 

$

2.3

 

Weighted average maturity(2)

 

3.2 years

 

3.0 years

 

Number of industries(2)

 

15

 

15

 

Average investment per portfolio company(2)

 

$

4.1

 

$

3.3

 

Non-Performing or delinquent investments(2)

 

$

6.6

 

$

0.0

 

Fixed rate debt (% of interest bearing portfolio)(1)

 

$

30.8 (35.5

)%

$

18.7 (29.3

)%

Weighted average current coupon(1)

 

12.3

%

13.0

%

Floating rate debt (% of interest bearing portfolio)(1)

 

$

56.0 (64.5

)%

$

45.1 (70.7

)%

Weighted average current spread over LIBOR(1)

 

7.3

%

7.4

%

 


(1)                                 Excludes our investment in the subordinated notes of Saratoga CLO, equity interests and limited partnership interests.

 

(2)                                 Excludes our investment in the subordinated notes of Saratoga CLO and limited partnership interests.

 

During the three months ended November 30, 2012, we made $6.4 million of investments in new or existing portfolio companies, had $1.5 million in aggregate amount of exits and repayments, resulting in net investments of $4.9 million for the period. During the three months ended November 30, 2011, we made $11.4 million of investments in new or existing portfolio companies, had $18.4 million in aggregate amount of exits and repayments, resulting in net repayments of $7.0 million for the period.

 

During the nine months ended November 30, 2012, we made $34.7 million of investments in new or existing portfolio companies, had $16.0 million in aggregate amount of exits and repayments, resulting in net investments of $18.7 million for the period. During the nine months ended November 30, 2011, we made $28.9 million of investments in new or existing portfolio companies, had $31.9 million in aggregate amount of exits and repayments, resulting in net repayments of $3.0 million for the period.

 

Our portfolio composition based on fair value at November 30, 2012 and February 29, 2012 was as follows:

 

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Portfolio Composition

 

 

 

At November 30, 2012

 

At February 29, 2012

 

 

 

Percentage of
Total Portfolio

 

Weighted
Average
Current
Yield

 

Percentage of
Total Portfolio

 

Weighted
Average
Current
Yield

 

First lien term loans

 

53.7

%

10.0

%

38.0

%

10.1

%

Second lien term loans

 

8.4

 

11.3

 

9.3

 

10.3

 

Senior secured notes

 

8.8

 

16.8

 

11.2

 

16.0

 

Senior unsecured loans

 

 

 

6.3

 

15.0

 

Unsecured notes

 

1.9

 

19.9

 

2.1

 

19.3

 

Saratoga CLO subordinated notes

 

20.7

 

22.9

 

27.1

 

20.2

 

Equity interests

 

6.5

 

N/A

 

6.0

 

N/A

 

Limited partnership interests

 

 

N/A

 

 

N/A

 

Total

 

100.0

%

12.9

%

100.0

%

13.4

%

 

Our investment in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at November 30, 2012 and February 29, 2012, was composed of $393.4 million and $380.2 million, respectively, in aggregate principal amount of predominantly senior secured first lien term loans. This investment is subject to unique risks. Please see Part II, Item 1A “Risk Factors—Our investment in GSC Investment Corp. CLO 2007 LTD, constitutes a leveraged investment in a portfolio of predominantly senior secured first lien term loans and is subject to additional risks and volatility” in our annual report on Form 10-K for the year ended February 29, 2012 and “Note 4. Investment in GSC Investment Corp. CLO 2007 Ltd.” in this Quarterly Report on Form 10-Q for more information about Saratoga CLO. We do not consolidate the Saratoga CLO portfolio in our financial statements. Accordingly, the metrics below do not include the underlying Saratoga CLO portfolio investments. However, at November 30, 2012, 98.5% of the Saratoga CLO portfolio investments had a CMR (as defined below) color rating of green or yellow and one Saratoga CLO portfolio investment was in default. At February 29, 2012, 99.3% of the Saratoga CLO portfolio investments had a CMR color rating of green or yellow and one Saratoga CLO portfolio investments was in default.

 

SIA normally grades all of our investments using a credit and monitoring rating system (“CMR”). The CMR consists of a single component: a color rating. The color rating is based on several criteria, including financial and operating strength, probability of default, and restructuring risk.  The color ratings are characterized as follows: (Green) - strong credit; (Yellow) - satisfactory credit; (Red) - payment default risk, in payment default and/or significant restructuring activity.

 

The CMR distribution of our investments at November 30, 2012 and February 29, 2012 was as follows:

 

Portfolio CMR Distribution

 

 

 

At November 30, 2012

 

At February 29, 2012

 

 

 

Investments
at
Fair Value

 

Percentage of
Total
Portfolio

 

Investments
at
Fair Value

 

Percentage of
Total Portfolio

 

 

 

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

Green

 

$

63,151

 

52.9

%

$

41,069

 

43.1

%

Yellow

 

10,997

 

9.2

 

10,415

 

10.9

 

Red

 

12,715

 

10.7

 

12,340

 

12.9

 

N/A(1)

 

32,428

 

27.2

 

31,536

 

33.1

 

Total

 

$

119,291

 

100.0

%

$

95,360

 

100.0

%

 


(1)         Comprised of our investments in the subordinated notes of Saratoga CLO, equity interests and limited partnership interests.

 

The following table shows the portfolio composition by industry grouping at fair value at November 30, 2012 and February 29, 2012.

 

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Portfolio composition by industry grouping at fair value

 

 

 

At November 30, 2012

 

At February 29, 2012

 

 

 

Investments at
Fair Value

 

Percentage of
Total Portfolio

 

Investments at
Fair Value

 

Percentage of
Total Portfolio

 

 

 

($ in thousands)

 

Structured Finance Securities (1)

 

$

24,641

 

20.7

%

$

25,846

 

27.1

%

Consumer Products

 

14,000

 

11.7

 

7,584

 

7.9

 

Automotive

 

13,207

 

11.1

 

 

 

Logistics

 

11,454

 

9.6

 

11,100

 

11.6

 

Food and Beverage

 

10,627

 

8.9

 

5,249

 

5.5

 

Business Services

 

8,915

 

7.5

 

 

 

Electronics

 

7,323

 

6.1

 

8,914

 

9.3

 

Metals

 

6,641

 

5.6

 

6,537

 

6.9

 

Consumer Services

 

5,273

 

4.4

 

5,388

 

5.7

 

Publishing

 

5,205

 

4.4

 

5,392

 

5.7

 

Healthcare Services

 

4,888

 

4.1

 

4,824

 

5.1

 

Aerospace

 

3,500

 

2.9

 

3,500

 

3.7

 

Environmental

 

2,747

 

2.3

 

2,323

 

2.4

 

Education

 

324

 

0.3

 

592

 

0.6

 

Homebuilding

 

290

 

0.2

 

289

 

0.3

 

Building Products

 

256

 

0.2

 

222

 

0.2

 

Manufacturing

 

 

 

6,000

 

6.3

 

Financial Services

 

 

 

1,600

 

1.7

 

Total

 

$

119,291

 

100.0

%

$

95,360

 

100

%

 


(1)         Comprised of our investment in the subordinated notes of Saratoga CLO.

 

The following table shows the portfolio composition by geographic location at fair value at November 30, 2012 and February 29, 2012. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

 

Portfolio composition by geographic location at fair value

 

 

 

At November 30, 2012

 

At February 29, 2012

 

 

 

Investments at
Fair Value

 

Percentage of
Total Portfolio

 

Investments at
Fair Value

 

Percentage of
Total Portfolio

 

 

 

($ in thousands)

 

Southeast

 

$

42,235

 

35.4

%

$

19,878

 

20.8

%

Other(1)

 

24,641

 

20.7

 

25,846

 

27.1

 

West

 

20,043

 

16.8

 

21,615

 

22.7

 

Midwest

 

18,952

 

15.9

 

15,451

 

16.2

 

Northeast

 

13,420

 

11.2

 

12,570

 

13.2

 

Total

 

$

119,291

 

100.0

%

$

95,360

 

100

%

 


(1)         Comprised of our investment in the subordinated notes of Saratoga CLO.

 

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RESULTS OF OPERATIONS

 

Operating results for the three and nine months ended November 30, 2012 and 2011 are as follows:

 

 

 

For the three months ended

 

 

 

November 30,
2012

 

November 30,
2011

 

 

 

($ in thousands)

 

Total investment income

 

$

4,034

 

$

3,629

 

Total expenses, net

 

1,545

 

2,805

 

Net investment income

 

2,489

 

824

 

Net realized gains (losses)

 

95

 

(5,832

)

Net unrealized gains (losses)

 

(1,839

)

11,221

 

Net increase in net assets resulting from operations

 

$

745

 

$

6,213

 

 

 

 

For the nine months ended

 

 

 

November 30,
2012

 

November 30,
2011

 

 

 

($ in thousands)

 

Total investment income

 

$

11,816

 

$

10,065

 

Total expenses, net

 

6,740

 

5,942

 

Net investment income

 

5,076

 

4,123

 

Net realized gains (losses)

 

412

 

(5,840

)

Net unrealized gains

 

3,319

 

11,912

 

Net increase in net assets resulting from operations

 

$

8,807

 

$

10,195

 

 

Investment income

 

The composition of our investment income for the three and nine months ended November 30, 2012 and 2011 was as follows:

 

Investment Income

 

 

 

For the three months ended

 

 

 

November 30,
2012

 

November 30,
2011

 

 

 

($ in thousands)

 

Interest from investments

 

$

3,513

 

$

3,033

 

Management fee income from Saratoga CLO

 

500

 

502

 

Interest from cash and cash equivalents and other income

 

21

 

94

 

Total

 

$

4,034

 

$

3,629

 

 

 

 

For the nine months ended

 

 

 

November 30,
2012

 

November 30,
2011

 

 

 

($ in thousands)

 

Interest from investments

 

$

10,138

 

$

8,307

 

Management fee income from Saratoga CLO

 

1,501

 

1,512

 

Interest from cash and cash equivalents and other income

 

177

 

246

 

Total

 

$

11,816

 

$

10,065

 

 

For the three months ended November 30, 2012, total investment income increased $0.4 million, or 11.2%, compared to the three months ended November 30, 2011. The increase in total investment income for the three months ended November 30, 2012 versus the three months ended November 30, 2011 was the result of higher interest income recognized on our non-control investments during the three months ended November 30, 2012.

 

For the nine months ended November 30, 2012, total investment income increased $1.8 million, or 17.4%, compared to the nine months ended November 30, 2011. The increase in total investment income for the nine months ended November 30, 2012 versus the nine months ended November 30, 2011 was the result of higher interest income recognized on our non- control investments during the nine months ended November 30, 2012.

 

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For the three and nine months ended November 30, 2012, total PIK income was $0.3 million and $0.8 million respectively. For the three and nine months ended November 30, 2011, total PIK income was $0.3 million and $1.2 million, respectively. For the three and nine months ended November 30, 2012, we accrued $0.5 million and $1.5 million in collateral management fee income, respectively, due from Saratoga CLO and $1.0 million and $3.2 million in interest income, respectively, due from Saratoga CLO. For the three and nine months ended November 30, 2011, we accrued $0.5 million and $1.5 million in collateral management fee income, respectively, due from Saratoga CLO and $1.2 million and $3.1 million in interest income, respectively, due from Saratoga CLO. The reinvestment period for the Saratoga CLO is scheduled to end in January 2013. Following the reinvestment period, proceeds from principal payments in the loan portfolio of Saratoga CLO will be used to pay down its outstanding notes, starting with Class A notes. As a result, the collateral management fee income and the interest income that we receive from the Saratoga CLO will start to decline in 2013.

 

Expenses

 

The composition of our expenses for the three and nine months ended November 30, 2012 and 2011 was as follows:

 

Expenses

 

 

 

For the three months ended

 

 

 

November 30,
2012

 

November 30,
2011

 

 

 

($ in thousands)

 

Interest and credit facility expense

 

$

530

 

$

307

 

Base management fees

 

529

 

394

 

Professional fees

 

347

 

356

 

Incentive management fees

 

(413

)

1,179

 

Administrator expenses

 

250

 

250

 

Insurance expenses

 

129

 

145

 

Directors fees

 

54

 

51

 

General and administrative and other expenses

 

119

 

123

 

Total expenses

 

$

1,545

 

$

2,805

 

 

 

 

For the nine months ended

 

 

 

November 30,
2012

 

November 30,
2011

 

 

 

($ in thousands)

 

Interest and credit facility expense

 

$

1,809

 

$

987

 

Base management fees

 

1,492

 

1,204

 

Professional fees

 

986

 

1,282

 

Incentive management fees

 

887

 

842

 

Administrator expenses

 

750

 

730

 

Insurance expenses

 

390

 

449

 

Directors fees

 

156

 

153

 

General and administrative and other expenses

 

270

 

295

 

Total expenses

 

$

6,740

 

$

5,942

 

 

For the three months ended November 30, 2012, total expenses decreased $1.3 million, or 44.9%, compared to the three months ended November 30, 2011. The decrease is primarily related to a reversal of incentive management fees related to the decrease in unrealized appreciation on our investment in the Saratoga CLO, partially offset by an increase in interest and credit facility expense and base management fees due to the growth in our portfolio and amount of our outstanding debt.

 

For the nine months ended November 30, 2012, total expenses increased $0.8 million, or 13.4%, compared to the nine months ended November 30, 2011. These increases were primarily attributable to increases in interest and credit facility expense and base management fees due to the growth in our portfolio and amount of our outstanding debt.

 

As discussed above, the increase in interest and credit facility expense for the three and nine months ended November 30, 2012 is primarily attributable to an increase in the amount of outstanding debt as compared to the prior periods. In this regard, there were outstanding balances under our senior secured revolving credit facility with Madison Capital of $20.0 million at February 29, 2012 and $14.9 million at November 30, 2012.  In the prior period, we had outstanding balances under our revolving securitized credit facility with Madison Capital of $4.5 million at February 29, 2011 and no outstanding balance at November 30, 2011.  For the three and nine months ended November 30, 2012, the

 

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weighted average interest rate on our outstanding indebtedness was 7.5%. For the three months ended November 30, 2011, there was no outstanding indebtedness. For the nine months ended November 30, 2011, the weighted average interest rate on our outstanding indebtedness was 7.5%.

 

Net Realized Gains/Losses from Investments

 

For the three months ended November 30, 2012, we had $1.5 million of sales, repayments, exits and restructurings, resulting in $0.1 million of net realized gains.

 

For the nine months ended November 30, 2012, we had $16.0 million of sales, repayments, exits and restructurings resulting in $0.5 million of net realized gains.

 

For the three months ended November 30, 2011, we had $18.4 million of sales, repayments, exits and restructurings, resulting in $5.8 million of net realized losses.

 

For the nine months ended November 30, 2011, we had $31.9 million of sales, repayments, exits and restructurings resulting in $5.8 million of net realized losses.

 

Net Unrealized Appreciation/Depreciation on Investments

 

For the three months ended November 30, 2012, our investments had a decrease in net unrealized appreciation of $1.8 million versus an increase in net unrealized appreciation of $11.2 million for the three months ended November 30, 2011. For the nine months ended November 30, 2012, our investments had an increase in net unrealized appreciation of $3.2 million versus an increase in net unrealized appreciation of $11.9 million for the nine months ended November 30, 2011.The most significant cumulative changes in unrealized appreciation for the nine months ended November 30, 2012 were the following:

 

Nine months ended November 30, 2012

 

 

 

 

 

 

 

 

 

Total Unrealized

 

Year-To-Date Change in
Unrealized

 

Issuer

 

Asset Type

 

Cost

 

Fair Value

 

Appreciation

 

Appreciation

 

 

 

($ in thousands)

 

Targus Holdings, Inc.

 

Common Stock

 

$

567

 

$

3,732

 

$

3,165

 

$

1,056

 

Penton Media

 

First Lien Term Loan

 

4,442

 

4,285

 

(157

)

468

 

Saratoga CLO

 

Other/Structured Finance Securities

 

20,362

 

24,641

 

4,279

 

1,974

 

 

The $1.1 million of unrealized appreciation on our investment in Targus Holdings, Inc. resulted from its improved operating performance and improved trading multiples of comparable publicly traded companies.  In addition, the $0.5 million of unrealized appreciation on our investment in Penton Media resulted from its improved operating performance.

 

The $2.0 million of unrealized appreciation in our investment in the Saratoga CLO subordinated notes was due to higher relative cash flow projections (based on an improvement in the overall portfolio, a decrease in the assumed portfolio default rate) and a reduction in the CLO’s cost basis due to distributions during the year offset by a higher discount rate used to present value the cash flows based on current market conditions.

 

The most significant cumulative changes in unrealized appreciation and depreciation for the nine months ended November 30, 2011 were the following:

 

Nine months ended November 30, 2011

 

 

 

 

 

 

 

 

 

Total Unrealized

 

Year-To-Date Change in
Unrealized

 

Issuer

 

Asset Type

 

Cost

 

Fair Value

 

Appreciation/(Depreciation)

 

Appreciation/(Depreciation)

 

 

 

 

 

 

 

($ in thousands)

 

 

 

 

 

Pracs Institute, LTD.

 

Second Lien Term Loan

 

$

4,078

 

$

 

$

(4,078

)

$

(3,023

)

Penton Media

 

First Lien Term Loan

 

4,229

 

2,947

 

(1,282

)

(1,192

)

Saratoga CLO

 

Other/Structured Finance Securities

 

24,363

 

25,375

 

1,012

 

5,645

 

 

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The increase in unrealized depreciation in our investments in Pracs Institute, LTD. and Penton Media were due to declining prospects for the companies.  The $5.6 million net unrealized appreciation in our investment in the Saratoga CLO subordinated notes was due to higher cash flow projections (based on an improvement in the overall portfolio, a decrease in the assumed portfolio default rate and an improvement in reinvestment assumptions based on current market conditions and projections) and a lower discount rate used to present value the cash flows based on current market conditions.

 

Changes in Net Assets from Operations

 

For the three months ended November 30, 2012, we recorded a net increase in net assets resulting from operations of $0.7 million versus a net increase in net assets resulting from operations of $6.2 million for the three months ended November 30, 2011. The difference is attributable to increase in net investment income, a decrease in net unrealized appreciation offset by an increase in net investment income for the three months ended November 30, 2012, as compared to the same period in the prior year. Based on 3,970,447 and 3,310,021 weighted average common shares outstanding for the three months ended November 30, 2012 and 2011, respectively, our per share net increase in net assets resulting from operations was $0.19 for the three months ended November 30, 2012 versus a per share net increase in net assets resulting from operations of $1.88 for the three months ended November 30, 2011.

 

For the nine months ended November 30, 2012, we recorded a net increase in net assets resulting from operations of $8.8 million versus a net increase in net assets resulting from operations of $10.2 million for the nine months ended November 30, 2011. The difference is attributable to an increase in net investment income, a decrease in net unrealized appreciation offset by an increase in net investment income for the nine months ended November 30, 2012, as compared to the same period in the prior year. Based on 3,907,696 and 3,287,979 weighted average common shares outstanding for the nine months ended November 30, 2012 and 2011, respectively, our per share net increase in net assets resulting from operations was $2.25 for the nine months ended November 30, 2012 versus a per share net increase in net assets resulting from operations of $3.10 for the nine months ended November 30, 2011.

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

Below is a summary of the terms of the senior secured revolving credit facility we entered into with Madison Capital Funding (the “Replacement Facility”) on June 30, 2010.

 

Availability.  The Company can draw up to the lesser of (i) $40 million (the “Facility Amount”) and (ii) the product of the applicable advance rate (which varies from 50% to 75% depending on the type of loan asset) and the value, determined in accordance with the Replacement Facility (the “Adjusted Borrowing Value”), of certain “eligible” loan assets pledged as security for the loan (the “Borrowing Base”), in each case less (a) the amount of any undrawn funding commitments the Company has under any loan asset and which are not covered by amounts in the Unfunded Exposure Account referred to below (the “Unfunded Exposure Amount”) and (b) outstanding borrowings. Each loan asset held by the Company as of the date on which the Replacement Facility was closed was valued as of that date and each loan asset that the Company acquires after such date will be valued at the lowest of its fair value, its face value (excluding accrued interest) and the purchase price paid for such loan asset. Adjustments to the value of a loan asset will be made to reflect, among other things, changes in its fair value, a default by the obligor on the loan asset, insolvency of the obligor, acceleration of the loan asset, and certain modifications to the terms of the loan asset.

 

The Replacement Facility contains limitations on the type of loan assets that are “eligible” to be included in the Borrowing Base and as to the concentration level of certain categories of loan assets in the Borrowing Base such as restrictions on geographic and industry concentrations, asset size and quality, payment frequency, status and terms, average life, and collateral interests. In addition, if an asset is to remain an “eligible” loan asset, the Company may not make changes to the payment, amortization, collateral and certain other terms of the loan assets without the consent of the administrative agent that will either result in subordination of the loan asset or be materially adverse to the lenders.

 

Collateral.  The Replacement Facility is secured by substantially all of the assets of the Company and includes the subordinated notes (“CLO Notes”) issued by Saratoga CLO and the Company’s rights under the CLO Management Agreement (as defined below).

 

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Interest Rate and Fees.  Under the Replacement Facility, funds are borrowed from or through certain lenders at the greater of the prevailing LIBOR rate and 2.00%, plus an applicable margin of 5.50%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 3.00%, and the applicable margin over such alternative base rate is 4.50%. In addition, the Company pays the lenders a commitment fee of 0.75% per year on the unused amount of the Replacement Facility for the duration of the Revolving Period (defined below). Accrued interest and commitment fees are payable monthly. The Company is also obligated to pay certain other fees to the lenders in connection with the closing of the Replacement Facility.

 

Revolving Period and Maturity Date.  The Company may make and repay borrowings under the Replacement Facility for a period of three years following the closing of the Replacement Facility (the “Revolving Period”). The Revolving Period may be terminated at an earlier time by the Company or, upon the occurrence of an event of default, by action of the lenders or automatically. All borrowings and other amounts payable under the Replacement Facility are due and payable in full five years after the end of the Revolving Period.

 

Collateral Tests.  It is a condition precedent to any borrowing under the Replacement Facility that the principal amount outstanding under the Replacement Facility, after giving effect to the proposed borrowings, not exceed the lesser of the Borrowing Base or the Facility Amount (the “Borrowing Base Test”). In addition to satisfying the Borrowing Base Test, the following tests must also be satisfied (together with Borrowing Base Test, the “Collateral Tests”):

 

·                  Interest Coverage Ratio.  The ratio (expressed as a percentage) of interest collections with respect to pledged loan assets, less certain fees and expenses relating to the Replacement Facility, to accrued interest and commitment fees and any breakage costs payable to the lenders under the Replacement Facility for the last 6 payment periods must equal at least 175%.

 

·                  Overcollateralization Ratio.  The ratio (expressed as a percentage) of the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets plus the fair value of certain ineligible pledged loan assets and the CLO Notes (in each case, subject to certain adjustments) to outstanding borrowings under the Replacement Facility plus the Unfunded Exposure Amount must equal at least 200%.

 

·                  Weighted Average FMV Test.  The aggregate adjusted or weighted value of “eligible” pledged loan assets as a percentage of the aggregate outstanding principal balance of “eligible” pledged loan assets must be equal to or greater than 72% and 80% during the one-year periods prior to the first and second anniversary of the closing date, respectively, and 85% at all times thereafter.

 

The Replacement Facility also requires payment of outstanding borrowings or replacement of pledged loan assets upon the Company’s breach of its representation and warranty that pledged loan assets included in the Borrowing Base are “eligible” loan assets. Such payments or replacements must equal the lower of the amount by which the Borrowing Base is overstated as a result of such breach or any deficiency under the Collateral Tests at the time of repayment or replacement. Compliance with the Collateral Tests is also a condition to the discretionary sale of pledged loan assets by the Company.

 

Priority of Payments.  During the Revolving Period, the priority of payments provisions of the Replacement Facility require, after payment of specified fees and expenses and any necessary funding of the Unfunded Exposure Account, that collections of principal from the loan assets and, to the extent that these are insufficient, collections of interest from the loan assets, be applied on each payment date to payment of outstanding borrowings if the Borrowing Base Test, the Overcollateralization Ratio and the Interest Coverage Ratio would not otherwise be met. Similarly, following termination of the Revolving Period, collections of interest are required to be applied, after payment of certain fees and expenses, to cure any deficiencies in the Borrowing Base Test, the Interest Coverage Ratio and the Overcollateralization Ratio as of the relevant payment date.

 

Reserve Account.  The Replacement Facility requires the Company to set aside an amount equal to the sum of accrued interest, commitment fees and administrative agent fees due and payable on the next succeeding three payment dates (or corresponding to three payment periods). If for any monthly period during which fees and other payments accrue, the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets which do not pay cash interest at least quarterly exceeds 15% of the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets, the Company is required to set aside such interest and fees due and payable on the next succeeding six payment dates. Amounts in the reserve account can be applied solely to the payment of administrative agent fees, commitment fees, accrued and unpaid interest and any breakage costs payable to the lenders.

 

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Unfunded Exposure Account.  With respect to revolver or delayed draw loan assets, the Company is required to set aside in a designated account (the “Unfunded Exposure Account”) 100% of its outstanding and undrawn funding commitments with respect to such loan assets. The Unfunded Exposure Account is funded at the time the Company acquires a revolver or delayed draw loan asset and requests a related borrowing under the Replacement Facility. The Unfunded Exposure Account is funded through a combination of proceeds of the requested borrowing and other Company funds, and if for any reason such amounts are insufficient, through application of the priority of payment provisions described above.

 

Operating Expenses.  The priority of payments provision of the Replacement Facility provides for the payment of certain operating expenses of the Company out of collections on principal and interest during the Revolving Period and out of collections on interest following the termination of the Revolving Period in accordance with the priority established in such provision. The operating expenses payable pursuant to the priority of payment provisions is limited to $350,000 for each monthly payment date or $2.5 million for the immediately preceding period of twelve consecutive monthly payment dates. This ceiling can be increased by the lesser of 5% or the percentage increase in the fair market value of all the Company’s assets only on the first monthly payment date to occur after each one-year anniversary following the closing of the Replacement Facility. Upon the occurrence of a Manager Event (described below), the consent of the administrative agent is required in order to pay operating expenses through the priority of payments provision.

 

Events of Default.  The Replacement Facility contains certain negative covenants, customary representations and warranties and affirmative covenants and events of default. The Replacement Facility does not contain grace periods for breach by the Company of certain covenants, including, without limitation, preservation of existence, negative pledge, change of name or jurisdiction and separate legal entity status of the Company covenants and certain other customary covenants. Other events of default under the Replacement Facility include, among other things, the following:

 

·                  an Interest Coverage Ratio of less than 150%;

 

·                  an Overcollateralization Ratio of less than 175%;

 

·                  the filing of certain ERISA or tax liens;

 

·                  the occurrence of certain “Manager Events” such as:

 

·                  failure by SIA and its affiliates to maintain collectively, directly or indirectly, a cash equity investment in the Company in an amount equal to at least $5,000,000 at any time prior to the third anniversary of the closing date;

 

·                  failure of the management agreement between SIA and the Company to be in full force and effect;

 

·                  indictment or conviction of SIA or any “key person” for a felony offense, or any fraud, embezzlement or misappropriation of funds by SIA or any “key person” and, in the case of “key persons,” without a reputable, experienced individual reasonably satisfactory to Madison Capital Funding appointed to replace such key person within 30 days;

 

·                  resignation, termination, disability or death of a “key person” or failure of any “key person” to provide active participation in SIA daily activities, all without a reputable, experienced individual reasonably satisfactory to Madison Capital Funding appointed within 30 days; or

 

·                  occurrence of any event constituting “cause” under the Collateral Management Agreement between the Company and Saratoga CLO (the “CLO Management Agreement”), delivery of a notice under Section 12(c) of the CLO Management Agreement with respect to the removal of the Company as collateral manager or the Company ceases to act as collateral manager under the CLO Management Agreement.

 

Conditions to Acquisitions and Pledges of Loan Assets.  The Replacement Facility imposes certain additional conditions to the acquisition and pledge of additional loan assets. Among other things, the Company may not acquire additional loan assets without the prior written consent of the administrative agent until such time that the administrative agent indicates in writing its satisfaction with SIA’s policies, personnel and processes relating to the loan assets.

 

Fees and Expenses.  The Company paid certain fees and reimbursed Madison Capital Funding for the aggregate amount of all documented, out-of-pocket costs and expenses, including the reasonable fees and expenses of lawyers, incurred

 

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by Madison Capital Funding in connection with the Replacement Facility and the carrying out of any and all acts contemplated thereunder up to and as of the date of closing of the stock purchase transaction with SIA and certain of its affiliates. These amounts totaled $2.0 million.

 

On February 24, 2012, we amended the Replacement facility with Madison Capital Funding to, among other things:

 

·                  expand the borrowing capacity under the credit facility from $40 million to $45 million;

 

·                  extend the Revolving Period from July 30, 2013 to February 24, 2015; and

 

·                  remove the condition that we may not acquire additional loan assets without the prior written consent of the administrative agent.

 

As of November 30, 2012, we had $14.9 million outstanding under the Replacement Facility and $4.0 million SBA-guaranteed debentures outstanding (which are discussed below). Our borrowing base under the Replacement Facility was $27.7 million at November 30, 2012.

 

Our asset coverage ratio, as defined in the 1940 Act, was 792.88% as of November 30, 2012 and 587% as of February 29, 2012.

 

We intend to continue to generate cash primarily from cash flows from operations, including interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less, future borrowings and future offerings of securities.

 

Although we expect to fund the growth of our investment portfolio through the net proceeds from future equity offerings, including our dividend reinvestment plan, and issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act, we cannot assure you that our plans to raise capital will be successful.  In this regard, because our common stock has historically traded at a price below our current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we have been and may continue to be limited in our ability to raise equity capital.  Our stockholders approved a proposal at our annual meeting of stockholders held on September 28, 2012 that authorizes us to sell shares of our common stock at an offering price per share to investors that is not less than 85% of our then current net asset value per share in one or more offerings for a period ending on the earlier of September 28, 2013 or the date of our next annual meeting of stockholders. We would need stockholder approval of a similar proposal to issue shares below net asset value per share at any time after the earlier of September 27, 2012 or our next annual meeting of stockholders.

 

In addition, we intend to distribute to our stockholders substantially all of our taxable income in order to satisfy the distribution requirement applicable to RICs under Subchapter M of the Code. In satisfying this distribution requirement, we have in the past relied on IRS issued private letter rulings concluding that 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% of the aggregate declared distribution.  We may rely on these IRS private letter rulings in future periods to satisfy our RIC distribution requirement.

 

Also, as a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. This requirement limits the amount that we may borrow. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and other debt-related markets, which may or may not be available on favorable terms, if at all.

 

Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings.  Also, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.

 

Finally, in light of the conditions in the financial markets and the U.S. economy overall, we, through a wholly-owned subsidiary, sought and obtained a license from the SBA to operate an SBIC.  In this regard, on March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP, received a license from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958. SBICs are designated to stimulate the flow of private

 

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equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses.

 

The SBIC license allows our SBIC subsidiary to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities.

 

SBA regulations currently limit the amount that our SBIC subsidiary may borrow to a maximum of $150 million when it has at least $75 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing. As of November 30, 2012, our SBIC subsidiary had $25 million in regulatory capital and $4.0 million SBA-guaranteed debentures outstanding.

 

We received exemptive relief from the Securities and Exchange Commission to permit us to exclude the debt of our SBIC subsidiary guaranteed by the SBA from the definition of senior securities in the 200% asset coverage test under the 1940 Act. This allows us increased flexibility under the 200% asset coverage test by permitting us to borrow up to $150 million more than we would otherwise be able to absent the receipt of this exemptive relief.

 

We cannot provide any assurance that these measures will provide sufficient sources of liquidity to support our operations and growth given the continued instability in the financial markets and the weak U.S. economy.

 

Contractual Obligations

 

The following table shows our payment obligations for repayment of debt and other contractual obligations at November 30, 2012:

 

 

 

 

 

Payment Due by Period

 

 

 

Total

 

Less Than
1 Year

 

1 - 3
Years

 

3 - 5
Years

 

More Than
5 Years

 

 

 

($ in thousands)

 

 

 

 

 

 

 

 

 

Long-Term Debt Obligations

 

$

18,850

 

$

 

$

14,850

 

$

 

$

4,000

 

 

OFF-BALANCE SHEET ARRANGEMENTS

 

At November 30, 2012 and February 29, 2012, we did not have any off-balance sheet arrangements, including unfunded commitments to extend credit to third-parties, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

 

Our market risks have not changed materially from the risks reported in our Form 10-K for the year ended February 29, 2012.

 

Item 4.   Controls and Procedures

 

(a)                                 As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934).  Based on that evaluation, our chief executive officer and our chief financial officer have concluded that our current disclosure controls and procedures are effective in facilitating timely decisions regarding required disclosure of any material information relating to us that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.

 

(b)                                 There have been no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II.  OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On August 31, 2012, a complaint was filed in the United States Bankruptcy Court for the Southern District of New York by GSC Acquisition Holdings, LLC against us to recover, among other things, approximately $2.6 million for the benefit of the estates and the general unsecured creditors of GSC Group, Inc. and its affiliates, including the Company’s former investment adviser, GSCP (NJ), L.P.  The complaint alleges that the former investment adviser made a constructively fraudulent transfer of $2.6 million in deferred incentive fees by waiving them in connection with the termination of an investment advisory and management agreement with us, and that the termination of the investment advisory and management agreement was itself a fraudulent transfer.  These transfers, the complaint alleges, were made without receipt of reasonably equivalent value and while the former investment adviser was insolvent.  The complaint has not yet been served, and the plaintiff’s motion for authority to prosecute the case on behalf of the estates was taken under advisement by the court on October 1, 2012. We opposed that motion.  We believe that the claims in this lawsuit are without merit and, if the plaintiff is authorized to proceed, intend to vigorously defend against this action.

 

Except as discussed above, neither we nor our wholly-owned subsidiaries, Saratoga Investment Funding LLC and Saratoga Investment Corp. SBIC LP, are currently subject to any material legal proceedings.

 

Item 1A. Risk Factors

 

There have been no material changes from the risk factors set forth in our annual report on Form 10-K for the year ended February 29, 2012.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable.

 

Item 3. Defaults upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

Item 6. Exhibits

 

Listed below are the exhibits which are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):

 

Exhibit
Number

 

Description of Document

 

 

 

31.1*

 

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

 

 

31.2*

 

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

 

 

32.1*

 

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

 

 

32.2*

 

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

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*                          Submitted herewith.

 

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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, thereunto duly authorized.

 

 

 

SARATOGA INVESTMENT CORP.

 

 

 

Date: January 14, 2013

By

/s/ Christian L. Oberbeck

 

 

Christian L. Oberbeck

 

 

Chief Executive Officer and President

 

 

 

 

By

/s/ Richard A. Petrocelli

 

 

Richard A. Petrocelli

 

 

Chief Financial Officer, Chief Compliance Officer and Secretary

 

50


Exhibit 31.1

 

CERTIFICATION PURSUANT TO

RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

 

I, Christian L. Oberbeck, certify that:

 

1.             I have reviewed this Quarterly Report on Form 10-Q of Saratoga Investment Corp.;

 

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

4.             The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

 

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)           Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)           Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

5.             The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: January 14, 2013

 

 

/s/ CHRISTIAN L. OBERBECK

 

Christian L. Oberbeck

 

Chief Executive Officer and President

 


Exhibit 31.2

 

CERTIFICATION PURSUANT TO

RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

 

I, Richard A. Petrocelli, certify that:

 

1.             I have reviewed this Quarterly Report on Form 10-Q of Saratoga Investment Corp.;

 

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

4.             The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

 

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)           Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)           Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

5.             The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: January 14, 2013

 

 

/s/ RICHARD A. PETROCELLI

 

Name: Richard A. Petrocelli

 

Chief Financial Officer, Chief Compliance Officer and Secretary

 


Exhibit 32.1

 

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The certification set forth below is being submitted in connection with the accompanying Quarterly Report of Saratoga Investment Corp. on Form 10-Q (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

Christian L. Oberbeck, the Chief Executive Officer and President, certifies that, to the best of his knowledge:

 

1.                                      the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

 

2.                                      the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Saratoga Investment Corp.

 

Date: January 14, 2013

 

 

/s/ CHRISTIAN L. OBERBECK

 

Name: Christian L. Oberbeck

 

Chief Executive Officer and President

 


Exhibit 32.2

 

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The certification set forth below is being submitted in connection with the accompanying Quarterly Report of Saratoga Investment Corp. on Form 10-Q (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

Richard A. Petrocelli, the Chief Financial Officer, Chief Compliance Officer and Secretary of Saratoga Investment Corp., certifies that, to the best of his knowledge:

 

1.                                      the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

 

2.                                      the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Saratoga Investment Corp.

 

Date: January 14, 2013

 

 

/s/ RICHARD A. PETROCELLI

 

Name: Richard A. Petrocelli

 

Chief Financial Officer, Chief Compliance Officer and Secretary