Supplement No.2 to Prospectus Supplement
Table of Contents

Filed Pursuant to Rule 497
Securities Act File No. 333-216344

 

LOGO

Saratoga Investment Corp.

Supplement No. 2, dated July 13, 2017

to

Prospectus Supplement, dated March 16, 2017

This supplement contains information which amends, supplements or modifies certain information contained in the Prospectus of Saratoga Investment Corp. (the “Company”), dated March 13, 2017, as supplemented by the Prospectus Supplement dated March 16, 2017. Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus Supplement or Prospectus, as applicable.

You should carefully consider the “Risk Factors” beginning on page S-8 of the Prospectus Supplement and page 22 of the Prospectus before you decide to invest.

STATUS OF OUR OFFERING

On March 16, 2017, we established an at-the-market program to which this Supplement No. 2 dated July 13, 2017 and the Prospectus Supplement, dated March 16, 2017, relate and through which we may sell, from time to time and at our sole discretion, up to $30.0 million shares of our common stock. The gross proceeds raised, the related sales agent commission, the offering expenses and the average price at which these shares were issued from the period of March 16, 2017 through July 12, 2017 are as follows:

 

Fiscal Year Ending February 28, 2018
Issuance of Common Stock

   Number
of Shares
     Gross
Proceeds
     Sales Agent
Commission
     Average
Offering
Price
 

First Quarter

     60,779      $ 1,367,167      $ 20,474      $ 22.49  

Second Quarter (through July 12, 2017)

     56,575      $ 1,272,246      $ 19,084      $ 22.49  

FILING OF FORM 10-Q

On July 12, 2017, we filed our Quarterly Report on Form 10-Q (“Form 10-Q”) for the period ended May 31, 2017 with the Securities and Exchange Commission. We have attached the Form 10-Q to this supplement as Annex A.


Table of Contents

ANNEX A


Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the Quarterly Period Ended May 31, 2017

 

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

Commission File Number: 001-33376

 

 

SARATOGA INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   20-8700615

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification 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  ☒    No  ☐

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  ☐    No  ☐

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

 

Large Accelerated Filer      Accelerated Filer  
Non-Accelerated Filer      Smaller Reporting Company  
     Emerging Growth Company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

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

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of July 12, 2017 was 5,967,273.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

 

 

         Page  

PART I.

  FINANCIAL INFORMATION      3  
Item 1.   Consolidated Financial Statements      3  
  Consolidated Statements of Assets and Liabilities as of May 31, 2017 (unaudited) and February 28, 2017      3  
  Consolidated Statements of Operations for the three months ended May 31, 2017 and May 31, 2016 (unaudited)      4  
  Consolidated Schedules of Investments as of May 31, 2017 (unaudited) and February 28, 2017      5  
  Consolidated Statements of Changes in Net Assets for the three months ended May 31, 2017 and May 31, 2016 (unaudited)      7  
  Consolidated Statements of Cash Flows for the three months ended May 31, 2017 and May 31, 2016 (unaudited)      8  
  Notes to Consolidated Financial Statements as of May 31, 2017 (unaudited)      9  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      35  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      59  
Item 4.   Controls and Procedures      60  
PART II.   OTHER INFORMATION      61  
Item 1.   Legal Proceedings      61  
Item 1A.   Risk Factors      61  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      61  
Item 3.   Defaults Upon Senior Securities      61  
Item 4.   Mine Safety Disclosures      61  
Item 5.   Other Information      61  
Item 6.   Exhibits      62  
Signatures      64  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 

     As of  
     May 31, 2017     February 28, 2017  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Non-control/Non-affiliate investments (amortized cost of $291,471,679 and $251,198,896, respectively)

   $   278,767,064     $   242,531,514  

Control investments (cost of $48,625,339 and $49,283,536, respectively)

     50,922,884       50,129,799  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $340,097,018 and $300,482,432, respectively)

     329,689,948       292,661,313  

Cash and cash equivalents

     1,246,815       9,306,543  

Cash and cash equivalents, reserve accounts

     26,526,889       12,781,425  

Interest receivable (net of reserve of $817,374 and $157,560, respectively)

     3,652,935       3,294,450  

Management and incentive fee receivable

     276,484       171,106  

Other assets

     278,376       183,346  

Receivable from unsettled trades

     253,041       253,041  
  

 

 

   

 

 

 

Total assets

   $ 361,924,488     $ 318,651,224  
  

 

 

   

 

 

 

LIABILITIES

    

Revolving credit facility

   $ 24,500,000     $ —    

Deferred debt financing costs, revolving credit facility

     (760,150     (437,183

SBA debentures payable

     134,660,000       112,660,000  

Deferred debt financing costs, SBA debentures payable

     (2,924,288     (2,508,280

Notes payable

     74,450,500       74,450,500  

Deferred debt financing costs, notes payable

     (2,578,509     (2,689,511

Base management and incentive fees payable

     3,992,960       5,814,692  

Accounts payable and accrued expenses

     773,025       852,987  

Interest and debt fees payable

     1,805,492       2,764,237  

Directors fees payable

     51,500       51,500  

Due to manager

     345,305       397,505  
  

 

 

   

 

 

 

Total liabilities

   $ 234,315,835     $ 191,356,447  
  

 

 

   

 

 

 

Commitments and contingencies (See Note 7)

    

NET ASSETS

    

Common stock, par value $.001, 100,000,000 common shares authorized, 5,884,475 and 5,794,600 common shares issued and outstanding, respectively

   $ 5,884     $ 5,795  

Capital in excess of par value

     192,449,147       190,483,931  

Distribution in excess of net investment income

     (26,898,415     (27,737,348

Accumulated net realized loss from investments and derivatives

     (27,540,893     (27,636,482

Accumulated net unrealized depreciation on investments and derivatives

     (10,407,070     (7,821,119
  

 

 

   

 

 

 

Total net assets

     127,608,653       127,294,777  
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 361,924,488     $ 318,651,224  
  

 

 

   

 

 

 

NET ASSET VALUE PER SHARE

   $ 21.69     $ 21.97  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Operations

(unaudited)

 

     For the three months ended
May 31, 2017
    For the three months ended
May 31, 2016
 

INVESTMENT INCOME

    

Interest from investments

    

Non-control/Non-affiliate investments

   $ 5,920,433     $ 6,620,113  

Payment-in-kind interest income from Non-control/Non-affiliate investments

     223,273       129,090  

Control investments

     1,335,386       532,126  

Payment-in-kind interest income from Control investments

     262,109       —    
  

 

 

   

 

 

 

Total interest income

     7,741,201       7,281,329  

Interest from cash and cash equivalents

     7,081       3,786  

Management fee income

     375,681       373,684  

Incentive fee income

     105,295       —    

Other income

     478,190       249,596  
  

 

 

   

 

 

 

Total investment income

     8,707,448       7,908,395  
  

 

 

   

 

 

 

OPERATING EXPENSES

    

Interest and debt financing expenses

     2,523,606       2,368,056  

Base management fees

     1,391,027       1,227,157  

Professional fees

     384,331       359,299  

Administrator expenses

     375,000       325,000  

Incentive management fees

     176,096       728,280  

Insurance

     66,165       70,658  

Directors fees and expenses

     51,000       66,000  

General & administrative

     197,243       212,209  

Other expense

     38,531       13,187  
  

 

 

   

 

 

 

Total operating expenses

     5,202,999       5,369,846  
  

 

 

   

 

 

 

NET INVESTMENT INCOME

     3,504,449       2,538,549  
  

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

    

Net realized gain from investments

     95,589       6,102,905  

Net unrealized depreciation on investments

     (2,585,951     (5,353,867
  

 

 

   

 

 

 

Net gain (loss) on investments

     (2,490,362     749,038  
  

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 1,014,087     $ 3,287,587  
  

 

 

   

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.17     $ 0.57  

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED

     5,861,654       5,737,496  

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

May 31, 2017

(unaudited)

 

Company

 

Industry

 

Investment Interest Rate/
Maturity

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

Non-control/Non-affiliated investments - 218.5% (b)

 

     

Apex Holdings Software Technologies, LLC

  Business Services   First Lien Term Loan
(L+8.00%), 9.21% Cash, 9/21/2021
  $ 18,000,000     $ 17,864,592     $ 18,000,000       14.1

Avionte Holdings, LLC (g)

  Business Services   Common Stock     100,000       100,000       257,000       0.2

BMC Software, Inc. (d)

  Business Services   Syndicated Loan (L+4.00%), 5.21% Cash, 9/10/2022   $ 4,883,493       4,835,787       4,905,468       3.8

CLEO Communications Holding, LLC

  Business Services   First Lien Term Loan (L+7.00%), 8.21% Cash/2.00% PIK, 3/31/2022   $ 13,000,000       12,872,436       12,870,000       10.1

CLEO Communications Holding, LLC (j)

  Business Services   Delayed Draw Term Loan (L+7.00%), 8.21% Cash/2.00% PIK, 3/31/2022   $ —         —         —         0.0

Courion Corporation

  Business Services   Second Lien Term Loan (L+10.00%), 11.21% Cash, 6/1/2021   $ 15,000,000       14,885,014       14,229,000       11.1

Emily Street Enterprises, L.L.C.

  Business Services   Senior Secured Note (L+8.50%), 10.00% Cash, 1/23/2020   $ 3,300,000       3,287,284       3,321,450       2.6

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

  Business Services   Warrant Membership Interests Expires 12/28/2022     49,318       400,000       426,600       0.3

Erwin, Inc.

  Business Services   Second Lien Term Loan (L+11.50%), 12.71% Cash/1.00% PIK, 8/28/2021   $ 13,143,616       13,036,964       13,143,616       10.3

FranConnect LLC (d)

  Business Services   First Lien Term Loan (L+7.00%), 8.50% Cash, 5/26/2022   $ 14,500,000       14,427,500       14,427,500       11.3

GreyHeller LLC

  Business Services   First Lien Term Loan (L+11.00%), 12.21% Cash, 11/16/2021   $ 7,000,000       6,935,808       7,000,000       5.5

GreyHeller LLC (j)

  Business Services   Delayed Draw Term Loan B (L+11.00%), 12.21% Cash, 11/16/2021   $ —         —         —         0.0

GreyHeller LLC (g)

  Business Services   Common Stock     850,000       850,000       850,000       0.7

Help/Systems Holdings, Inc.(Help/Systems, LLC)

  Business Services   First Lien Term Loan (L+5.25%), 6.46% Cash, 10/8/2021   $ 5,932,462       5,847,487       5,937,208       4.7

Help/Systems Holdings, Inc.(Help/Systems, LLC)

  Business Services   Second Lien Term Loan (L+9.50%), 10.71% Cash, 10/8/2022   $ 3,000,000       2,925,229       2,928,900       2.3

Identity Automation Systems

  Business Services   Convertible Promissory Note 13.50% (6.75% Cash/6.75% PIK), 8/18/2018   $ 621,695       621,695       621,695       0.5

Identity Automation Systems (g)

  Business Services   Common Stock Class A Units     232,616       232,616       514,298       0.4

Identity Automation Systems

  Business Services   First Lien Term Loan (L+9.25%), 10.46% Cash/1.75% PIK, 12/18/2020   $ 10,324,839       10,261,369       10,324,839       8.1

Knowland Technology Holdings, L.L.C.

  Business Services   First Lien Term Loan (L+8.75%), 9.96% Cash, 7/20/2021   $ 16,888,730       16,833,572       16,888,731       13.2

Microsystems Company

  Business Services   Second Lien Term Loan (L+10.00%), 11.21% Cash, 7/1/2022   $ 8,000,000       7,929,936       8,000,000       6.3

National Waste Partners (d)

  Business Services   First Lien Term Loan 10.00% Cash, 2/13/2022   $ 9,000,000       8,910,000       8,910,000       7.0

Vector Controls Holding Co., LLC (d)

  Business Services   First Lien Term Loan 14.00% (12.00% Cash/2.00% PIK), 3/6/2018   $ 8,711,174       8,679,449       8,711,174       6.8

Vector Controls Holding Co., LLC (d), (g)

  Business Services   Warrants to Purchase Limited Liability Company Interests, Expires 5/31/2025     343       —         328,008       0.3
       

 

 

   

 

 

   

 

 

 
    Total Business Services       151,736,738       152,595,487       119.6
       

 

 

   

 

 

   

 

 

 

Targus Holdings, Inc. (d), (g)

  Consumer Products   Common Stock     210,456       1,791,242       24,957       0.0

Targus Holdings, Inc. (d)

  Consumer Products   Second Lien Term Loan A-2 15.00% PIK, 12/31/2019   $ 243,206       243,206       243,206       0.2

Targus Holdings, Inc. (d)

  Consumer Products   Second Lien Term Loan B 15.00% PIK, 12/31/2019   $ 729,230       729,230       729,230       0.6
       

 

 

   

 

 

   

 

 

 
    Total Consumer Products       2,763,678       997,393       0.8
       

 

 

   

 

 

   

 

 

 

My Alarm Center, LLC (g)

  Consumer Services   Second Lien Term Loan (L+11.00%), 12.21% Cash, 7/9/2019   $ 10,343,750       10,329,743       2,695,581       2.1

PrePaid Legal Services, Inc. (d)

  Consumer Services   First Lien Term Loan (L+5.25%), 6.50% Cash, 7/1/2019   $ 2,558,573       2,546,279       2,564,458       2.0

PrePaid Legal Services, Inc. (d)

  Consumer Services   Second Lien Term Loan (L+9.00%), 10.25% Cash, 7/1/2020   $ 11,000,000       10,968,443       10,957,100       8.6
       

 

 

   

 

 

   

 

 

 
    Total Consumer Services       23,844,465       16,217,139       12.7
       

 

 

   

 

 

   

 

 

 

C2 Educational Systems

  Education   First Lien Term Loan (L+8.50%), 10.00% Cash, 5/31/2020   $ 16,000,000       15,840,181       15,840,000       12.4

M/C Acquisition Corp., L.L.C. (d), (g)

  Education   Class A Common Stock     544,761       30,241       —         0.0

M/C Acquisition Corp., L.L.C. (d), (g)

  Education   First Lien Term Loan 1.00% Cash, 3/31/2018   $ 2,321,073       1,193,790       6,320       0.0

Texas Teachers of Tomorrow, LLC (g), (h)

  Education   Common Stock     750,000       750,000       878,603       0.7

Texas Teachers of Tomorrow, LLC

  Education   Second Lien Term Loan (L+8.00%), 9.21% Cash, 6/2/2021   $ 10,000,000       9,922,434       10,000,000       7.8
       

 

 

   

 

 

   

 

 

 
    Total Education       27,736,646       26,724,923       20.9
       

 

 

   

 

 

   

 

 

 

TM Restaurant Group L.L.C. (g)

  Food and Beverage   First Lien Term Loan 14.50% PIK, 7/17/2017   $ 9,358,694       9,349,470       8,279,637       6.5

TM Restaurant Group L.L.C. (g), (i)

  Food and Beverage   Revolver 14.50% PIK, 7/17/2017   $ 413,954       413,954       366,225       0.3
       

 

 

   

 

 

   

 

 

 
    Total Food and Beverage       9,763,424       8,645,862       6.8
       

 

 

   

 

 

   

 

 

 

Censis Technologies, Inc.

  Healthcare Services   First Lien Term Loan B (L+10.00%), 11.21% Cash, 7/24/2019   $ 10,950,000       10,840,545       10,879,920       8.5

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

  Healthcare Services   Limited Partner Interests     999       999,000       907,701       0.7

ComForCare Health Care

  Healthcare Services   First Lien Term Loan (L+8.50%), 9.71% Cash, 1/31/2022   $ 10,500,000       10,400,434       10,500,000       8.2

Roscoe Medical, Inc. (d), (g)

  Healthcare Services   Common Stock     5,081       508,077       585,152       0.5

Roscoe Medical, Inc.

  Healthcare Services   Second Lien Term Loan 11.25% Cash, 9/26/2019   $ 4,200,000       4,159,694       4,186,560       3.3

Ohio Medical, LLC (g)

  Healthcare Services   Common Stock     5,000       500,000       218,050       0.2

Ohio Medical, LLC

  Healthcare Services   Senior Subordinated Note 12.00% Cash, 7/15/2021   $ 7,300,000       7,241,526       6,395,530       5.0

Zest Holdings, LLC (d)

  Healthcare Services   Syndicated Loan (L+4.25%), 5.46% Cash, 8/16/2023   $ 4,136,911       4,056,579       4,162,973       3.3
       

 

 

   

 

 

   

 

 

 
    Total Healthcare Services       38,705,855       37,835,886       29.7
       

 

 

   

 

 

   

 

 

 

HMN Holdco, LLC

  Media   First Lien Term Loan 12.00% Cash/2.00% PIK, 7/8/2021   $ 8,343,607       8,267,744       8,593,916       6.7

HMN Holdco, LLC

  Media   Delayed Draw First Lien Term Loan 12.00% Cash, 7/8/2021   $ 4,800,000       4,754,553       4,824,000       3.8

HMN Holdco, LLC (g)

  Media   Class A Series, Expires 1/16/2025     4,264       61,647       263,131       0.2

HMN Holdco, LLC (g)

  Media   Class A Warrant, Expires 1/16/2025     30,320       438,353       1,481,132       1.2

HMN Holdco, LLC (g)

  Media   Warrants to Purchase Limited Liability Company Interests (Common), Expires 5/16/2024     57,872       —         2,530,743       2.0

HMN Holdco, LLC (g)

  Media   Warrants to Purchase Limited Liability Company Interests (Preferred), Expires 5/16/2024     8,139       —         413,217       0.3
       

 

 

   

 

 

   

 

 

 
    Total Media       13,522,297       18,106,139       14.2
       

 

 

   

 

 

   

 

 

 

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

  Metals   Common Stock     35,000       9,217,564       1,458,100       1.1

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

  Metals   Second Lien Term Loan 15.00% PIK, 8/10/2022   $ 437,500       437,500       437,500       0.4
       

 

 

   

 

 

   

 

 

 
    Total Metals       9,655,064       1,895,600       1.5
       

 

 

   

 

 

   

 

 

 

Mercury Network, LLC

  Real Estate   Second Lien Term Loan (L+10.50%), 11.71% Cash, 3/17/2022   $ 12,988,202       12,885,683       13,118,084       10.2

Mercury Network, LLC (g)

  Real Estate   Common Stock     580,559       857,829       2,630,551       2.1
       

 

 

   

 

 

   

 

 

 
    Total Real Estate       13,743,512       15,748,635       12.3
       

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliated investments

      291,471,679       278,767,064       218.5
       

 

 

   

 

 

   

 

 

 

Control investments - 39.9% (b)

         

Easy Ice, LLC (f)

  Business Services   Preferred Equity 10.00% PIK     5,080,000       8,124,444       8,131,921       6.4

Easy Ice, LLC (d), (f)

  Business Services   First Lien Term Loan (L+10.25%), 11.31% Cash, 1/15/2020   $ 26,680,000       26,480,450       26,680,000       20.9
       

 

 

   

 

 

   

 

 

 
    Total Business Services       34,604,894       34,811,921       27.3
       

 

 

   

 

 

   

 

 

 

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

  Structured Finance Securities   Other/Structured Finance Securities 22.56%, 10/20/2025   $ 30,000,000       9,520,445       11,563,263       9.0

Saratoga Investment Corp. Class F Note (a), (d), (f)

  Structured Finance Securities   Other/Structured Finance Securities (L+8.50%), 9.71%, 10/20/2025   $ 4,500,000       4,500,000       4,547,700       3.6
       

 

 

   

 

 

   

 

 

 
    Total Structured Finance Securities       14,020,445       16,110,963       12.6
       

 

 

   

 

 

   

 

 

 

Sub Total Control investments

          48,625,339       50,922,884       39.9
       

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS - 258.4% (b)

    $ 340,097,018     $ 329,689,948       258.4
       

 

 

   

 

 

   

 

 

 
            Principal     Cost     Fair Value     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 21.8% (b)

       

U.S. Bank Money Market (k)

      $ 27,773,704     $ 27,773,704     $ 27,773,704       21.8
     

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 27,773,704     $ 27,773,704     $ 27,773,704       21.8
     

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Represents a non-qualifying investment as defined under Section 55 (a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 4.9% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.
(b) Percentages are based on net assets of $127,608,653 as of May 31, 2017.
(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 either fully or partially pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).
(e) This investment does not have a stated interest rate that is payable thereon. As a result, the 22.56% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.
(f) As defined in the Investment Company Act, 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
and Incentive
Fee Income
     Net Realized
Gains
(Losses)
     Change in
Unrealized
Appreciation
(Depreciation)
 

Easy Ice, LLC

   $ —        $ —        $ —        $ 1,037,917      $ —        $ —        $ (8,811

Saratoga Investment Corp. CLO 2013-1, Ltd.

   $ —        $ —        $ —        $ 453,586      $ 480,976      $ —        $ 1,411,943  

Saratoga Investment Corp. Class F Note

   $ —        $ —        $ —        $ 105,992      $ —        $ —        $ 48,150  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g) Non-income producing at May 31, 2017.
(h) Includes securities issued by an affiliate of the company.
(i) The investment has an unfunded commitment as of May 31, 2017 (see Note 7 to the consolidated financial statements).
(j) The entire commitment was unfunded at May 31, 2017. As such, no interest is being earned on this investment.
(k) Included within cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s Consolidated Statements of Assets and Liabilities as of May 31, 2017.

 

5


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

February 28, 2017

 

Company

 

Industry

 

Investment Interest Rate/
Maturity

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

Non-control/Non-affiliated investments - 190.5% (b)

       

Apex Holdings Software Technologies, LLC

  Business Services   First Lien Term Loan (L+8.00%), 9.05% Cash, 9/21/2021   $ 18,000,000     $ 17,857,818     $ 17,843,400       14.0

Avionte Holdings, LLC (g)

  Business Services   Common Stock     100,000       100,000       251,000       0.2

BMC Software, Inc. (d)

  Business Services   Syndicated Loan (L+4.00%), 5.05% Cash, 9/10/2020   $ 5,611,666       5,582,551       5,639,163       4.4

Courion Corporation

  Business Services   Second Lien Term Loan (L+10.00%), 11.05% Cash, 6/1/2021   $ 15,000,000       14,879,353       14,230,500       11.2

Emily Street Enterprises, L.L.C.

  Business Services   Senior Secured Note (L+8.50%), 10.00% Cash, 1/23/2020   $ 3,300,000       3,282,213       3,316,500       2.6

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

  Business Services   Warrant Membership Interests Expires 12/28/2022     49,318       400,000       394,544       0.3

Erwin, Inc.

  Business Services   Second Lien Term Loan (L+11.50%), 12.55% (11.50% Cash/1.00% PIK), 8/28/2021   $ 13,111,929       13,000,581       13,111,929       10.2

GreyHeller LLC

  Business Services   First Lien Term Loan (L+11.00%), 12.05% Cash, 11/16/2021   $ 7,000,000       6,933,141       6,930,000       5.4

GreyHeller LLC (i), (j)

  Business Services   Delayed Draw Term Loan B (L+11.00%), 12.05% Cash, 11/16/2021   $ —         —         —         0.0

GreyHeller LLC (g)

  Business Services   Common Stock     850,000       850,000       850,000       0.7

Help/Systems Holdings, Inc.(Help/Systems, LLC)

  Business Services   First Lien Term Loan (L+5.25%), 6.30% Cash, 10/8/2021   $ 5,947,481       5,857,960       5,947,481       4.7

Help/Systems Holdings, Inc.(Help/Systems, LLC)

  Business Services   Second Lien Term Loan (L+9.50%), 10.55% Cash, 10/8/2022   $ 3,000,000       2,922,606       2,926,800       2.3

Identity Automation Systems

  Business Services   Convertible Promissory Note 13.50% (6.75% Cash/6.75% PIK), 8/18/2018     611,517       611,517       611,517       0.5

Identity Automation Systems (g)

  Business Services   Common Stock Class A Units     232,616       232,616       386,143       0.3

Identity Automation Systems

  Business Services   First Lien Term Loan (L+9.25%), 10.30% (9.25% Cash/1.75% PIK) 12/18/2020   $ 10,293,791       10,223,741       10,293,791       8.1

Knowland Technology Holdings, L.L.C.

  Business Services   First Lien Term Loan (L+8.75%), 9.80% Cash, 7/20/2021   $ 17,777,730       17,692,307       17,777,730       14.0

Microsystems Company

  Business Services   Second Lien Term Loan (L+10.00%), 11.05% Cash, 7/1/2022   $ 8,000,000       7,927,489       7,964,800       6.3

National Waste Partners

  Business Services   First Lien Term Loan 10.00% Cash, 2/13/2022   $ 9,000,000       8,910,000       8,910,000       7.0

Vector Controls Holding Co., LLC (d)

  Business Services   First Lien Term Loan, 14.00% (12.00% Cash/2.00% PIK), 3/6/2018   $ 8,819,270       8,778,186       8,819,270       6.9

Vector Controls Holding Co., LLC (d), (g)

  Business Services   Warrants to Purchase Limited Liability Company Interests, Expires 5/31/2025     343       —         327,200       0.3
       

 

 

   

 

 

   

 

 

 
    Total Business Services       126,042,079       126,531,768       99.4
       

 

 

   

 

 

   

 

 

 

Targus Holdings, Inc. (d), (g)

  Consumer Products   Common Stock     210,456       1,791,242       29,241       0.0

Targus Holdings, Inc. (d)

  Consumer Products   Second Lien Term Loan A-2 15.00% PIK, 12/31/2019   $ 234,630       234,630       234,630       0.2

Targus Holdings, Inc. (d)

  Consumer Products   Second Lien Term Loan B 15.00% PIK, 12/31/2019   $ 703,889       703,889       703,889       0.6
       

 

 

   

 

 

   

 

 

 
    Total Consumer Products       2,729,761       967,760       0.8
       

 

 

   

 

 

   

 

 

 

My Alarm Center, LLC

  Consumer Services   Second Lien Term Loan (L+11.00%), 12.05% Cash, 7/9/2019   $ 9,375,000       9,359,492       7,061,250       5.6

PrePaid Legal Services, Inc. (d)

  Consumer Services   First Lien Term Loan (L+5.25%), 6.50% Cash, 7/1/2019   $ 2,687,143       2,672,435       2,687,143       2.1

PrePaid Legal Services, Inc. (d)

  Consumer Services   Second Lien Term Loan (L+9.00%), 10.25% Cash, 7/1/2020   $ 11,000,000       10,966,188       11,000,000       8.6
       

 

 

   

 

 

   

 

 

 
    Total Consumer Services       22,998,115       20,748,393       16.3
       

 

 

   

 

 

   

 

 

 

M/C Acquisition Corp., L.L.C. (d), (g)

  Education   Class A Common Stock     544,761       30,241       —         0.0

M/C Acquisition Corp., L.L.C. (d)

  Education   First Lien Term Loan 1.0% Cash, 3/31/2018   $ 2,321,073       1,193,790       8,087       0.0

Texas Teachers of Tomorrow, LLC (g), (h)

  Education   Common Stock     750       750,000       919,680       0.7

Texas Teachers of Tomorrow, LLC

  Education   Second Lien Term Loan (L+9.75%), 10.80% Cash, 6/2/2021   $ 10,000,000       9,918,572       10,000,000       7.9
       

 

 

   

 

 

   

 

 

 
    Total Education       11,892,603       10,927,767       8.6
       

 

 

   

 

 

   

 

 

 

TM Restaurant Group L.L.C. (g)

  Food and Beverage   First Lien Term Loan (L+8.50%), 9.75% Cash, 7/17/2017   $ 9,358,694       9,331,446       8,422,825       6.6
       

 

 

   

 

 

   

 

 

 
    Total Food and Beverage       9,331,446       8,422,825       6.6
       

 

 

   

 

 

   

 

 

 

Censis Technologies, Inc.

  Healthcare Services   First Lien Term Loan B (L+10.00%), 11.05% Cash, 7/24/2019   $ 11,100,000       10,977,689       10,940,160       8.6

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

  Healthcare Services   Limited Partner Interests     999       999,000       886,772       0.7

ComForCare Health Care

  Healthcare Services   First Lien Term Loan (L+8.50%), 9.55% Cash, 1/31/2022   $ 10,500,000       10,398,957       10,395,000       8.2

Roscoe Medical, Inc. (d), (g)

  Healthcare Services   Common Stock     5,081       508,077       680,823       0.5

Roscoe Medical, Inc.

  Healthcare Services   Second Lien Term Loan 11.25% Cash, 9/26/2019   $ 4,200,000       4,155,827       4,179,000       3.3

Ohio Medical, LLC (g)

  Healthcare Services   Common Stock     5,000       500,000       288,800       0.2

Ohio Medical, LLC

  Healthcare Services   Senior Subordinated Note 12.00%, 7/15/2021   $ 7,300,000       7,238,831       6,989,750       5.5

Zest Holdings, LLC (d)

  Healthcare Services   Syndicated Loan (L+4.75%), 5.80% Cash, 8/17/2020   $ 4,136,911       4,085,888       4,183,658       3.3
       

 

 

   

 

 

   

 

 

 
    Total Healthcare Services       38,864,269       38,543,963       30.3
       

 

 

   

 

 

   

 

 

 

HMN Holdco, LLC

  Media   First Lien Term Loan 12.00% Cash, 7/8/2021   $ 8,462,482       8,376,876       8,462,482       6.6

HMN Holdco, LLC

  Media   Delayed Draw First Lien Term Loan 12.00% Cash, 7/8/2021   $ 4,800,000       4,751,258       4,800,000       3.8

HMN Holdco, LLC (g)

  Media   Class A Series, Expires 1/16/2025     4,264       61,647       294,770       0.2

HMN Holdco, LLC (g)

  Media   Class A Warrant, Expires 1/16/2025     30,320       438,353       1,706,410       1.3

HMN Holdco, LLC (g)

  Media   Warrants to Purchase Limited Liability Company Interests (Common), Expires 5/16/2024     57,872       —         2,961,310       2.3

HMN Holdco, LLC (g)

  Media   Warrants to Purchase Limited Liability Company Interests (Preferred), Expires 5/16/2024     8,139       —         473,690       0.4
       

 

 

   

 

 

   

 

 

 
    Total Media       13,628,134       18,698,662       14.6
       

 

 

   

 

 

   

 

 

 

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

  Metals   Common Stock     35,000       9,217,564       413,350       0.3

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

  Metals   Second Lien Term Loan 15.00% PIK, 8/10/2022   $ 437,500       437,500       437,500       0.4
       

 

 

   

 

 

   

 

 

 
    Total Metals       9,655,064       850,850       0.7
       

 

 

   

 

 

   

 

 

 

Mercury Network, LLC

  Real Estate   First Lien Term Loan (L+9.50%), 10.55% Cash, 8/24/2021   $ 15,773,875       15,644,382       15,773,875       12.4

Mercury Network, LLC (g)

  Real Estate   Common Stock     413,043       413,043       1,065,651       0.8
       

 

 

   

 

 

   

 

 

 
    Total Real Estate       16,057,425       16,839,526       13.2
       

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliated investments

      251,198,896       242,531,514       190.5
       

 

 

   

 

 

   

 

 

 

Control investments - 39.4% (b)

           

Easy Ice, LLC (g)

  Business Services   Preferred Equity     5,080,000       8,000,000       8,000,000       6.3

Easy Ice, LLC (d), (f)

  Business Services   First Lien Term Loan (L+10.25%), 11.02% Cash, 1/15/2020   $ 26,680,000       26,464,162       26,680,000       20.9
       

 

 

   

 

 

   

 

 

 
    Total Business Services       34,464,162       34,680,000       27.2
       

 

 

   

 

 

   

 

 

 

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

  Structured Finance Securities   Other/Structured Finance Securities 14.87%, 10/20/2025   $ 30,000,000       10,319,374       10,950,249       8.7

Saratoga Investment Corp. Class F Note (a), (d), (f)

  Structured Finance Securities   Other/Structured Finance Securities (L+8.50%), 9.55%, 10/20/2025   $ 4,500,000       4,500,000       4,499,550       3.5
       

 

 

   

 

 

   

 

 

 
    Total Structured Finance Securities       14,819,374       15,449,799       12.2
       

 

 

   

 

 

   

 

 

 

Sub Total Control investments

          49,283,536       50,129,799       39.4
       

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS - 229.9% (b)

        $ 300,482,432     $ 292,661,313       229.9
       

 

 

   

 

 

   

 

 

 
            Principal     Cost     Fair Value     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 17.4% (b)

       

U.S. Bank Money Market (k)

      $ 22,087,968     $ 22,087,968     $ 22,087,968       17.4
     

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 22,087,968     $ 22,087,968     $ 22,087,968       17.4
     

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Represents a non-qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 5.3% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.
(b) Percentages are based on net assets of $127,294,777 as of February 28, 2017.
(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) This investment does not have a stated interest rate that is payable thereon. As a result, the 14.87% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.
(f) As defined in the Investment Company Act, 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:

 

                   Sales
(Cost)
     Interest
Income
     Management
Fee Income
     Net
Realized

Gains
(Losses)
     Net Unrealized
Appreciation
(Depreciation)
 

Company

   Purchases      Redemptions                 

Easy Ice, LLC

   $ 20,553,200      $ —        $ —        $ 217,362      $ —        $ —        $ 283,226  

Saratoga Investment Corp. CLO 2013-1, Ltd.

   $ —        $ —        $ —        $ 1,941,914      $ 1,499,001      $ —        $ 833,646  

Saratoga Investment Corp. Class F Note

   $ 4,500,000      $ —        $ —        $ 122,121      $ —        $ —        $ (450
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g) Non-income producing at February 28, 2017.
(h) Includes securities issued by an affiliate of the company.
(i) The investment has an unfunded commitment as of February 28, 2017 (see Note 7 to the consolidated financial statements).
(j) The entire commitment was unfunded at February 28, 2017. As such, no interest is being earned on this investment.
(k) Included within cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s Consolidated Statements of Assets and Liabilities as of February 28, 2017.

 

6


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Changes in Net Assets

(unaudited)

 

     For the three months ended
May 31, 2017
    For the three months ended
May 31, 2016
 

INCREASE FROM OPERATIONS:

    

Net investment income

   $ 3,504,449     $ 2,538,549  

Net realized gain from investments

     95,589       6,102,905  

Net unrealized depreciation on investments

     (2,585,951     (5,353,867
  

 

 

   

 

 

 

Net increase in net assets from operations

     1,014,087       3,287,587  
  

 

 

   

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

    

Distributions declared

     (2,665,516     (2,346,311
  

 

 

   

 

 

 

Net decrease in net assets from shareholder distributions

     (2,665,516     (2,346,311
  

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS:

    

Proceeds from issuance of common stock

     1,367,168       —    

Stock dividend distribution

     622,088       1,750,901  

Repurchases of common stock

     —         (713,184

Offering costs

     (23,951     —    
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     1,965,305       1,037,717  
  

 

 

   

 

 

 

Total increase in net assets

     313,876       1,978,993  

Net assets at beginning of period

     127,294,777       125,149,875  
  

 

 

   

 

 

 

Net assets at end of period

   $ 127,608,653     $ 127,128,868  
  

 

 

   

 

 

 

Net asset value per common share

   $ 21.69     $ 22.11  

Common shares outstanding at end of period

     5,884,475       5,750,222  

Distribution in excess of net investment income

   $ (26,898,415   $ (26,025,665

See accompanying notes to consolidated financial statements.

 

7


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

     For the three months ended
May 31, 2017
    For the three months ended
May 31, 2016
 

Operating activities

    

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 1,014,087     $ 3,287,587  

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

    

Payment-in-kind interest income

     (261,677     (134,256

Net accretion of discount on investments

     (168,970     (136,568

Amortization of deferred debt financing costs

     236,124       262,663  

Net realized gain from investments

     (95,589     (6,102,905

Net unrealized depreciation on investments

     2,585,951       5,353,867  

Proceeds from sales and repayments of investments

     5,876,640       20,588,570  

Purchase of investments

     (44,964,990     —    

(Increase) decrease in operating assets:

    

Interest receivable

     (358,485     (246,128

Management and incentive fee receivable

     (105,378     (478

Other assets

     1,938       (9,834

Receivable from unsettled trades

     —         300,000  

Increase (decrease) in operating liabilities:

    

Base management and incentive fees payable

     (1,821,732     159,089  

Accounts payable and accrued expenses

     64,171       82,384  

Interest and debt fees payable

     (958,745     (513,146

Payable for repurchases of common stock

     —         15,930  

Directors fees payable

     —         22,500  

Due to manager

     (52,200     6,977  
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     (39,008,855     22,936,252  
  

 

 

   

 

 

 

Financing activities

    

Borrowings on debt

     46,500,000       —    

Payments of deferred debt financing costs

     (1,108,645     (313,400

Proceeds from issuance of common stock

     1,367,168       —    

Payments of offering costs

     (20,504     —    

Repurchases of common stock

     —         (713,184

Payments of cash dividends

     (2,043,428     (1,471,009
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     44,694,591       (2,497,593
  

 

 

   

 

 

 

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

     5,685,736       20,438,659  

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

     22,087,968       7,034,783  
  

 

 

   

 

 

 

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

   $ 27,773,704     $ 27,473,442  
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid during the period

   $ 3,246,228     $ 2,618,539  

Cash paid for taxes

   $ 54,084     $ 140,029  

Supplemental non-cash information:

    

Payment-in-kind interest income

   $ 261,677     $ 134,256  

Net accretion of discount on investments

   $ 168,970     $ 136,568  

Amortization of deferred debt financing costs

   $ 236,124     $ 262,663  

Stock dividend distribution

   $ 622,088     $ 1,750,901  

See accompanying notes to consolidated financial statements.

 

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SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2017

(unaudited)

Note 1. Organization

Saratoga Investment Corp. (the “Company”, “we”, “our” and “us”) is a non-diversified closed end management investment company incorporated in Maryland that has elected to be treated and is regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). The Company commenced operations on March 23, 2007 as GSC Investment Corp. and completed the initial public offering (“IPO”) on March 28, 2007. The Company has elected to be treated as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code (the “Code”). The Company expects to continue to qualify and to elect to be treated, for tax purposes, as a RIC. The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation from its investments.

GSC Investment, LLC (the “LLC”) was organized in May 2006 as a Maryland limited liability company. As of February 28, 2007, the LLC had not yet commenced its operations and investment activities.

On March 21, 2007, the Company was incorporated and concurrently therewith the LLC was merged with and into the Company, with the Company as the surviving entity, in accordance with the procedure for such merger in the LLC’s limited liability company agreement and Maryland law. In connection with such merger, each outstanding limited liability company interest of the LLC was converted into a share of common stock of the Company.

On July 30, 2010, the Company changed its name from “GSC Investment Corp.” to “Saratoga Investment Corp.” in connection with the consummation of a recapitalization transaction.

The Company is externally managed and advised by the investment adviser, Saratoga Investment Advisors, LLC (the “Manager”), pursuant to a management agreement (the “Management Agreement”). Prior to July 30, 2010, the Company was managed and advised by GSCP (NJ), L.P.

The Company has established wholly-owned subsidiaries, SIA Avionte, Inc., SIA Easy Ice, LLC, SIA GH, Inc., SIA Mercury, Inc., SIA TT Inc., and SIA Vector Inc., which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass through entities). Tax blockers are consolidated for accounting purposes, but are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of portfolio companies.

On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP (“SBIC LP”), received a Small Business Investment Company (“SBIC”) license from the Small Business Administration (“SBA”).

On April 2, 2015, the SBA issued a “green light” letter inviting the Company to continue the application process to obtain a license to form and operate its second SBIC subsidiary. On September 27, 2016, the SBA informed us that as part of their continued review of our application for a second license, and in order to ensure that they were reviewing the most current information available, we would need to update all previously submitted materials and invited us to reapply. As a result of this request, with which we are in the process of complying, the existing “green light” letter that the SBA issued to us has expired. If approved in the future, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue up to $150.0 million of additional SBA-guaranteed debentures in addition to the $150.0 million already approved under the first license.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with generally accepted accounting principles (“U.S. GAAP”), are stated in U.S. Dollars and include the accounts of the Company

 

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and its special purpose financing subsidiary, Saratoga Investment Funding, LLC (previously known as GSC Investment Funding LLC), SBIC LP, SIA Avionte, Inc., SIA Easy Ice, LLC, SIA GH, Inc., SIA Mercury, Inc., SIA TT Inc., and SIA Vector Inc. All intercompany accounts and transactions have been eliminated in consolidation. All references made to the “Company,” “we,” and “us” herein include Saratoga Investment Corp. and its consolidated subsidiaries, except as stated otherwise.

The Company and SBIC LP are both considered to be investment companies for financial reporting purposes and have applied the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services — Investment Companies (“ASC 946”). There have been no changes to the Company or SBIC LP’s status as investment companies during the three months ended May 31, 2017.

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

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

 

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

 

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

 

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

As of May 31, 2017, the Company did not exceed any of these limitations.

Cash and Cash Equivalents, Reserve Accounts

Cash and cash equivalents, reserve accounts include amounts held in designated bank accounts in the form of cash and short-term liquid investments in money market funds, representing payments received on secured investments or other reserved amounts associated with the Company’s $45.0 million senior secured revolving credit facility with Madison Capital Funding LLC. The Company is required to use these amounts to pay interest expense, reduce borrowings, or pay other amounts in accordance with the terms of the senior secured revolving credit facility.

In addition, cash and cash equivalents, reserve accounts also include amounts held in designated bank accounts, in the form of cash and short-term liquid investments in money market funds, within our wholly-owned subsidiary, SBIC LP.

In November 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted and is to be applied on a retrospective basis. The Company has adopted the provisions of ASU 2016-18 as of November 30, 2016. The adoption of the provisions of ASU 2016-18 did not materially impact the Company’s consolidated financial position or results of operations. Prior period amounts were reclassified to conform to the current period presentation.

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

 

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     May 31,
2017
     May 31,
2016
 

Cash and cash equivalents

   $ 1,246,815      $ 1,309,111  

Cash and cash equivalents, reserve accounts

     26,526,889        26,164,331  
  

 

 

    

 

 

 

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

   $ 27,773,704      $ 27,473,442  
  

 

 

    

 

 

 

Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which we own more than 25.0% of the voting securities or maintain greater than 50.0% of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which we own between 5.0% and 25.0% of the voting securities. Under the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.

Investment Valuation

The Company accounts for its investments at fair value in accordance with the FASB ASC Topic 820, Fair Value 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 balance sheet date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

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

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

 

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

 

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

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

 

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

 

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

The Company’s investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”) is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for

 

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equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by our Manager and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. The Company uses the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flow analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO.

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

Derivative Financial Instruments

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

Investment Transactions and Income Recognition

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

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest 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, (“ASC 325-40”), based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

Other Income

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

Payment-in-Kind Interest

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

Deferred Debt Financing Costs

Financing costs incurred in connection with our credit facility and notes are deferred and amortized using the straight line method over the life of the respective facility and debt securities. Financing costs incurred in connection with our SBA debentures are deferred and amortized using the effective yield method over the life of the debentures.

 

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ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company has adopted the provisions of ASU 2015-03 as of February 28, 2015, by reclassifying deferred debt financing costs from within total assets to within total liabilities as a contra-liability. Prior period amounts were reclassified to conform to the current period presentation.

Contingencies

In the ordinary course of business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote. Therefore, the Company has not accrued any liabilities in connection with such indemnifications.

In the ordinary course of business, the Company may directly or indirectly be a defendant or plaintiff in legal actions with respect to bankruptcy, insolvency or other types of proceedings. Such lawsuits may involve claims that could adversely affect the value of certain financial instruments owned by the Company.

Income Taxes

The Company has filed an election to be treated for tax purposes as a RIC under the Code and, among other things, intends to make the requisite distributions to its stockholders which will relieve the Company from federal income taxes. Therefore, no provision has been recorded for federal income taxes.

In order to qualify as a RIC, among other requirements, the Company is required to timely distribute to its stockholders at least 90.0% of its investment company taxable income, as defined by the Code, for each fiscal tax year. The Company will be subject to a nondeductible U.S. federal excise tax of 4.0% on undistributed income if it does not distribute at least 98.0% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31.

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4.0% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.

In accordance with certain applicable U.S. Treasury regulations and private letter rulings issued by the Internal Revenue Service (“IRS”), a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC subject to a limitation on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20.0% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash will receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20.0% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock.

ASC 740, Income Taxes, (“ASC 740”), provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense on the consolidated statements of operations. During the fiscal year ended February 28, 2017, the Company did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. The 2014, 2015 and 2016 federal tax years for the Company remain subject to examination by the IRS. As of May 31, 2017 and February 28, 2017, there were no uncertain tax positions. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly in the next 12 months.

 

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Dividends

Dividends to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the board of directors. Net realized capital gains, if any, are generally distributed at least annually, although we may decide to retain such capital gains for reinvestment.

We have adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of our dividend distributions on behalf of our stockholders unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of the DRIP by the dividend record date will have their cash dividends automatically reinvested into additional shares of our common stock, rather than receiving the cash dividends. We have the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator.

Capital Gains Incentive Fee

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

New Accounting Pronouncements

In October 2016, the U.S. Securities and Exchange Commission (“SEC”) adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Company’s consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods therein. Early adoption is permitted. Management is currently evaluating the impact ASU 2016-15 will have on the Company’s consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Amendments to the Leases (“ASU Topic 842”), which will require for all operating leases the recognition of a right-of-use asset and a lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. This guidance is effective for annual and interim periods beginning after December 15, 2018. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management is currently evaluating the impact the adoption of this standard has on the Company’s consolidated financial statements and disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In May 2016, ASU 2016-12 amended ASU 2014-09 and deferred the effective period to December 15, 2017. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

 

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Risk Management

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

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

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

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

Note 3. Investments

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

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

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

 

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

 

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

 

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

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

The following table presents fair value measurements of investments, by major class, as of May 31, 2017 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

Syndicated loans

   $ —        $ —        $ 9,068      $ 9,068  

First lien term loans

     —          —          186,015        186,015  

Second lien term loans

     —          —          95,975        95,975  

Structured finance securities

     —          —          16,111        16,111  

Equity interests

     —          —          22,521        22,521  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 329,690      $ 329,690  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table presents fair value measurements of investments, by major class, as of February 28, 2017 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

Syndicated loans

   $ —        $ —        $ 9,823      $ 9,823  

First lien term loans

     —          —          159,097        159,097  

Second lien term loans

     —          —          87,750        87,750  

Structured finance securities

     —          —          15,450        15,450  

Equity interests

     —          —          20,541        20,541  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 292,661      $ 292,661  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended May 31, 2017 (dollars in thousands):

 

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

Balance as of February 28, 2017

   $ 9,823     $ 159,097     $ 87,750     $ 15,450     $ 20,541     $ 292,661  

Net unrealized appreciation (depreciation) on investments

     21       387       (5,855     1,460       1,401       (2,586

Purchases and other adjustments to cost

     6       43,738       1,073       —         579       45,396  

Sales and repayments

     (728     (1,440     (2,786     (799     (124     (5,877

Net realized gain (loss) from investments

     (54     7       19       —         124       96  

Restructures in

     —         —         15,774       —         —         15,774  

Restructures out

     —         (15,774     —         —         —         (15,774
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of May 31, 2017

   $ 9,068     $ 186,015     $ 95,975     $ 16,111     $ 22,521     $ 329,690  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 21     $ 387     $ (5,855   $ 1,460     $ 1,401     $ (2,586

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

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

Transfers and restructurings, if any, are recognized at the beginning of the period in which they occur.

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended May 31, 2016 (dollars in thousands):

 

 

16


Table of Contents
     Syndicated
loans
    First lien
term loans
    Second
lien
term loans
     Structured
finance
securities
    Equity
interests
    Total  

Balance as of February 29, 2016

   $ 11,868     $ 144,643     $ 88,178      $ 12,828     $ 26,479     $ 283,996  

Net unrealized appreciation (depreciation) on investments

     1,242       (363     1,268        583       (8,084     (5,354

Purchases and other adjustments to cost

     26       164       73        —         8       271  

Sales and redemptions

     (95     (13,078     —          (959     (6,457     (20,589

Net realized gain from investments

     1       126       —          —         5,976       6,103  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance as of May 31, 2016

   $ 13,042     $ 131,492     $ 89,519      $ 12,452     $ 17,922     $ 264,427  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

   $ 1,242     $ (297   $ 1,268      $ 583     $ (2,329   $ 467  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

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

Transfers and restructurings, if any, are recognized at the beginning of the period in which they occur.

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of May 31, 2017 were as follows (dollars in thousands):

 

     Fair Value      Valuation Technique    Unobservable Input    Range

Syndicated loans

   $ 9,068      Market Comparables    Third-Party Bid (%)    100.5%  - 101.1%

First lien term loans

     186,015      Market Comparables    Market Yield (%)    6.4%  - 13.9%
         EBITDA Multiples (x)    3.0x  - 5.5x
         Third-Party Bid (%)    100%  - 100.5%

Second lien term loans

     95,975      Market Comparables    Market Yield (%)    9.2%  - 90.3%
         Third-Party Bid (%)    97.6%  - 99.8%

Structured finance securities

     16,111      Discounted Cash Flow    Discount Rate (%)    8.0%  - 13.0%

Equity interests

     22,521      Market Comparables    EBITDA Multiples (x)    3.7x  - 16.3x

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of February 28, 2017 were as follows (dollars in thousands):

 

     Fair Value      Valuation Technique    Unobservable Input    Range

Syndicated loans

   $ 9,823      Market Comparables    Third-Party Bid (%)    100.5% - 101.1%

First lien term loans

     159,097      Market Comparables    Market Yield (%)    6.3% - 39.0%
         EBITDA Multiples (x)    3.0x - 10.3x
         Third-Party Bid (%)    100.0% - 100.2%

Second lien term loans

     87,750      Market Comparables    Market Yield (%)    10.1% - 26.4%
         Third-Party Bid (%)    97.6% - 99.9%

Structured finance securities

     15,450      Discounted Cash Flow    Discount Rate (%)    8.5% - 13.0%

Equity interests

     20,541      Market Comparables    EBITDA Multiples (x)    3.7x - 12.0x

 

17


Table of Contents

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

The composition of our investments as of May 31, 2017, at amortized cost and fair value was as follows (dollars in thousands):

 

     Investments at
Amortized Cost
     Amortized Cost
Percentage of

Total Portfolio
    Investments at
Fair Value
     Fair Value
Percentage of
Total Portfolio
 

Syndicated loans

   $ 8,892        2.6   $ 9,068        2.8

First lien term loans

     187,097        55.0       186,015        56.4  

Second lien term loans

     104,605        30.8       95,975        29.1  

Structured finance securities

     14,020        4.1       16,111        4.9  

Equity interests

     25,483        7.5       22,521        6.8  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 340,097        100.0   $ 329,690        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The composition of our investments as of February 28, 2017, at amortized cost and fair value was as follows (dollars in thousands):

 

     Investments at
Amortized Cost
     Amortized Cost
Percentage of
Total Portfolio
    Investments at
Fair Value
     Fair Value
Percentage of
Total Portfolio
 

Syndicated loans

   $ 9,669        3.2   $ 9,823        3.4

First lien term loans

     160,436        53.4       159,097        54.3  

Second lien term loans

     90,655        30.2       87,750        30.0  

Structured finance securities

     14,819        4.9       15,450        5.3  

Equity interests

     24,903        8.3       20,541        7.0  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 300,482        100.0   $ 292,661        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

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

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

 

18


Table of Contents

Our investment in Saratoga CLO is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by our Manager and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment 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. In connection with the refinancing of the Saratoga CLO liabilities, we ran Intex models based on assumptions about the refinanced Saratoga CLO’s structure, including capital structure, cost of liabilities and reinvestment period. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flow analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO at May 31, 2017. The significant inputs at May 31, 2017 for the valuation model include:

 

    Default rates: 2.0%

 

    Recovery rates: 35-70%

 

    Discount rate: 13.0%

 

    Prepayment rate: 20.0%

 

    Reinvestment rate / price: L+350bps / $99.75.

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

On January 22, 2008, the Company invested $30.0 million in all of the outstanding subordinated notes of GSC Investment Corp. CLO 2007, Ltd., a collateralized loan obligation fund managed by the Company that invests primarily in senior secured loans. Additionally, the Company entered into a collateral management agreement with GSC Investment Corp. CLO 2007, Ltd. pursuant to which we act as collateral manager to it. The Saratoga CLO was initially refinanced in October 2013 and its reinvestment period ended in October 2016. On November 15, 2016, the Company completed the second refinancing of the Saratoga CLO. The Saratoga CLO refinancing, among other things, extended its reinvestment period to October 2018, and extended its legal maturity date to October 2025. Following the refinancing, the Saratoga CLO portfolio remained at the same size and with a similar capital structure of approximately $300.0 million in aggregate principal amount of predominantly senior secured first lien term loans. In addition to refinancing its liabilities, we also purchased $4.5 million in aggregate principal amount of the Class F notes tranche of the Saratoga CLO at par, with a coupon of LIBOR plus 8.5%.

The Saratoga CLO remains 100.0% owned and managed by Saratoga Investment Corp. Following the refinancing, the Company receives a base management fee of 0.10% and a subordinated management fee of 0.40% of the fee basis amount at the beginning of the collection period, paid quarterly to the extent of available proceeds. The Company is also entitled to an incentive management fee equal to 20.0% of excess cash flow to the extent the Saratoga CLO subordinated notes receive an internal rate of return paid in cash equal to or greater than 12.0%. For the three months ended May 31, 2017 and May 31, 2016, we accrued $0.4 million and $0.4 million in management fee income, respectively, and $0.5 million and $0.5 million in interest income, respectively, from Saratoga CLO. For the three months ended May 31, 2017, we accrued $0.1 million related to the incentive management fee from Saratoga CLO. For the three months ended May 31, 2016, we did not accrue any amounts related to the incentive management fee from Saratoga CLO as the 12.0% hurdle rate has not yet been achieved.

As of May 31, 2017, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $11.6 million. The Company determines the fair value of its investment in the subordinated notes of Saratoga CLO based on the present value of the projected future cash flows of the subordinated notes over the life of Saratoga CLO. As of May 31, 2017, Saratoga CLO had investments with a principal balance of $299.3 million and a weighted average spread over LIBOR of 4.0%, and had debt with a principal balance of $282.4 million with a weighted average spread over LIBOR of 2.4%. As a result, Saratoga CLO earns a “spread” between the interest income it receives on its investments and the interest expense it pays on its debt and other operating expenses, which is distributed quarterly to the Company as the holder of its subordinated notes. At May 31, 2017, the present value of the projected future cash flows of the subordinated notes was approximately $11.8 million, using a 13.0% discount rate. Saratoga Investment Corp. invested $32.8 million into the CLO since January 2008, and to date has since received distributions of $50.6 million and management fees of $16.9 million.

Below is certain financial information from the separate financial statements of Saratoga CLO as of May 31, 2017 (unaudited) and February 28, 2017 and for the three months ended May 31, 2017 (unaudited) and May 31, 2016 (unaudited).

 

19


Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities

 

     As of  
     May 31, 2017     February 28, 2017  
     (unaudited)        

ASSETS

    

Investments

    

Fair Value Loans (amortized cost of $296,570,507 and $294,270,284, respectively)

   $ 294,679,202     $ 292,437,930  

Fair Value Other/Structured finance securities (amortized cost of $3,531,218 and
$3,531,218, respectively)

     33,902       22,718  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $300,101,725 and $297,801,502, respectively)

     294,713,104       292,460,648  

Cash and cash equivalents

     7,039,670       13,046,555  

Receivable from open trades

     7,927,175       1,505,000  

Interest receivable

     1,337,584       1,443,865  

Other assets

     —         6,049  
  

 

 

   

 

 

 

Total assets

   $ 311,017,533     $ 308,462,117  
  

 

 

   

 

 

 

LIABILITIES

    

Interest payable

   $ 1,084,119     $ 1,031,457  

Payable from open trades

     11,603,306       9,431,552  

Accrued base management fee

     34,238       34,221  

Accrued subordinated management fee

     136,951       136,885  

Accrued incentive fee

     105,295       —    

Class A-1 Notes - SIC CLO 2013-1, Ltd.

     170,000,000       170,000,000  

Class A-2 Notes - SIC CLO 2013-1, Ltd.

     20,000,000       20,000,000  

Class B Notes - SIC CLO 2013-1, Ltd.

     44,800,000       44,800,000  

Class C Notes - SIC CLO 2013-1, Ltd.

     16,000,000       16,000,000  

Discount on Class C Notes - SIC CLO 2013-1, Ltd.

     (75,111     (77,383

Class D Notes - SIC CLO 2013-1, Ltd.

     14,000,000       14,000,000  

Discount on Class D Notes - SIC CLO 2013-1, Ltd.

     (348,703     (359,249

Class E Notes - SIC CLO 2013-1, Ltd.

     13,100,000       13,100,000  

Class F Notes - SIC CLO 2013-1, Ltd.

     4,500,000       4,500,000  

Deferred debt financing costs, SIC CLO 2013-1, Ltd. Notes

     (1,108,709     (1,161,590

Subordinated Notes

     30,000,000       30,000,000  
  

 

 

   

 

 

 

Total liabilities

   $ 323,831,386     $ 321,435,893  
  

 

 

   

 

 

 

Commitments and contingencies

    

NET ASSETS

    

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

   $ 250     $ 250  

Accumulated loss

     (12,974,026     (21,557,618

Net gain

     159,923       8,583,592  
  

 

 

   

 

 

 

Total net assets

     (12,813,853     (12,973,776
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 311,017,533     $ 308,462,117  
  

 

 

   

 

 

 

 

20


Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Operations

(unaudited)

 

     For the three months ended
May 31
 
     2017     2016  

INVESTMENT INCOME

    

Interest from investments

   $ 3,977,871     $ 3,788,336  

Interest from cash and cash equivalents

     5,083       771  

Other income

     160,614       243,301  
  

 

 

   

 

 

 

Total investment income

     4,143,568       4,032,408  
  

 

 

   

 

 

 

EXPENSES

    

Interest expense

     3,623,558       3,281,015  

Professional fees

     34,551       18,482  

Miscellaneous fee expense

     10,126       8,244  

Base management fee

     75,136       186,842  

Subordinated management fee

     300,545       186,842  

Incentive fees

     105,295       —    

Trustee expenses

     36,168       26,688  

Amortization expense

     44,357       239,963  
  

 

 

   

 

 

 

Total expenses

     4,229,736       3,948,076  
  

 

 

   

 

 

 

NET INVESTMENT INCOME (LOSS)

     (86,168     84,332  
  

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

    

Net realized gain on investments

     293,858       55,562  

Net unrealized appreciation (depreciation) on investments

     (47,767     9,320,673  
  

 

 

   

 

 

 

Net gain on investments

     246,091       9,376,235  
  

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 159,923     $ 9,460,567  
  

 

 

   

 

 

 

 

21


Table of Contents

Saratoga Investment Corp. CLO 2013-1 Ltd.

Schedule of Investments

May 31, 2017

(unaudited)

 

Issuer Name

 

Industry

 

Asset Name

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

Education Management II, LLC

  Leisure Goods/Activities/Movies   A-1 Preferred Shares   Equity     0.00     0.00     0.00     0.00       6,692     $ 669,214     $ 13,384  

Education Management II, LLC

  Leisure Goods/Activities/Movies   A-2 Preferred Shares   Equity     0.00     0.00     0.00     0.00       18,975       1,897,538       76  

New Millennium Holdco, Inc.

  Healthcare & Pharmaceuticals   Common Stock   Equity     0.00     0.00     0.00     0.00       14,813       964,466       20,442  

24 Hour Holdings III, LLC

  Leisure Goods/Activities/Movies   Term Loan   Loan     3.75     1.00     0.00     4.90     5/28/2021     $ 486,250       483,268       483,211  

ABB Con-Cise Optical Group, LLC

  Healthcare & Pharmaceuticals   Term Loan B   Loan     5.00     1.00     0.00     6.10     6/15/2023     $ 1,990,000       1,970,291       2,007,413  

Acosta Holdco, Inc.

  Media   Term Loan B1   Loan     3.25     1.00     0.00     4.29     9/26/2021     $ 1,940,025       1,929,835       1,806,997  

Advantage Sales & Marketing, Inc.

  Services: Business   Delayed Draw Term Loan   Loan     3.25     1.00     0.00     4.29     7/25/2021     $ 2,439,950       2,437,594       2,412,061  

Aegis Toxicology Science Corporation

  Healthcare & Pharmaceuticals   Term B Loan   Loan     4.50     1.00     0.00     5.66     2/24/2021     $ 2,457,233       2,337,953       2,440,843  

Agrofresh, Inc.

  Food Services   Term Loan   Loan     4.75     1.00     0.00     5.90     7/30/2021     $ 1,965,000       1,957,975       1,953,957  

AI MISTRAL T/L (V. GROUP)

  Utilities   Term Loan   Loan     3.00     1.00     0.00     4.18     3/11/2024     $ 500,000       500,000       499,375  

Akorn, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.25     1.00     0.00     5.31     4/16/2021     $ 398,056       397,016       402,534  

Albertson’s LLC

  Retailers (Except Food and Drugs)   Term Loan B-4   Loan     3.00     0.75     0.00     4.04     8/25/2021     $ 2,888,953       2,873,134       2,904,120  

Alere Inc. (fka IM US Holdings, LLC)

  Healthcare & Pharmaceuticals   Term Loan B   Loan     3.25     1.00     0.00     4.30     6/20/2022     $ 915,616       913,895       919,050  

Alion Science and Technology Corporation

  High Tech Industries   Term Loan B (First Lien)   Loan     4.50     1.00     0.00     5.54     8/19/2021     $ 2,947,500       2,936,726       2,945,054  

Alliance Healthcare Services, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     3.25     1.00     0.00     4.36     6/3/2019     $ 981,997       978,851       979,542  

ALPHA 3 T/L B1 (ATOTECH)

  Chemicals/Plastics   Term Loan B 1   Loan     3.00     1.00     0.00     4.15     1/31/2024     $ 250,000       249,380       251,173  

Almonde, Inc. (Misys)

  High Tech Industries   Term Loan B   Loan     3.50     1.00     0.00     4.50     4/26/2024     $ 1,000,000       995,000       1,001,920  

Anchor Glass T/L (11/16)

  Containers/Glass Products   Term Loan   Loan     3.25     1.00     0.00     4.25     12/7/2023     $ 498,750       496,452       502,047  

APCO Holdings, Inc.

  Automotive   Term Loan   Loan     6.00     1.00     0.00     7.00     1/31/2022     $ 1,896,081       1,851,847       1,848,679  

Aramark Corporation

  Food Products   U.S. Term F Loan   Loan     2.00     0.00     0.00     3.05     3/28/2024     $ 2,000,000       2,000,000       2,013,120  

Arctic Glacier U.S.A., Inc.

  Beverage, Food & Tobacco   Term Loan B   Loan     4.25     1.00     0.00     5.30     3/20/2024     $ 500,000       497,543       505,940  

Aspen Dental Management, Inc.

  Healthcare & Pharmaceuticals   Term Loan Initial   Loan     3.75     1.00     0.00     4.92     4/29/2022     $ 1,979,905       1,975,830       1,998,477  

Astoria Energy T/L B

  Utilities   Term Loan   Loan     4.00     1.00     0.00     5.15     12/24/2021     $ 1,495,307       1,480,752       1,491,569  

Asurion, LLC (fka Asurion Corporation)

  Insurance   Replacement Term Loan B-2   Loan     3.25     0.75     0.00     4.29     7/8/2020     $ 522,122       518,066       525,495  

Asurion, LLC (fka Asurion Corporation)

  Insurance   Term Loan B4 (First Lien)   Loan     3.25     1.00     0.00     4.29     8/4/2022     $ 2,391,773       2,380,910       2,405,430  

Auction.com, LLC

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     5.00     1.00     0.00     6.05     5/13/2019     $ 2,711,717       2,711,519       2,728,665  

Avantor Performance Materials Holdings, Inc.

  Chemicals/Plastics   Term Loan   Loan     4.00     1.00     0.00     5.05     3/8/2024     $ 3,000,000       2,992,568       3,006,000  

AVOLON TLB BORROWER 1 LUXEMBOURG S.A.R.L.

  Capital Equipment   Term Loan B-2   Loan     2.75     0.75     0.00     3.76     3/20/2022     $ 1,000,000       995,342       1,012,430  

Bass Pro Group, LLC

  Retailers (Except Food and Drugs)   Term Loan   Loan     3.25     0.75     0.00     4.24     6/5/2020     $ 1,470,000       1,468,053       1,468,163  

Belmond Interfin Ltd.

  Lodging & Casinos   Term Loan   Loan     3.00     1.00     0.00     4.15     3/19/2021     $ 2,473,003       2,476,208       2,476,094  

Blackboard T/L B4

  High Tech Industries   Term Loan B4   Loan     5.00     1.00     0.00     6.16     6/30/2021     $ 2,985,000       2,963,237       2,990,612  

Blucora, Inc.

  High Tech Industries   Term Loan B   Loan     3.75     1.00     0.00     4.76     5/22/2024     $ 1,000,000       995,075       1,007,500  

BMC Software

  Technology   Term Loan   Loan     4.00     1.00     0.00     5.16     9/12/2022     $ 1,946,210       1,888,314       1,947,436  

BMC Software T/L US

  Technology   Term Loan   Loan     4.00     1.00     0.00     5.16     9/12/2022     $ 588,449       578,390       591,056  

Brickman Group Holdings, Inc.

  Brokers/Dealers/Investment Houses   Initial Term Loan (First Lien)   Loan     3.00     1.00     0.00     4.04     12/18/2020     $ 1,431,702       1,421,385       1,432,246  

BWAY Holding Company

  Leisure Goods/Activities/Movies   Term Loan B   Loan     3.25     0.00     0.00     4.25     4/3/2024     $ 1,000,000       995,071       998,540  

Cable One, Inc.

  Telecommunications   Term Loan B   Loan     2.25     1.00     0.00     3.43     5/1/2024     $ 500,000       499,375       503,125  

Candy Intermediate Holdings, Inc.

  Beverage, Food & Tobacco   Term Loan   Loan     4.50     1.00     0.00     5.65     6/15/2023     $ 496,250       494,152       470,197  

Capital Automotive L.P.

  Conglomerate   Tranche B-1 Term Loan Facility   Loan     3.00     1.00     0.00     4.03     3/25/2024     $ 500,000       497,547       503,905  

Caraustar Industries Inc.

  Forest Products & Paper   Term Loan B   Loan     5.50     1.00     0.00     6.65     3/14/2022     $ 500,000       498,761       501,625  

CASA SYSTEMS T/L

  Telecommunications   Term Loan   Loan     4.00     1.00     0.00     5.04     12/20/2023     $ 1,496,250       1,482,060       1,499,991  

Catalent Pharma Solutions, Inc

  Drugs   Initial Term B Loan   Loan     2.75     1.00     0.00     3.79     5/20/2021     $ 423,560       422,273       427,854  

Cengage Learning Acquisitions, Inc.

  Publishing   Term Loan   Loan     4.25     1.00     0.00     5.25     6/7/2023     $ 1,488,750       1,473,865       1,401,107  

CH HOLD (CALIBER COLLISION) T/L

  Automotive   Term Loan   Loan     3.00     0.00     0.00     4.04     2/1/2024     $ 227,273       226,761       228,789  

Charter Communications Operating, LLC

  Cable and Satellite Television   Term F Loan   Loan     2.00     0.00     0.00     3.05     1/3/2021     $ 1,605,364       1,599,826       1,614,193  

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term G Loan   Loan     2.75     1.00     0.00     3.95     12/31/2019     $ 922,719       901,552       923,181  

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term H Loan   Loan     3.00     1.00     0.00     4.20     1/27/2021     $ 1,697,791       1,644,603       1,697,859  

CITGO Petroleum Corporation

  Oil & Gas   Term Loan B   Loan     3.50     1.00     0.00     4.65     7/29/2021     $ 1,959,849       1,942,358       1,960,338  

Communications Sales & Leasing, Inc.

  Telecommunications   Term Loan B (First Lien)   Loan     3.00     1.00     0.00     4.04     10/24/2022     $ 1,965,137       1,954,120       1,974,609  

Concordia Healthcare Corporation

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.25     1.00     0.00     5.28     10/21/2021     $ 1,967,500       1,883,686       1,421,519  

Consolidated Aerospace Manufacturing, LLC

  Aerospace and Defense   Term Loan (First Lien)   Loan     3.75     1.00     0.00     4.80     8/11/2022     $ 1,418,750       1,413,095       1,369,094  

Consolidated Communications, Inc.

  Telecommunications   Term Loan B-2   Loan     3.00     1.00     0.00     4.00     10/5/2023     $ 500,000       497,500       502,395  

CPI Acquisition Inc.

  Technology   Term Loan B (First Lien)   Loan     4.50     1.00     0.00     5.83     8/17/2022     $ 1,436,782       1,419,495       1,250,000  

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

  Electronics/Electric   Term B Loan   Loan     3.25     1.00     0.00     4.30     4/7/2021     $ 2,462,342       2,461,788       2,462,342  

Crosby US Acquisition Corporation

  Industrial Equipment   Initial Term Loan (First Lien)   Loan     3.00     1.00     0.00     4.17     11/23/2020     $ 725,625       725,152       661,044  

CT Technologies Intermediate Hldgs, Inc

  Healthcare & Pharmaceuticals   Term Loan   Loan     4.25     1.00     0.00     5.29     12/1/2021     $ 1,466,381       1,455,744       1,449,884  

Cypress Intermediate Holdings III, Inc.

  Services: Business   Term Loan B   Loan     3.00     1.00     0.00     4.04     4/29/2024     $ 500,000       498,776       498,500  

Culligan International Company-T/L

  Conglomerate   Term Loan   Loan     4.00     1.00     0.00     5.00     12/13/2023     $ 2,044,875       2,045,149       2,056,388  

Cumulus Media Holdings Inc.

  Broadcast Radio and Television   Term Loan   Loan     3.25     1.00     0.00     4.30     12/23/2020     $ 470,093       467,518       372,548  

DAE Aviation (StandardAero)

  Aerospace and Defense   Term Loan   Loan     3.75     1.00     0.00     4.79     7/7/2022     $ 2,470,000       2,460,059       2,488,525  

DASEKE T/L (HENNESSY CAPITAL)

  Transportation   Term Loan   Loan     5.50     1.00     0.00     6.54     2/27/2024     $ 827,143       820,224       832,313  

DCS Business Services, Inc.

  Financial Intermediaries   Term B Loan   Loan     7.25     1.50     0.00     8.75     3/19/2018     $ 1,782,727       1,778,648       1,782,727  

Delta 2 (Lux) S.a.r.l.

  Lodging & Casinos   Term Loan B-3   Loan     3.25     1.00     0.00     4.57     2/1/2024     $ 1,000,000       996,775       1,000,680  

DELL INTERNATIONAL 1ST LIEN T/L

  High Tech Industries   Term Loan (01/17)   Loan     2.50     0.75     0.00     3.55     9/7/2023     $ 997,500       996,476       1,003,146  

Deluxe Entertainment Service Group, Inc.

  Leisure Goods/Activities/Movies   Term Loan (First Lien)   Loan     5.50     1.00     0.00     6.62     2/28/2020     $ 2,849,297       2,821,745       2,845,735  

DEX MEDIA, INC.

  Media   Term Loan (07/16)   Loan     10.00     1.00     0.00     11.04     7/29/2021     $ 35,702       35,702       36,505  

DIGITALGLOBE T/L B (12/16)

  Aerospace and Defense   Term Loan B   Loan     2.75     0.75     0.00     3.79     1/15/2024     $ 498,750       497,631       499,373  

DJO Finance, LLC

  Healthcare & Pharmaceuticals   Term Loan   Loan     3.25     1.00     0.00     4.25     6/8/2020     $ 491,250       489,802       485,601  

Dole Food Company, Inc.

  Beverage, Food & Tobacco   Term Loan B   Loan     3.00     1.00     0.00     4.18     4/8/2024     $ 500,000       497,548       501,965  

DPX Holdings B.V.

  Healthcare & Pharmaceuticals   Term Loan 2015 Incr Dollar   Loan     3.25     1.00     0.00     4.41     4/22/2024     $ 2,917,500       2,912,750       2,929,170  

Drew Marine Group, Inc.

  Chemicals/Plastics   Term Loan (First Lien)   Loan     3.25     1.00     0.00     4.40     11/19/2020     $ 2,863,470       2,839,806       2,852,731  

DTZ U.S. Borrower, LLC

  Construction & Building   Term Loan B Add-on   Loan     3.25     1.00     0.00     4.40     11/4/2021     $ 1,957,576       1,948,917       1,962,019  

DUKE FINANCE (OM GROUP/VECTRA) T/L

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     5.00     1.00     0.00     6.15     2/21/2024     $ 1,500,000       1,399,164       1,514,370  

Edelman Financial Group, Inc.

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     5.50     1.00     0.00     6.66     12/19/2022     $ 1,474,728       1,450,390       1,475,952  

Education Management II, LLC

  Leisure Goods/Activities/Movies   Term Loan A   Loan     4.50     1.00     0.00     5.66     7/2/2020     $ 501,970       489,732       221,494  

Education Management II, LLC

  Leisure Goods/Activities/Movies   Term Loan B (2.00% Cash/6.50% PIK)   Loan     1.00     1.00     6.50     8.66     7/2/2020     $ 954,307       935,402       11,929  

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (First Lien)   Loan     3.50     1.00     0.00     4.54     8/1/2021     $ 480,602       479,081       485,009  

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     7.75     1.00     0.00     8.79     8/1/2022     $ 500,000       498,224       498,595  

Emerald 2 Limited

  Chemicals/Plastics   Term Loan B1A   Loan     4.00     1.00     0.00     5.15     5/14/2021     $ 1,000,000       993,241       948,330  

Endo International plc

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.25     0.75     0.00     5.31     4/29/2024     $ 1,000,000       995,089       1,016,880  

Engility Corporation

  Aerospace and Defense   Term Loan B-1   Loan     3.25     0.00     0.00     4.29     8/12/2020     $ 237,500       236,554       239,222  

Equian, LLC

  Services: Business   Term Loan B   Loan     3.75     1.00     0.00     4.93     5/20/2024     $ 1,529,412       1,519,428       1,533,235  

Evergreen Acqco 1 LP

  Retailers (Except Food and Drugs)   New Term Loan   Loan     3.75     1.25     0.00     5.00     7/9/2019     $ 952,613       951,841       869,259  

EWT Holdings III Corp. (fka WTG Holdings III Corp.)

  Industrial Equipment   Term Loan (First Lien)   Loan     3.75     1.00     0.00     4.90     1/15/2021     $ 1,942,311       1,939,288       1,949,595  

EWT Holdings III Corp.

  Capital Equipment   Term Loan   Loan     4.50     1.00     0.00     5.65     1/15/2021     $ 990,000       982,363       996,188  

Extreme Reach, Inc.

  Media   Term Loan B   Loan     6.25     1.00     0.00     7.30     2/7/2020     $ 2,831,250       2,806,680       2,873,719  

Federal-Mogul Corporation

  Automotive   Tranche C Term Loan   Loan     3.75     1.00     0.00     4.75     4/15/2021     $ 2,917,500       2,906,685       2,926,369  

First Data Corporation

  Financial Intermediaries   First Data T/L Ext (2021)   Loan     2.50     0.00     0.00     3.53     4/26/2024     $ 1,886,914       1,809,171       1,896,651  

First Eagle Investment Management

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     3.50     0.75     0.00     4.66     12/1/2022     $ 2,481,250       2,452,109       2,512,266  

Fitness International, LLC

  Leisure Goods/Activities/Movies   Term Loan B   Loan     4.25     1.00     0.00     5.40     7/1/2020     $ 1,624,755       1,604,627       1,643,716  

Gardner Denver, Inc.

  High Tech Industries   Initial Dollar Term Loan   Loan     3.25     1.00     0.00     4.57     7/30/2020     $ 2,054,505       2,051,123       2,058,614  

Gates Global LLC

  Leisure Goods/Activities/Movies   Term Loan (First Lien)   Loan     3.25     1.00     0.00     4.41     4/1/2024     $ 349,886       346,468       351,233  

General Nutrition Centers, Inc.

  Retailers (Except Food and Drugs)   Amended Tranche B Term Loan   Loan     2.50     0.75     0.00     3.55     3/4/2019     $ 2,047,169       2,044,152       1,841,715  

GLOBALLOGIC HOLDINGS INC TERM LOAN B

  Services: Business   Term Loan B   Loan     4.50     1.00     0.00     5.65     6/20/2022     $ 500,000       495,340       503,125  

Global Tel*Link Corporation

  Services: Business   Term Loan (First Lien)   Loan     3.75     1.25     0.00     5.00     5/26/2020     $ 2,641,595       2,635,582       2,640,486  

Goodyear Tire & Rubber Company, The

  Chemicals/Plastics   Loan (Second Lien)   Loan     2.00     0.00     0.00     3.00     4/30/2019     $ 1,833,333       1,822,047       1,844,792  

Grosvenor Capital Management Holdings, LP

  Brokers/Dealers/Investment Houses   Initial Term Loan   Loan     3.00     1.00     0.00     4.04     8/18/2023     $ 1,000,000       995,091       1,002,500  

GTCR Valor Companies, Inc.

  Services: Business   Term Loan B   Loan     6.00     1.00     0.00     7.15     6/16/2023     $ 1,488,751       1,434,934       1,498,800  

Harland Clarke Holdings Corp. (fka Clarke American Corp.)

  Publishing   Tranche B-4 Term Loan   Loan     5.50     1.00     0.00     6.65     2/9/2022     $ 2,162,357       2,105,279       2,160,195  

Hargray Communications Group, Inc.

  Media   Term Loan B   Loan     3.00     1.00     0.00     4.03     2/9/2022     $ 1,000,000       997,509       1,001,500  

Helix Gen Funding, LLC

  Utilities   Term Loan B   Loan     3.75     1.00     0.00     4.96     5/3/2024     $ 479,104       476,709       479,104  

Highline Aftermarket Acquisition, LLC

  Automotive   Term Loan B   Loan     4.25     1.00     0.00     5.31     3/15/2024     $ 1,000,000       995,000       1,005,000  

Help/Systems Holdings, Inc.

  High Tech Industries   Term Loan   Loan     5.25     1.00     0.00     6.40     10/8/2021     $ 1,481,250       1,432,668       1,482,479  

Hemisphere Media Holdings, LLC

  Media   Term Loan B   Loan     3.50     0.00     0.00     4.54     2/14/2024     $ 2,493,750       2,506,145       2,496,867  

Herbalife T/L B (HLF Financing)

  Drugs   Term Loan B   Loan     5.50     0.75     0.00     6.54     2/15/2023     $ 2,000,000       1,985,640       2,010,840  

Hercules Achievement Holdings, Inc.

  Retailers (Except Food and Drugs)   Term Loan B   Loan     4.00     1.00     0.00     5.00     12/10/2021     $ 246,222       244,291       247,497  

Hoffmaster Group, Inc.

  Containers/Glass Products   Term Loan   Loan     4.50     1.00     0.00     5.54     11/21/2023     $ 997,500       1,001,241       1,008,722  

Hostess Brand, LLC

  Beverage, Food & Tobacco   Term Loan B (First Lien)   Loan     2.50     0.75     0.00     3.54     8/3/2022     $ 1,486,275       1,482,559       1,496,619  

HUB International Limited

  Banking, Finance, Insurance & Real Estate   Term Loan B   Loan     3.25     1.00     0.00     4.42     10/2/2022     $ 748,072       748,072       751,932  

Huntsman International LLC

  Chemicals/Plastics   Term Loan B (First Lien)   Loan     3.00     0.70     0.00     4.04     4/19/2019     $ 1,021,487       1,017,292       1,027,023  

Husky Injection Molding Systems Ltd.

  Services: Business   Term Loan B   Loan     3.25     1.00     0.00     4.29     6/30/2021     $ 449,208       447,231       452,690  

Hyland Software, Inc.

  High Tech Industries   Term Loan B   Loan     3.25     0.75     0.00     4.00     7/1/2022     $ 1,000,000       997,500       1,000,000  

Hyperion Refinance T/L

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     4.00     1.00     0.00     5.06     4/29/2022     $ 1,881,998       1,859,264       1,881,998  

ICSH Parent, Inc.

  Containers/Glass Products   Term Loan   Loan     4.00     1.00     0.00     5.18     4/29/2024     $ 847,059       842,847       844,941  

IG Investments Holdings, LLC

  Services: Business   Term Loan   Loan     4.00     1.00     0.00     5.08     10/29/2021     $ 3,441,142       3,425,616       3,466,950  

Imagine! Print Solutions, Inc.

  Media   Term Loan B   Loan     6.00     1.00     0.00     7.15     3/30/2022     $ 495,000       488,876       495,619  

Infor US (Lawson) T/L B-6

  Services: Business   Term Loan B-6   Loan     2.75     1.00     0.00     3.90     2/1/2022     $ 1,609,802       1,596,120       1,605,986  

Informatica Corporation

  High Tech Industries   Term Loan B   Loan     3.50     1.00     0.00     4.65     8/5/2022     $ 485,671       484,711       485,215  

Inmar, Inc.

  Services: Business   Term Loan B   Loan     3.50     1.00     0.00     4.67     5/1/2024     $ 500,000       495,040       500,625  

ION Media T/L B

  Media   Term Loan B   Loan     3.50     1.00     0.00     4.50     12/18/2020     $ 500,000       497,761       505,000  

J. Crew Group, Inc.

  Retailers (Except Food and Drugs)   Term B-1 Loan Retired 03/05/2014   Loan     3.00     1.00     0.00     4.00     3/5/2021     $ 943,325       943,325       642,131  

Jazz Acquisition, Inc

  Aerospace and Defense   First Lien 6/14   Loan     3.50     1.00     0.00     4.65     6/19/2021     $ 486,667       485,937       472,067  

J.Jill Group, Inc.

  Retailers (Except Food and Drugs)   Term Loan (First Lien)   Loan     5.00     1.00     0.00     6.18     5/9/2022     $ 948,238       944,632       923,745  

Kinetic Concepts, Inc.

  Healthcare & Pharmaceuticals   Term Loan F-1   Loan     3.25     1.00     0.00     4.40     2/2/2024     $ 2,400,000       2,389,073       2,366,256  

Koosharem, LLC

  Services: Business   Term Loan   Loan     6.50     1.00     0.00     7.54     5/15/2020     $ 2,927,613       2,911,567       2,710,969  

Kraton Polymers, LLC

  Chemicals/Plastics   Term Loan (Initial)   Loan     4.00     1.00     0.00     5.05     1/6/2022     $ 1,733,177       1,592,433       1,754,703  

Lannett Company T/L A

  Healthcare & Pharmaceuticals   Term Loan A   Loan     4.75     1.00     0.00     5.79     11/25/2020     $ 986,842       959,754       976,974  

Lannett Company, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     5.38     1.00     0.00     6.42     11/25/2022     $ 1,875,000       1,820,609       1,860,938  

LEARFIELD COMMUNICATIONS INITIAL T/L (A-L PARENT)

  Healthcare & Pharmaceuticals   Initial Term Loan (A-L Parent)   Loan     3.25     1.00     0.00     4.30     12/1/2023     $ 498,750       496,523       504,361  

Lightstone Generation T/L B

  Utilities   Term Loan B   Loan     4.50     1.00     0.00     5.54     1/30/2024     $ 57,971       56,838       56,667  

Lightstone Generation T/L C

  Utilities   Term Loan C   Loan     4.50     1.00     0.00     5.54     1/30/2024     $ 939,674       921,338       918,531  

Limetree Bay Terminals T/L (01/17)

  Oil & Gas   Term Loan   Loan     5.00     1.00     0.00     6.00     2/15/2024     $ 500,000       495,258       504,375  

LPL Holdings

  Banking, Finance, Insurance & Real Estate   Term Loan B (2022)   Loan     2.50     0.00     0.00     3.61     3/11/2024     $ 1,750,000       1,745,678       1,757,665  

McGraw-Hill Global Education Holdings, LLC

  Publishing   Term Loan   Loan     4.00     1.00     0.00     5.04     5/4/2022     $ 992,500       988,527       980,878  

MHVC Acquisition Corp.

  Aerospace and Defense   Term Loan   Loan     5.25     1.00     0.00     6.30     4/29/2024     $ 2,000,000       1,990,154       2,013,760  

Michaels Stores, Inc.

  Retailers (Except Food and Drugs)   Term Loan B1   Loan     2.75     1.00     0.00     3.79     1/30/2023     $ 1,675,147       1,669,900       1,673,053  

Micro Holding Corporation

  High Tech Industries   Term Loan   Loan     3.75     1.00     0.00     4.79     7/8/2021     $ 322,700       321,911       325,524  

Micro Holding Corporation

  High Tech Industries   Term Loan   Loan     3.75     1.00     0.00     4.79     7/8/2021     $ 979,860       976,399       988,130  

Microsemi Corporation

  Electronics/Electric   Term Loan B   Loan     2.25     0.00     0.00     3.33     1/17/2023     $ 829,180       808,580       832,173  

Midas Intermediate Holdco II, LLC

  Automotive   Term Loan (Initial)   Loan     2.75     1.00     0.00     3.90     8/18/2021     $ 243,764       242,937       244,373  

Milacron T/L B

  Capital Equipment   Term Loan B   Loan     3.00     0.00     0.00     4.04     9/28/2023     $ 997,500       994,134       999,994  

Milk Specialties Company

  Beverage, Food & Tobacco   Term Loan   Loan     4.00     1.00     0.00     5.15     8/16/2023     $ 995,000       985,645       1,002,463  

Mister Car Wash T/L

  Automotive   Term Loan   Loan     4.25     1.00     0.00     5.30     8/20/2021     $ 1,495,312       1,489,711       1,497,182  

MWI Holdings, Inc.

  Capital Equipment   Term Loan (First Lien)   Loan     5.50     1.00     0.00     6.65     6/29/2020     $ 2,977,500       2,951,521       2,999,831  

National Vision, Inc.

  Retailers (Except Food and Drugs)   Term Loan (Second Lien)   Loan     5.75     1.00     0.00     6.79     3/11/2022     $ 250,000       249,802       242,813  

New Media Holdings II T/L (NEW)

  Retailers (Except Food and Drugs)   Term Loan   Loan     6.25     1.00     0.00     7.29     6/4/2020     $ 3,160,034       3,147,716       3,136,334  

New Millennium Holdco, Inc.

  Healthcare & Pharmaceuticals   Term Loan   Loan     6.50     1.00     0.00     7.54     12/21/2020     $ 1,925,088       1,784,595       1,138,208  

Novetta Solutions

  Aerospace and Defense   Term Loan (200MM)   Loan     5.00     1.00     0.00     6.15     10/16/2022     $ 1,975,000       1,959,035       1,881,188  

Novetta Solutions

  Aerospace and Defense   Term Loan (2nd Lien)   Loan     8.50     1.00     0.00     9.50     10/16/2023     $ 1,000,000       991,479       941,250  

NPC International, Inc.

  Food Services   Term Loan (2013)   Loan     3.50     1.00     0.00     4.51     4/19/2024     $ 500,000       499,408       503,335  

NVA Holdings (National Veterinary) T/L B2

  Services: Consumer   Term Loan B2   Loan     3.50     1.00     0.00     4.65     8/14/2021     $ 1,261,425       1,256,849       1,275,616  

NXT Capital T/L (11/16)

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     4.50     1.00     0.00     5.65     11/23/2022     $ 1,247,500       1,242,663       1,264,653  

Onex Carestream Finance LP

  Healthcare & Pharmaceuticals   Term Loan (First Lien 2013)   Loan     4.00     1.00     0.00     5.15     6/7/2019     $ 3,558,804       3,552,314       3,475,777  

OnexYork Acquisition Co

  Healthcare & Pharmaceuticals   Term Loan B   Loan     3.75     1.00     0.00     4.90     10/1/2021     $ 487,500       485,121       476,044  

OpenLink International, LLC

  Services: Business   Term B Loan   Loan     6.50     1.25     0.00     7.75     7/29/2019     $ 2,906,156       2,905,864       2,915,834  

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

  Food/Drug Retailers   Term Borrowing   Loan     3.25     1.00     0.00     4.54     6/24/2019     $ 1,413,810       1,410,322       1,403,207  

P2 Upstream Acquisition Co. (P2 Upstream Canada BC ULC)

  Services: Business   Term Loan (First Lien)   Loan     4.00     1.00     0.00     5.18     10/30/2020     $ 967,500       964,621       945,731  

Petsmart, Inc. (Argos Merger Sub, Inc.)

  Retailers (Except Food and Drugs)   Term Loan B1   Loan     3.00     1.00     0.00     4.01     3/11/2022     $ 980,000       975,713       940,898  

PGX Holdings, Inc.

  Financial Intermediaries   Term Loan   Loan     5.25     1.00     0.00     6.30     9/29/2020     $ 2,871,499       2,857,322       2,873,308  

Planet Fitness Holdings LLC

  Leisure Goods/Activities/Movies   Term Loan   Loan     3.00     0.75     0.00     4.15     3/31/2021     $ 2,386,345       2,379,828       2,390,831  

Polycom Term Loan (9/16)

  Telecommunications   Term Loan   Loan     5.25     1.00     0.00     6.25     9/27/2023     $ 1,804,333       1,780,636       1,821,023  

Pike Corporation

  Construction & Building   Term Loan B   Loan     3.75     1.00     0.00     4.80     3/8/2024     $ 500,000       497,661       504,375  

PrePaid Legal Services, Inc.

  Services: Business   Term Loan B   Loan     5.25     1.25     0.00     6.50     7/1/2019     $ 3,169,278       3,172,153       3,184,142  

Presidio, Inc.

  Services: Business   Term Loan   Loan     3.25     1.00     0.00     4.40     2/2/2022     $ 2,101,767       2,040,643       2,119,505  

Prestige Brands T/L B4

  Drugs   Term Loan B4   Loan     2.75     0.75     0.00     3.79     1/26/2024     $ 477,225       476,160       481,005  

Prime Security Services (Protection One)

  Services: Business   Term Loan   Loan     3.25     1.00     0.00     4.29     5/2/2022     $ 1,980,062       1,970,177       1,995,982  

Radio Systems Corporation

  Leisure Goods/Activities/Movies   Term Loan   Loan     3.50     1.00     0.00     4.54     5/2/2024     $ 1,500,000       1,500,000       1,505,625  

Ranpak Holdings, Inc.

  Services: Business   Term Loan   Loan     3.25     1.00     0.00     4.29     10/1/2021     $ 913,716       911,432       914,858  

Ranpak Holdings, Inc.

  Services: Business   Term Loan (Second Lien)   Loan     7.25     1.00     0.00     8.25     10/3/2022     $ 311,111       310,001       309,556  

Redtop Acquisitions Limited

  Electronics/Electric   Initial Dollar Term Loan (First Lien)   Loan     3.50     1.00     0.00     4.67     12/3/2020     $ 483,778       481,891       485,592  

RGIS Services, LLC

  Services: Business   Term Loan   Loan     7.50     1.00     0.00     8.65     3/31/2023     $ 500,000       492,623       497,815  

Research Now Group, Inc

  Media   Term Loan B   Loan     4.50     1.00     0.00     5.65     3/18/2021     $ 2,004,470       1,996,990       1,979,414  

Resolute Investment Managers, Inc.

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     4.25     1.00     0.00     5.40     4/30/2022     $ 728,517       727,070       729,733  

Rexnord LLC/RBS Global, Inc.

  Industrial Equipment   Term B Loan   Loan     2.75     1.00     0.00     3.90     8/21/2023     $ 1,370,341       1,370,341       1,375,480  

Reynolds Group Holdings Inc.

  Industrial Equipment   Incremental U.S. Term Loan   Loan     3.00     0.00     0.00     4.04     2/3/2023     $ 1,756,731       1,756,731       1,765,111  

Rovi Solutions Corporation / Rovi Guides, Inc.

  Electronics/Electric   Tranche B-3 Term Loan   Loan     2.50     0.75     0.00     3.55     7/2/2021     $ 1,458,750       1,454,281       1,460,880  

Royal Adhesives and Sealants

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     7.50     1.00     0.00     8.65     6/19/2023     $ 275,862       274,177       275,172  

Royal Holdings T/L (02/17)

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     3.25     1.00     0.00     4.40     6/17/2022     $ 541,607       539,264       547,364  

Russell Investment Management T/L B

  Banking, Finance, Insurance & Real Estate   Term Loan B   Loan     5.75     1.00     0.00     6.79     6/1/2023     $ 2,234,372       2,123,883       2,267,887  

Sable International Finance Ltd

  Telecommunications   Term Loan B2   Loan     3.50     0.00     0.00     4.54     1/31/2025     $ 1,500,000       1,492,500       1,505,250  

SBP Holdings LP

  Industrial Equipment   Term Loan (First Lien)   Loan     4.00     1.00     0.00     5.04     3/27/2021     $ 970,000       967,121       887,550  

Scientific Games International, Inc.

  Electronics/Electric   Term Loan B2   Loan     4.00     0.75     0.00     5.01     10/1/2021     $ 769,549       762,015       781,092  

SCS Holdings (Sirius Computer)

  High Tech Industries   Term Loan (First Lien)   Loan     4.25     1.00     0.00     5.29     10/31/2022     $ 1,871,532       1,837,243       1,887,327  

Seadrill Operating LP

  Oil & Gas   Term Loan B   Loan     3.00     1.00     0.00     4.15     2/21/2021     $ 974,811       923,318       667,746  

Shearers Foods LLC

  Food Services   Term Loan (First Lien)   Loan     3.94     1.00     0.00     5.09     6/30/2021     $ 975,000       973,500       971,344  

SG Acquisition, Inc. (Safe Guard)

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     5.00     1.00     0.00     6.15     3/29/2024     $ 2,000,000       1,980,387       1,985,000  

Sitel Worldwide

  Telecommunications   Term Loan   Loan     5.50     1.00     0.00     6.69     9/18/2021     $ 1,970,000       1,955,355       1,962,120  

SMB Shipping Logistics T/L B (REP WWEX Acquisition)

  Transportation   Term Loan B   Loan     4.50     1.00     0.00     5.67     2/2/2024     $ 1,000,000       995,503       1,002,080  

Sonneborn, LLC

  Chemicals/Plastics   Term Loan (First Lien)   Loan     3.75     1.00     0.00     4.79     12/10/2020     $ 207,451       207,127       209,007  

Sonneborn, LLC

  Chemicals/Plastics   Initial US Term Loan   Loan     3.75     1.00     0.00     4.79     12/10/2020     $ 1,175,553       1,173,719       1,184,370  

Sophia, L.P.

  Electronics/Electric   Term Loan (Closing Date)   Loan     3.25     1.00     0.00     4.40     9/30/2022     $ 1,935,931       1,927,068       1,929,155  

SourceHOV LLC

  Services: Business   Term Loan B (First Lien)   Loan     6.75     1.00     0.00     7.90     10/31/2019     $ 1,812,500       1,782,852       1,703,750  

SRAM, LLC

  Industrial Equipment   Term Loan (First Lien)   Loan     3.50     1.00     0.00     4.58     3/15/2024     $ 2,677,652       2,655,727       2,684,346  

Steak ’n Shake Operations, Inc.

  Food Services   Term Loan   Loan     3.75     1.00     0.00     4.80     3/19/2021     $ 852,491       847,501       843,966  

Survey Sampling International

  Services: Business   Term Loan B   Loan     5.00     1.00     0.00     6.15     12/16/2020     $ 2,714,821       2,701,862       2,711,427  

Sybil Finance BV

  High Tech Industries   Term Loan B   Loan     3.25     1.00     0.00     4.40     9/29/2023     $ 987,500       983,249       1,000,091  

Syniverse Holdings, Inc.

  Telecommunications   Initial Term Loan   Loan     3.00     1.00     0.00     4.17     4/23/2019     $ 468,409       466,632       445,377  

Tennessee Merger T/L (Team Health)

  Healthcare & Pharmaceuticals   Term Loan   Loan     2.75     1.00     0.00     3.79     2/6/2024     $ 1,000,000       997,601       994,060  

Townsquare Media, Inc.

  Media   Term Loan B   Loan     3.00     1.00     0.00     4.04     4/1/2022     $ 911,712       907,481       914,374  

TPF II Power LLC and TPF II Covert Midco LLC

  Utilities   Term Loan B   Loan     4.00     1.00     0.00     5.04     10/2/2023     $ 1,413,873       1,367,114       1,403,566  

TransDigm, Inc.

  Aerospace and Defense   Tranche C Term Loan   Loan     3.00     0.75     0.00     4.15     2/28/2020     $ 4,222,175       4,227,281       4,238,219  

Travel Leaders Group, LLC

  Hotel, Gaming and Leisure   Term Loan B   Loan     5.25     0.00     0.00     6.29     1/25/2024     $ 2,000,000       1,990,390       2,018,760  

Truck Hero, Inc. (Tectum Holdings)

  Transportation   Term Loan B   Loan     4.00     1.00     0.00     5.16     4/22/2024     $ 2,000,000       1,980,000       2,000,000  

Trugreen Limited Partnership

  Services: Business   Term Loan B   Loan     5.50     1.00     0.00     6.50     4/13/2023     $ 496,250       489,897       500,592  

Twin River Management Group, Inc.

  Lodging & Casinos   Term Loan B   Loan     3.50     1.00     0.00     4.65     7/10/2020     $ 792,846       794,051       796,810  

Univar Inc.

  Chemicals/Plastics   Term B Loan   Loan     2.75     0.00     0.00     3.79     7/1/2022     $ 2,955,094       2,941,679       2,966,175  

UOS, LLC (Utility One Source)

  Capital Equipment   Term Loan B   Loan     5.50     1.00     0.00     6.53     4/18/2023     $ 500,000       495,062       509,375  

Univision Communications Inc.

  Telecommunications   Replacement First-Lien Term Loan   Loan     2.75     1.00     0.00     3.79     3/15/2024     $ 2,877,927       2,860,288       2,852,746  

Valeant Pharmaceuticals International, Inc.

  Drugs   Series D2 Term Loan B   Loan     4.75     0.75     0.00     5.75     4/1/2022     $ 1,689,182       1,689,182       1,718,743  

Verint Systems Inc.

  Services: Business   Term Loan   Loan     2.75     0.75     0.00     3.92     9/6/2019     $ 1,003,684       1,001,096       1,010,790  

Virtus Investment Partners, Inc.

  Banking, Finance, Insurance & Real Estate   Term Loan B   Loan     3.75     0.75     0.00     4.95     6/3/2024     $ 500,000       497,542       507,500  

Vistra Operations Company T/L B (12/16)

  Utilities   Term Loan B   Loan     3.25     0.75     0.00     4.28     12/13/2023     $ 498,750       497,576       498,940  

Vizient Inc.

  Healthcare & Pharmaceuticals   Term Loan   Loan     3.50     1.00     0.00     4.54     2/13/2023     $ 879,853       857,810       890,121  

Washington Inventory Service

  High Tech Industries   Revolver   Loan     5.50     0.00     0.00     9.50     7/14/2017     $ 31,390       31,390       30,919  

Washington Inventory Service

  High Tech Industries   U.S. Term Loan (First Lien)   Loan     0.00     0.00     5.75     7.50     12/20/2018     $ 1,738,077       1,745,574       1,425,223  

Western Digital Corporation

  High Tech Industries   Term Loan B (USD)   Loan     2.75     0.75     0.00     3.78     4/28/2023     $ 1,588,020       1,541,984       1,601,661  

Windstream Services, LLC

  Telecommunications   Term Loan B6   Loan     4.00     0.75     0.00     5.01     3/29/2021     $ 996,870       987,502       998,116  

Xerox Business Services T/L B (Conduent)

  Services: Business   Term Loan   Loan     4.00     0.00     0.00     4.99     12/7/2023     $ 748,125       736,442       759,534  

ZEP, Inc.

  Chemicals/Plastics   Term Loan B   Loan     4.00     1.00     0.00     5.04     6/27/2022     $ 2,947,500       2,934,504       2,954,869  

Zest Holdings 1st Lien T/L (2014 Replacement)

  Healthcare & Pharmaceuticals   Term Loan   Loan     4.25     1.00     0.00     5.40     8/16/2023     $ 1,000,000       995,336       1,006,250  
                   

 

 

   

 

 

 
                    $ 300,101,725     $ 294,713,104  
                   

 

 

   

 

 

 
                                              Principal     Cost     Fair Value  

Cash and cash equivalents

                     

U.S. Bank Money Market (a)

                  $ 7,039,670     $ 7,039,670     $ 7,039,670  
                 

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

                $ 7,039,670     $ 7,039,670     $ 7,039,670  
                 

 

 

   

 

 

   

 

 

 

(a)    Included within cash and cash equivalents in Saratoga CLO’s Statements of Assets and Liabilities as of May 31, 2017.

 

22


Table of Contents

Saratoga Investment Corp. CLO 2013-1 Ltd.

Schedule of Investments

February 28, 2017

 

Issuer Name

 

Industry

 

Asset Name

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

Education Management II, LLC

  Leisure Goods/Activities/Movies   A-1 Preferred Shares     Equity       0.00     0.00     0.00     0.00       6,692     $ 669,214     $ 6,725  

Education Management II, LLC

  Leisure Goods/Activities/Movies   A-2 Preferred Shares     Equity       0.00     0.00     0.00     0.00       18,975       1,897,538       247  

New Millennium Holdco, Inc.

  Healthcare & Pharmaceuticals   Common Stock     Equity       0.00     0.00     0.00     0.00       14,813       964,466       15,746  

24 Hour Holdings III, LLC

  Leisure Goods/Activities/Movies   Term Loan     Loan       3.75     1.00     0.00     4.75     5/28/2021     $ 487,500       484,284       476,127  

ABB Con-Cise Optical Group, LLC

  Healthcare & Pharmaceuticals   Term Loan B     Loan       5.00     1.00     0.00     6.00     6/15/2023     $ 1,995,000       1,975,193       2,009,963  

Acosta Holdco, Inc.

  Media   Term Loan B1     Loan       3.25     1.00     0.00     4.29     9/26/2021     $ 1,940,025       1,929,297       1,893,348  

Advantage Sales & Marketing, Inc.

  Services: Business   Delayed Draw Term Loan     Loan       3.25     1.00     0.00     4.25     7/25/2021     $ 2,446,206       2,443,710       2,438,574  

Aegis Toxicology Science Corporation

  Healthcare & Pharmaceuticals   Term B Loan     Loan       4.50     1.00     0.00     5.50     2/24/2021     $ 2,463,550       2,337,204       2,412,234  

Agrofresh, Inc.

  Food Services   Term Loan     Loan       4.75     1.00     0.00     5.75     7/30/2021     $ 1,970,000       1,962,367       1,898,587  

AI MISTRAL T/L (V. GROUP)

  Utilities   Term Loan     Loan       3.00     1.00     0.00     4.00     3/11/2024     $ 500,000       500,000       500,940  

Akorn, Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       4.25     1.00     0.00     5.25     4/16/2021     $ 398,056       396,948       403,529  

Albertson’s LLC

  Retailers (Except Food and Drugs)   Term Loan B-4     Loan       3.00     0.75     0.00     3.78     8/25/2021     $ 2,896,193       2,879,009       2,931,179  

Alere Inc. (fka IM US Holdings, LLC)

  Healthcare & Pharmaceuticals   Term Loan B     Loan       3.25     1.00     0.00     4.25     6/20/2022     $ 917,946       916,144       919,479  

Alion Science and Technology Corporation

  High Tech Industries   Term Loan B (First Lien)     Loan       4.50     1.00     0.00     5.50     8/19/2021     $ 2,955,000       2,943,621       2,951,306  

Alliance Healthcare Services, Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       3.25     1.00     0.00     4.29     6/3/2019     $ 984,570       981,094       977,184  

ALPHA 3 T/L B1 (ATOTECH)

  Chemicals/Plastics   Term Loan B 1     Loan       3.00     1.00     0.00     4.00     1/31/2024     $ 250,000       249,377       252,500  

Anchor Glass T/L (11/16)

  Containers/Glass Products   Term Loan     Loan       3.25     1.00     0.00     4.25     12/7/2023     $ 500,000       497,626       505,780  

APCO Holdings, Inc.

  Automotive   Term Loan     Loan       6.00     1.00     0.00     7.00     1/31/2022     $ 1,933,919       1,887,037       1,885,571  

Aramark Corporation

  Food Products   U.S. Term F Loan     Loan       2.50     0.75     0.00     3.50     2/24/2021     $ 3,118,358       3,118,358       3,147,327  

Aspen Dental Management, Inc.

  Healthcare & Pharmaceuticals   Term Loan Initial     Loan       4.25     1.00     0.00     5.25     4/29/2022     $ 1,484,941       1,481,061       1,491,446  

Astoria Energy T/L B

  Utilities   Term Loan     Loan       4.00     1.00     0.00     5.00     12/24/2021     $ 1,495,307       1,480,354       1,499,045  

Asurion, LLC (fka Asurion Corporation)

  Insurance   Replacement Term Loan B-2     Loan       3.25     0.75     0.00     4.03     7/8/2020     $ 531,422       526,976       537,024  

Asurion, LLC (fka Asurion Corporation)

  Insurance   Term Loan B4 (First Lien)     Loan       3.25     1.00     0.00     4.25     8/4/2022     $ 2,434,375       2,422,950       2,463,661  

Auction.com, LLC

  Banking, Finance, Insurance & Real Estate   Term Loan     Loan       5.00     1.00     0.00     6.00     5/13/2019     $ 2,718,634       2,718,434       2,739,024  

Avantor Performance Materials Holdings, Inc.

  Chemicals/Plastics   Term Loan     Loan       5.00     1.00     0.00     6.00     6/21/2022     $ 2,784,429       2,760,689       2,819,234  

AVOLON TLB BORROWER 1 LUXEMBOURG S.A.R.L.

  Capital Equipment   Term Loan B-2     Loan       2.75     0.75     0.00     3.50     3/20/2022     $ 1,000,000       995,000       1,017,300  

Bass Pro Group, LLC

  Retailers (Except Food and Drugs)   Term Loan     Loan       3.25     0.75     0.00     4.02     6/5/2020     $ 1,473,750       1,471,637       1,411,116  

Belmond Interfin Ltd.

  Lodging & Casinos   Term Loan     Loan       3.00     1.00     0.00     4.00     3/19/2021     $ 2,481,122       2,484,502       2,488,888  

BJ’s Wholesale Club, Inc.

  Food/Drug Retailers   New 2013 (November) Replacement Loan (First Lien)     Loan       3.75     1.00     0.00     4.75     2/2/2024     $ 1,500,000       1,496,335       1,487,385  

Blackboard T/L B4

  High Tech Industries   Term Loan B4     Loan       5.00     1.00     0.00     6.02     6/30/2021     $ 2,992,500       2,969,529       3,008,390  

BMC Software

  Technology   Term Loan     Loan       4.00     1.00     0.00     5.00     9/10/2020     $ 1,959,596       1,917,256       1,965,729  

BMC Software T/L US

  Technology   Term Loan     Loan       4.00     1.00     0.00     5.00     9/10/2020     $ 676,193       665,400       679,607  

Brickman Group Holdings, Inc.

  Brokers/Dealers/Investment Houses   Initial Term Loan (First Lien)     Loan       3.00     1.00     0.00     4.00     12/18/2020     $ 1,461,186       1,451,382       1,467,952  

BWAY Holding Company

  Leisure Goods/Activities/Movies   Term Loan B     Loan       3.25     0.00     0.00     4.75     8/14/2023     $ 1,189,327       1,179,242       1,189,826  

Candy Intermediate Holdings, Inc.

  Beverage, Food & Tobacco   Term Loan     Loan       4.50     1.00     0.00     5.50     6/15/2023     $ 497,500       495,317       500,609  

Capital Automotive L.P.

  Conglomerate   Tranche B-1 Term Loan Facility     Loan       3.00     1.00     0.00     4.00     4/10/2019     $ 1,487,353       1,489,058       1,500,829  

CASA SYSTEMS T/L

  Telecommunications   Term Loan     Loan       4.00     1.00     0.00     5.00     12/20/2023     $ 1,500,000       1,485,318       1,500,000  

Catalent Pharma Solutions, Inc

  Drugs   Initial Term B Loan     Loan       2.75     1.00     0.00     3.75     5/20/2021     $ 424,821       423,456       429,953  

Cengage Learning Acquisitions, Inc.

  Publishing   Term Loan     Loan       4.25     1.00     0.00     5.25     6/7/2023     $ 1,492,500       1,477,575       1,411,965  

CH HOLD (CALIBER COLLISION) T/L

  Automotive   Term Loan     Loan       3.00     0.00     0.00     4.00     2/1/2024     $ 227,273       226,758       229,545  

Charter Communications Operating, LLC

  Cable and Satellite Television   Term F Loan     Loan       2.00     0.00     0.00     2.79     1/3/2021     $ 1,609,533       1,603,525       1,617,130  

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term G Loan     Loan       2.75     1.00     0.00     3.80     12/31/2019     $ 981,177       960,939       972,866  

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term H Loan     Loan       3.00     1.00     0.00     4.05     1/27/2021     $ 1,805,352       1,763,950       1,773,940  

CITGO Petroleum Corporation

  Oil & Gas   Term Loan B     Loan       3.50     1.00     0.00     4.50     7/29/2021     $ 1,964,874       1,946,245       1,976,172  

Communications Sales & Leasing, Inc.

  Telecommunications   Term Loan B (First Lien)     Loan       3.00     1.00     0.00     4.00     10/24/2022     $ 1,970,062       1,958,282       1,980,405  

Concordia Healthcare Corporation

  Healthcare & Pharmaceuticals   Term Loan B     Loan       4.25     1.00     0.00     5.25     10/21/2021     $ 1,980,000       1,891,488       1,615,522  

Consolidated Aerospace Manufacturing, LLC

  Aerospace and Defense   Term Loan (First Lien)     Loan       3.75     1.00     0.00     4.75     8/11/2022     $ 1,418,750       1,412,839       1,365,547  

Consolidated Communications, Inc.

  Telecommunications   Term Loan B-2     Loan       3.00     1.00     0.00     4.00     10/5/2023     $ 500,000       497,500       502,890  

CPI Acquisition Inc.

  Technology   Term Loan B (First Lien)     Loan       4.50     1.00     0.00     5.83     8/17/2022     $ 1,436,782       1,418,783       1,289,511  

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

  Electronics/Electric   Term B Loan     Loan       3.25     1.00     0.00     4.25     11/17/2017     $ 2,462,342       2,461,490       2,457,934  

Crosby US Acquisition Corporation

  Industrial Equipment   Initial Term Loan (First Lien)     Loan       3.00     1.00     0.00     4.05     11/23/2020     $ 727,500       726,911       667,329  

CT Technologies Intermediate Hldgs, Inc

  Healthcare & Pharmaceuticals   Term Loan     Loan       4.25     1.00     0.00     5.25     12/1/2021     $ 1,470,113       1,458,924       1,389,256  

Culligan International Company-T/L

  Conglomerate   Term Loan     Loan       4.00     1.00     0.00     5.00     12/13/2023     $ 2,050,000       2,049,738       2,083,313  

Cumulus Media Holdings Inc.

  Broadcast Radio and Television   Term Loan     Loan       3.25     1.00     0.00     4.25     12/23/2020     $ 470,093       467,345       342,580  

DAE Aviation (StandardAero)

  Aerospace and Defense   Term Loan     Loan       4.25     1.00     0.00     5.25     7/7/2022     $ 1,975,000       1,967,190       1,987,838  

DASEKE T/L (HENNESSY CAPITAL)

  Transportation   Term Loan     Loan       5.50     1.00     0.00     6.50     2/27/2024     $ 714,286       707,143       717,857  

DCS Business Services, Inc.

  Financial Intermediaries   Term B Loan     Loan       7.25     1.50     0.00     8.75     3/19/2018     $ 2,101,458       2,096,045       2,101,458  

Delta 2 (Lux) S.a.r.l.

  Lodging & Casinos   Term Loan B-3     Loan       3.75     1.00     0.00     5.07     7/30/2021     $ 1,000,000       996,568       1,002,920  

DELL INTERNATIONAL 1ST LIEN T/L

  High Tech Industries   Term Loan (01/17)     Loan       2.50     0.75     0.00     3.25     9/7/2023     $ 1,000,000       998,850       1,006,480  

Deluxe Entertainment Service Group, Inc.

  Leisure Goods/Activities/Movies   Term Loan (Incremental)     Loan       6.00     1.00     0.00     7.04     2/28/2020     $ 1,000,000       972,672       997,500  

Deluxe Entertainment Service Group, Inc.

  Leisure Goods/Activities/Movies   Term Loan (First Lien)     Loan       5.50     1.00     0.00     6.54     2/28/2020     $ 1,868,084       1,869,141       1,864,199  

DEX MEDIA, INC.

  Media   Term Loan (07/16)     Loan       10.00     1.00     0.00     11.00     7/29/2021     $ 43,444       43,444       44,041  

Diebold, Inc.

  High Tech Industries   Term Loan B     Loan       4.50     0.75     0.00     5.31     11/6/2023     $ 398,750       395,190       404,731  

DIGITALGLOBE T/L B (12/16)

  Aerospace and Defense   Term Loan B     Loan       2.75     0.75     0.00     3.53     1/15/2024     $ 500,000       498,815       502,030  

DJO Finance, LLC

  Healthcare & Pharmaceuticals   Term Loan     Loan       3.25     1.00     0.00     4.25     6/8/2020     $ 492,500       490,933       483,388  

DPX Holdings B.V.

  Healthcare & Pharmaceuticals   Term Loan 2015 Incr Dollar     Loan       3.25     1.00     0.00     4.25     3/11/2021     $ 2,925,000       2,919,916       2,937,431  

Drew Marine Group, Inc.

  Chemicals/Plastics   Term Loan (First Lien)     Loan       3.25     1.00     0.00     4.25     11/19/2020     $ 2,950,591       2,923,591       2,928,461  

DTZ U.S. Borrower, LLC

  Construction & Building   Term Loan B Add-on     Loan       3.25     1.00     0.00     4.30     11/4/2021     $ 1,962,557       1,954,741       1,973,703  

DUKE FINANCE (OM GROUP/VECTRA) T/L

  Banking, Finance, Insurance & Real Estate   Term Loan     Loan       5.00     1.00     0.00     6.00     2/21/2024     $ 1,500,000       1,395,987       1,511,250  

Edelman Financial Group, Inc.

  Banking, Finance, Insurance & Real Estate   Term Loan     Loan       5.50     1.00     0.00     6.51     12/19/2022     $ 1,485,000       1,459,535       1,487,317  

Education Management II, LLC

  Leisure Goods/Activities/Movies   Term Loan A     Loan       4.50     1.00     0.00     5.51     7/2/2020     $ 501,970       488,778       177,446  

Education Management II, LLC

  Leisure Goods/Activities/Movies   Term Loan B (2.00% Cash/6.50% PIK)     Loan       1.00     1.00     6.50     8.51     7/2/2020     $ 954,307       934,189       77,938  

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (First Lien)     Loan       3.50     1.00     0.00     4.50     8/1/2021     $ 480,756       479,151       483,308  

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (Second Lien)     Loan       7.75     1.00     0.00     8.75     8/1/2022     $ 500,000       498,153       498,595  

Emerald 2 Limited

  Chemicals/Plastics   Term Loan B1A     Loan       4.00     1.00     0.00     5.00     5/14/2021     $ 1,000,000       994,172       950,000  

Endo International plc

  Healthcare & Pharmaceuticals   Term Loan B     Loan       3.00     0.75     0.00     3.81     9/26/2022     $ 990,000       987,999       994,247  

EnergySolutions, LLC

  Environmental Industries   Term Loan B     Loan       5.75     1.00     0.00     6.75     5/29/2020     $ 795,000       785,654       799,969  

Engility Corporation

  Aerospace and Defense   Term Loan B-1     Loan       4.25     0.70     0.00     4.03     8/12/2020     $ 243,750       242,680       245,503  

Evergreen Acqco 1 LP

  Retailers (Except Food and Drugs)   New Term Loan     Loan       3.75     1.25     0.00     5.00     7/9/2019     $ 955,106       954,175       846,224  

EWT Holdings III Corp. (fka WTG Holdings III Corp.)

  Industrial Equipment   Term Loan (First Lien)     Loan       3.75     1.00     0.00     4.75     1/15/2021     $ 1,947,330       1,943,904       1,954,632  

EWT Holdings III Corp.

  Capital Equipment   Term Loan     Loan       4.50     1.00     0.00     5.50     1/15/2021     $ 992,500       984,248       997,463  

Extreme Reach, Inc.

  Media   Term Loan B     Loan       6.25     1.00     0.00     7.25     2/7/2020     $ 2,887,500       2,860,092       2,905,547  

Federal-Mogul Corporation

  Automotive   Tranche C Term Loan     Loan       3.75     1.00     0.00     4.75     4/15/2021     $ 2,925,000       2,915,873       2,894,434  

First Data Corporation

  Financial Intermediaries   First Data T/L Ext (2021)     Loan       3.00     0.70     0.00     3.78     3/24/2021     $ 1,886,914       1,804,119       1,904,010  

First Eagle Investment Management

  Banking, Finance, Insurance & Real Estate   Term Loan     Loan       4.00     0.75     0.00     5.00     12/1/2022     $ 1,485,000       1,460,081       1,493,361  

Fitness International, LLC

  Leisure Goods/Activities/Movies   Term Loan B     Loan       5.00     1.00     0.00     6.00     7/1/2020     $ 1,929,311       1,905,661       1,947,793  

FMG Resources (August 2006) Pty LTD (FMG America Finance, Inc.)

  Nonferrous Metals/Minerals   Loan     Loan       2.75     1.00     0.00     3.75     6/28/2019     $ 801,502       802,865       806,279  

Garda World Security Corporation

  Services: Business   Term B Delayed Draw Loan     Loan       3.00     1.00     0.00     4.00     11/6/2020     $ 197,083       196,509       197,822  

Garda World Security Corporation

  Services: Business   Term B Loan     Loan       3.00     1.00     0.00     4.00     11/6/2020     $ 770,417       768,226       773,306  

Gardner Denver, Inc.

  High Tech Industries   Initial Dollar Term Loan     Loan       3.25     1.00     0.00     4.57     7/30/2020     $ 2,426,061       2,421,316       2,420,263  

Gates Global LLC

  Leisure Goods/Activities/Movies   Term Loan (First Lien)     Loan       3.25     1.00     0.00     4.25     7/5/2021     $ 481,656       476,839       481,478  

General Nutrition Centers, Inc.

  Retailers (Except Food and Drugs)   Amended Tranche B Term Loan     Loan       2.50     0.75     0.00     3.29     3/4/2019     $ 2,121,102       2,117,573       1,765,817  

GLOBALLOGIC HOLDINGS INC TERM LOAN B

  Services: Business   Term Loan B     Loan       4.50     1.00     0.00     5.50     6/20/2022     $ 500,000       495,133       501,250  

Global Tel*Link Corporation

  Services: Business   Term Loan (First Lien)     Loan       3.75     1.25     0.00     5.00     5/26/2020     $ 2,667,633       2,661,035       2,654,962  

Goodyear Tire & Rubber Company, The

  Chemicals/Plastics   Loan (Second Lien)     Loan       3.00     0.75     0.00     3.78     4/30/2019     $ 1,333,333       1,320,613       1,333,747  

Grosvenor Capital Management Holdings, LP

  Brokers/Dealers/Investment Houses   Initial Term Loan     Loan       2.75     1.00     0.00     3.75     1/4/2021     $ 1,014,560       1,011,573       1,010,755  

GTCR Valor Companies, Inc.

  Services: Business   Term Loan B     Loan       6.00     1.00     0.00     7.00     6/16/2023     $ 1,492,500       1,436,528       1,501,201  

Harland Clarke Holdings Corp. (fka Clarke American Corp.)

  Publishing   Tranche B-4 Term Loan     Loan       5.50     1.00     0.00     6.50     2/9/2022     $ 2,176,889       2,117,378       2,190,495  

Headwaters Incorporated

  Building & Development   Term Loan     Loan       3.00     1.00     0.00     4.00     3/24/2022     $ 242,058       241,141       242,784  

Help/Systems Holdings, Inc.

  High Tech Industries   Term Loan     Loan       5.25     1.00     0.00     6.25     10/8/2021     $ 1,485,000       1,433,886       1,485,000  

Hemisphere Media Holdings, LLC

  Media   Term Loan B     Loan       3.50     0.00     0.00     4.27     2/14/2024     $ 2,500,000       2,512,500       2,493,750  

Herbalife T/L B (HLF Financing)

  Drugs   Term Loan B     Loan       5.50     0.75     0.00     6.28     2/15/2023     $ 2,000,000       1,985,000       2,001,660  

Hercules Achievement Holdings, Inc.

  Retailers (Except Food and Drugs)   Term Loan B     Loan       4.00     1.00     0.00     5.00     12/10/2021     $ 246,851       244,820       250,431  

Hoffmaster Group, Inc.

  Containers/Glass Products   Term Loan     Loan       4.50     1.00     0.00     5.50     11/21/2023     $ 1,000,000       1,003,734       1,013,750  

Hostess Brand, LLC

  Beverage, Food & Tobacco   Term Loan B (First Lien)     Loan       3.00     1.00     0.00     4.00     8/3/2022     $ 1,490,000       1,486,482       1,507,508  

Huntsman International LLC

  Chemicals/Plastics   Term Loan B (First Lien)     Loan       3.00     0.70     0.00     3.78     4/19/2019     $ 1,518,031       1,510,811       1,525,150  

Husky Injection Molding Systems Ltd.

  Services: Business   Term Loan B     Loan       3.25     1.00     0.00     4.25     6/30/2021     $ 469,398       467,182       472,158  

Hyperion Refinance T/L

  Banking, Finance, Insurance & Real Estate   Term Loan     Loan       4.50     1.00     0.00     5.50     4/29/2022     $ 1,994,924       1,971,849       1,998,675  

Imagine! Print Solutions, Inc.

  Media   Term Loan B     Loan       6.00     1.00     0.00     7.00     3/30/2022     $ 496,250       489,837       499,972  

Infor US (Lawson) T/L B-6

  Services: Business   Term Loan B-6     Loan       2.75     1.00     0.00     3.75     2/1/2022     $ 1,609,802       1,595,316       1,610,945  

Informatica Corporation

  High Tech Industries   Term Loan B     Loan       3.50     1.00     0.00     4.50     8/5/2022     $ 493,750       492,732       490,664  

Insight Global

  Services: Business   Term Loan     Loan       5.00     1.00     0.00     6.00     10/29/2021     $ 3,450,126       3,434,977       3,471,690  

ION Media T/L B

  Media   Term Loan B     Loan       3.50     1.00     0.00     4.50     12/18/2020     $ 500,000       497,615       506,875  

J. Crew Group, Inc.

  Retailers (Except Food and Drugs)   Term B-1 Loan Retired 03/05/2014     Loan       3.00     1.00     0.00     4.00     3/5/2021     $ 945,756       945,756       540,660  

Jazz Acquisition, Inc

  Aerospace and Defense   First Lien 6/14     Loan       3.50     1.00     0.00     4.50     6/19/2021     $ 487,879       487,106       471,208  

J.Jill Group, Inc.

  Retailers (Except Food and Drugs)   Term Loan (First Lien)     Loan       5.00     1.00     0.00     6.04     5/9/2022     $ 950,648       946,877       935,200  

Kinetic Concepts, Inc.

  Healthcare & Pharmaceuticals   Term Loan F-1     Loan       4.00     1.00     0.00     4.28     2/2/2024     $ 2,400,000       2,388,246       2,399,496  

Koosharem, LLC

  Services: Business   Term Loan     Loan       6.50     1.00     0.00     7.50     5/15/2020     $ 2,935,100       2,917,778       2,730,259  

Kraton Polymers, LLC

  Chemicals/Plastics   Term Loan (Initial)     Loan       5.00     1.00     0.00     5.00     1/6/2022     $ 2,500,000       2,286,776       2,533,825  

Lannett Company T/L A

  Healthcare & Pharmaceuticals   Term Loan A     Loan       4.75     1.00     0.00     5.75     11/25/2020     $ 1,000,000       970,576       985,000  

Lannett Company, Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       5.38     1.00     0.00     6.38     11/25/2022     $ 1,900,000       1,842,852       1,885,750  

LEARFIELD COMMUNICATIONS INITIAL T/L (A-L PARENT)

  Healthcare & Pharmaceuticals   Initial Term Loan (A-L Parent)     Loan       3.25     1.00     0.00     4.25     12/1/2023     $ 500,000       497,713       505,625  

Lightstone Generation T/L B

  Utilities   Term Loan B     Loan       5.50     1.00     0.00     6.54     1/30/2024     $ 913,043       894,897       925,981  

Lightstone Generation T/L C

  Utilities   Term Loan C     Loan       5.50     1.00     0.00     6.54     1/30/2024     $ 86,957       85,236       88,189  

Limetree Bay Terminals T/L (01/17)

  Oil & Gas   Term Loan     Loan       5.00     1.00     0.00     6.04     2/15/2024     $ 500,000       495,000       503,125  

LPL Holdings

  Banking, Finance, Insurance & Real Estate   Term Loan B (2022)     Loan       4.00     0.75     0.00     4.78     11/21/2022     $ 1,980,000       1,963,355       2,007,225  

Mauser Holdings, Inc.

  Containers/Glass Products   Term Loan     Loan       3.50     1.00     0.00     4.50     7/31/2021     $ 488,750       487,123       488,647  

McGraw-Hill Global Education Holdings, LLC

  Publishing   Term Loan     Loan       4.00     1.00     0.00     5.00     5/4/2022     $ 995,000       990,840       977,468  

Michaels Stores, Inc.

  Retailers (Except Food and Drugs)   Term Loan B1     Loan       2.75     1.00     0.00     3.75     1/30/2023     $ 1,679,779       1,674,140       1,674,673  

Micro Holding Corporation

  High Tech Industries   Term Loan     Loan       3.75     1.00     0.00     4.75     7/8/2021     $ 982,378       978,629       985,079  

Microsemi Corporation

  Electronics/Electric   Term Loan B     Loan       2.25     0.00     0.00     3.03     1/17/2023     $ 868,445       845,882       874,593  

Midas Intermediate Holdco II, LLC

  Automotive   Term Loan (Initial)     Loan       3.50     1.00     0.00     3.75     8/18/2021     $ 244,375       243,499       246,005  

Milacron T/L B

  Capital Equipment   Term Loan B     Loan       3.00     0.00     0.00     3.78     9/28/2023     $ 1,000,000       996,250       1,004,380  

Milk Specialties Company

  Beverage, Food & Tobacco   Term Loan     Loan       5.00     1.00     0.00     5.00     8/16/2023     $ 997,500       987,646       1,004,562  

Mister Car Wash T/L

  Automotive   Term Loan     Loan       4.25     1.00     0.00     5.25     8/20/2021     $ 831,203       825,179       832,931  

MSC Software Corporation

  Services: Business   Term Loan     Loan       4.00     1.00     0.00     5.00     5/29/2020     $ 1,969,898       1,931,995       1,972,360  

MWI Holdings, Inc.

  Capital Equipment   Term Loan (First Lien)     Loan       5.50     1.00     0.00     6.50     6/29/2020     $ 2,985,000       2,956,823       3,007,388  

National Veterinary Associates, Inc

  Healthcare & Pharmaceuticals   Term Loan B     Loan       3.50     1.00     0.00     4.50     8/14/2021     $ 977,543       974,893       982,430  

National Vision, Inc.

  Retailers (Except Food and Drugs)   Term Loan (Second Lien)     Loan       5.75     1.00     0.00     6.75     3/11/2022     $ 250,000       249,793       242,750  

New Media Holdings II T/L (NEW)

  Retailers (Except Food and Drugs)   Term Loan     Loan       6.25     1.00     0.00     7.25     6/4/2020     $ 3,168,116       3,154,983       3,140,395  

New Millennium Holdco, Inc.

  Healthcare & Pharmaceuticals   Term Loan     Loan       6.50     1.00     0.00     7.50     12/21/2020     $ 1,930,106       1,777,976       980,494  

Novetta Solutions

  Aerospace and Defense   Term Loan (200MM)     Loan       5.00     1.00     0.00     6.00     10/16/2022     $ 1,980,000       1,963,361       1,890,900  

Novetta Solutions

  Aerospace and Defense   Term Loan (2nd Lien)     Loan       8.50     1.00     0.00     9.50     10/16/2023     $ 1,000,000       991,237       930,000  

NPC International, Inc.

  Food Services   Term Loan (2013)     Loan       3.75     1.00     0.00     4.75     12/28/2018     $ 476,250       476,250       477,241  

NVA Holdings (National Veterinary) T/L B2

  Services: Consumer   Term Loan B2     Loan       3.50     1.00     0.00     4.50     8/14/2021     $ 129,601       129,601       130,897  

NVA Holdings, Inc.

  Services: Consumer   Term Loan B1     Loan       3.50     1.00     0.00     4.50     8/14/2021     $ 157,443       157,108       158,034  

NXT Capital T/L (11/16)

  Banking, Finance, Insurance & Real Estate   Term Loan     Loan       4.50     1.00     0.00     5.50     11/23/2022     $ 1,000,000       995,240       1,013,750  

ON Semiconductor Corporation

  High Tech Industries   Term Loan B     Loan       3.25     0.70     0.00     4.03     3/31/2023     $ 498,750       491,370       503,204  

Onex Carestream Finance LP

  Healthcare & Pharmaceuticals   Term Loan (First Lien 2013)     Loan       4.00     1.00     0.00     5.00     6/7/2019     $ 3,613,555       3,606,228       3,490,297  

OnexYork Acquisition Co

  Healthcare & Pharmaceuticals   Term Loan B     Loan       3.75     1.00     0.00     4.75     10/1/2021     $ 488,750       486,195       475,554  

OpenLink International, LLC

  Services: Business   Term B Loan     Loan       6.50     1.25     0.00     7.75     7/29/2019     $ 2,913,824       2,913,362       2,938,096  

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

  Food/Drug Retailers   Term Borrowing     Loan       3.25     1.00     0.00     4.54     6/24/2019     $ 1,417,598       1,413,680       1,389,245  

P2 Upstream Acquisition Co. (P2 Upstream Canada BC ULC)

  Services: Business   Term Loan (First Lien)     Loan       4.00     1.00     0.00     5.25     10/30/2020     $ 970,000       966,928       933,625  

Petsmart, Inc. (Argos Merger Sub, Inc.)

  Retailers (Except Food and Drugs)   Term Loan B1     Loan       3.00     1.00     0.00     4.00     3/11/2022     $ 982,500       977,998       967,183  

PGX Holdings, Inc.

  Financial Intermediaries   Term Loan     Loan       5.25     1.00     0.00     6.25     9/29/2020     $ 2,891,464       2,876,188       2,889,671  

Planet Fitness Holdings LLC

  Leisure Goods/Activities/Movies   Term Loan     Loan       3.50     0.75     0.00     4.28     3/31/2021     $ 2,392,341       2,385,223       2,407,293  

Polycom Term Loan (9/16)

  Telecommunications   Term Loan     Loan       5.25     1.00     0.00     6.25     9/27/2023     $ 1,894,167       1,868,863       1,907,426  

PrePaid Legal Services, Inc.

  Services: Business   Term Loan B     Loan       5.25     1.25     0.00     6.50     7/1/2019     $ 3,328,536       3,330,285       3,335,825  

Presidio, Inc.

  Services: Business   Term Loan     Loan       3.50     1.00     0.00     4.50     2/2/2022     $ 2,297,698       2,248,964       2,314,930  

Prestige Brands T/L B4

  Drugs   Term Loan B4     Loan       2.75     0.75     0.00     3.53     1/26/2024     $ 500,000       498,779       506,040  

Prime Security Services (Protection One)

  Services: Business   Term Loan     Loan       3.25     1.00     0.00     4.25     5/2/2022     $ 1,985,025       1,975,632       2,003,645  

Ranpak Holdings, Inc.

  Services: Business   Term Loan     Loan       3.25     1.00     0.00     4.25     10/1/2021     $ 916,047       913,757       918,337  

Ranpak Holdings, Inc.

  Services: Business   Term Loan (Second Lien)     Loan       7.25     1.00     0.00     8.25     10/3/2022     $ 500,000       498,149       475,000  

Redtop Acquisitions Limited

  Electronics/Electric   Initial Dollar Term Loan (First Lien)     Loan       3.50     1.00     0.00     4.54     12/3/2020     $ 485,019       483,001       486,634  

Regal Cinemas Corporation

  Services: Consumer   Term Loan     Loan       2.50     0.75     0.00     3.28     4/1/2022     $ 495,009       493,772       499,573  

Research Now Group, Inc

  Media   Term Loan B     Loan       4.50     1.00     0.00     5.50     3/18/2021     $ 2,037,705       2,029,696       2,002,045  

Resolute Investment Managers, Inc.

  Banking, Finance, Insurance & Real Estate   Term Loan     Loan       4.25     1.00     0.00     5.25     4/30/2022     $ 240,815       239,883       241,518  

Rexnord LLC/RBS Global, Inc.

  Industrial Equipment   Term B Loan     Loan       2.75     1.00     0.00     3.75     8/21/2023     $ 732,374       732,374       736,497  

Rexnord LLC/RBS Global, Inc.

  Industrial Equipment   Term B Loan     Loan       2.75     1.00     0.00     3.75     8/21/2023     $ 641,402       641,402       645,013  

Reynolds Group Holdings Inc.

  Industrial Equipment   Incremental U.S. Term Loan     Loan       3.00     0.00     0.00     3.78     2/3/2023     $ 1,761,134       1,761,134       1,773,603  

Rovi Solutions Corporation / Rovi Guides, Inc.

  Electronics/Electric   Tranche B-3 Term Loan     Loan       2.50     0.75     0.00     3.29     7/2/2021     $ 1,462,500       1,457,765       1,467,984  

Royal Adhesives and Sealants

  Chemicals/Plastics   Term Loan (Second Lien)     Loan       7.50     1.00     0.00     8.50     6/19/2023     $ 275,862       274,109       276,552  

Royal Holdings T/L (02/17)

  Chemicals/Plastics   Term Loan (Second Lien)     Loan       3.25     1.00     0.00     4.25     6/17/2022     $ 541,607       539,167       544,992  

RPI Finance Trust

  Financial Intermediaries   Term B-4 Term Loan     Loan       2.50     0.00     0.00     3.50     10/14/2022     $ 2,554,764       2,554,764       2,580,848  

Russell Investment Management T/L B

  Banking, Finance, Insurance & Real Estate   Term Loan B     Loan       5.75     1.00     0.00     6.75     6/1/2023     $ 2,240,000       2,127,043       2,259,600  

Sable International Finance Ltd

  Telecommunications   Term Loan B2     Loan       4.75     0.75     0.00     5.53     12/30/2022     $ 1,500,000       1,470,825       1,521,570  

SBP Holdings LP

  Industrial Equipment   Term Loan (First Lien)     Loan       4.00     1.00     0.00     5.00     3/27/2021     $ 972,500       969,442       870,388  

Scientific Games International, Inc.

  Electronics/Electric   Term Loan B2     Loan       4.00     0.75     0.00     4.85     10/1/2021     $ 769,549       762,102       781,416  

SCS Holdings (Sirius Computer)

  High Tech Industries   Term Loan (First Lien)     Loan       4.25     1.00     0.00     5.25     10/31/2022     $ 1,972,528       1,934,960       1,991,030  

Seadrill Operating LP

  Oil & Gas   Term Loan B     Loan       3.00     1.00     0.00     4.00     2/21/2021     $ 977,330       922,444       729,635  

Shearers Foods LLC

  Food Services   Term Loan (First Lien)     Loan       3.94     1.00     0.00     4.94     6/30/2021     $ 977,500       975,832       979,944  

Sitel Worldwide

  Telecommunications   Term Loan     Loan       5.50     1.00     0.00     6.56     9/18/2021     $ 1,975,000       1,959,274       1,961,432  

SMB Shipping Logistics T/L B (REP WWEX Acquisition)

  Transportation   Term Loan B     Loan       4.50     1.00     0.00     5.53     2/2/2024     $ 1,000,000       995,095       1,008,330  

Sonneborn, LLC

  Chemicals/Plastics   Term Loan (First Lien)     Loan       3.75     1.00     0.00     4.75     12/10/2020     $ 207,981       207,633       208,501  

Sonneborn, LLC

  Chemicals/Plastics   Initial US Term Loan     Loan       3.75     1.00     0.00     4.75     12/10/2020     $ 1,178,561       1,176,588       1,181,508  

Sophia, L.P.

  Electronics/Electric   Term Loan (Closing Date)     Loan       3.25     1.00     0.00     4.25     9/30/2022     $ 1,960,897       1,951,404       1,967,761  

SourceHOV LLC

  Services: Business   Term Loan B (First Lien)     Loan       6.75     1.00     0.00     7.75     10/31/2019     $ 1,837,500       1,804,647       1,808,412  

SRAM, LLC

  Industrial Equipment   Term Loan (First Lien)     Loan       3.00     1.00     0.00     4.00     4/10/2020     $ 2,725,103       2,719,454       2,718,289  

Steak ‘n Shake Operations, Inc.

  Food Services   Term Loan     Loan       3.75     1.00     0.00     4.75     3/19/2021     $ 923,173       917,444       930,097  

Survey Sampling International

  Services: Business   Term Loan B     Loan       5.00     1.00     0.00     6.00     12/16/2020     $ 2,721,749       2,707,531       2,721,749  

Sybil Finance BV

  High Tech Industries   Term Loan B     Loan       4.00     1.00     0.00     5.00     9/30/2022     $ 987,500       982,957       1,002,006  

Syniverse Holdings, Inc.

  Telecommunications   Initial Term Loan     Loan       3.00     1.00     0.00     4.04     4/23/2019     $ 468,977       466,972       427,473  

TaxACT, Inc.

  Services: Business   Term Loan B     Loan       6.00     1.00     0.00     7.00     1/3/2023     $ 1,200,000       1,168,727       1,206,000  

Tectum Holdings, Inc.

  Transportation   Delayed Draw Term Loan (Initial)     Loan       4.75     1.00     0.00     5.80     8/24/2023     $ 997,500       988,185       1,004,981  

Tennessee Merger T/L (Team Health)

  Healthcare & Pharmaceuticals   Term Loan     Loan       2.75     1.00     0.00     3.75     2/6/2024     $ 1,000,000       997,518       996,880  

TGI Friday’s, Inc.

  Food Services   Term Loan B     Loan       4.25     1.00     0.00     5.25     7/15/2020     $ 1,651,817       1,648,856       1,646,316  

Townsquare Media, Inc.

  Media   Term Loan B     Loan       3.00     1.00     0.00     4.00     4/1/2022     $ 932,522       927,933       937,185  

TPF II Power LLC and TPF II Covert Midco LLC

  Utilities   Term Loan B     Loan       4.00     1.00     0.00     5.00     10/2/2021     $ 1,413,873       1,364,619       1,426,683  

TransDigm, Inc.

  Aerospace and Defense   Tranche C Term Loan     Loan       3.00     0.75     0.00     3.78     2/28/2020     $ 4,233,198       4,238,155       4,249,920  

Travel Leaders Group, LLC

  Hotel, Gaming and Leisure   Term Loan B     Loan       5.25     0.00     0.00     6.03     1/25/2024     $ 2,000,000       1,990,095       2,025,000  

Trugreen Limited Partnership

  Services: Business   Term Loan B     Loan       5.50     1.00     0.00     6.50     4/13/2023     $ 497,500       490,931       503,719  

Twin River Management Group, Inc.

  Lodging & Casinos   Term Loan B     Loan       3.50     1.00     0.00     4.50     7/10/2020     $ 809,438       810,684       819,556  

Univar Inc.

  Chemicals/Plastics   Term B Loan     Loan       2.75     0.00     0.00     3.61     7/1/2022     $ 2,962,500       2,948,361       2,971,565  

Univision Communications Inc.

  Telecommunications   Replacement First-Lien Term Loan     Loan       3.00     1.00     0.00     4.00     3/1/2020     $ 2,885,666       2,876,319       2,896,949  

Valeant Pharmaceuticals International, Inc.

  Drugs   Series D2 Term Loan B     Loan       4.25     0.75     0.00     5.03     2/13/2019     $ 2,445,056       2,437,788       2,456,890  

Verint Systems Inc.

  Services: Business   Term Loan     Loan       2.75     0.75     0.00     3.53     9/6/2019     $ 1,006,278       1,003,396       1,010,554  

Vistra Operations Company T/L B (12/16)

  Utilities   Term Loan B     Loan       3.25     0.75     0.00     4.02     12/13/2023     $ 500,000       498,784       502,970  

Vizient Inc.

  Healthcare & Pharmaceuticals   Term Loan     Loan       4.00     1.00     0.00     5.00     2/13/2023     $ 879,853       856,884       891,405  

Vouvray US Finance

  Industrial Equipment   Term Loan     Loan       3.75     1.00     0.00     4.75     6/27/2021     $ 487,500       485,889       486,891  

Washington Inventory Service

  Services: Business   U.S. Term Loan (First Lien)     Loan       0.00     0.00     5.75     5.75     12/20/2018     $ 1,735,292       1,743,798       1,418,601  

Western Digital Corporation

  High Tech Industries   Term Loan B (USD)     Loan       3.75     0.75     0.00     4.53     5/1/2023     $ 1,592,000       1,547,312       1,602,396  

Windstream Services, LLC

  Telecommunications   Term Loan B6     Loan       4.00     0.75     0.00     4.78     3/29/2021     $ 999,375       989,489       1,006,121  

Xerox Business Services T/L B (Conduent)

  Services: Business   Term Loan     Loan       5.50     0.75     0.00     6.28     12/7/2023     $ 750,000       737,850       761,955  

Zekelman Industries (JMC Steel) T/L (01/17)

  Nonferrous Metals/Minerals   Term Loan     Loan       3.75     1.00     0.00     4.75     6/14/2021     $ 500,000       501,250       506,040  

ZEP, Inc.

  Chemicals/Plastics   Term Loan B     Loan       4.00     1.00     0.00     5.00     6/27/2022     $ 2,955,000       2,941,390       2,984,550  

Zest Holdings 1st Lien T/L (2014 Replacement)

  Healthcare & Pharmaceuticals   Term Loan     Loan       4.75     1.00     0.00     5.75     8/17/2020     $ 1,000,000       995,523       1,012,500  
                   

 

 

   

 

 

 
                $ 297,801,502     $ 292,460,648  
                   

 

 

   

 

 

 
                                      Principal     Cost     Fair Value  

Cash and cash equivalents

                   

U.S. Bank Money Market (a)

              $ 13,046,555     $ 13,046,555     $ 13,046,555  
                 

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

              $ 13,046,555     $ 13,046,555     $ 13,046,555  
                 

 

 

   

 

 

   

 

 

 

(a)    Included within cash and cash equivalents in Saratoga CLO’s Statements of Assets and Liabilities as of February 28, 2017.

 

23


Table of Contents

Note 5. Agreements and Related Party Transactions

On July 30, 2010, the Company entered into the Management Agreement with our Manager. The initial term of the Management Agreement was two years, with automatic, one-year renewals at the end of each year, subject to certain approvals by our board of directors and/or the Company’s stockholders. On July 11, 2017, 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 investments 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.

The incentive fee consists of the following two parts:

The first, payable quarterly in arrears, equals 20.0% 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 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 100.0% 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; and 20.0% of the amount of the our pre-incentive fee net investment income, if any, that exceeds 2.344% in any fiscal quarter. There is no accumulation of amounts on the hurdle rate from quarter to quarter, and accordingly there is no claw back of amounts previously paid if subsequent quarters are below the quarterly hurdle rate, and there is no delay of payment if prior quarters are below the quarterly hurdle rate.

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 20.0% of our “incentive fee capital gains,” which equals our realized capital gains on a cumulative basis from May 31, 2010 through the end of the fiscal year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, 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 May 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 20.0% of incentive fee capital gains that arise after May 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 May 31, 2010 will equal the fair value of such investments as of such date.

For the three months ended May 31, 2017 and May 31, 2016, the Company incurred $1.4 million and $1.2 million in base management fees, respectively. For the three months ended May 31, 2017 and May 31, 2016, the Company incurred $0.7 million and $0.6 million in incentive fees related to pre-incentive fee net investment income, respectively. For the three months ended May 31, 2017, there was a reduction of $0.5 million in incentive fees related to capital gains. For the three months ended May 31, 2016, the Company accrued $0.1 million in incentive fees related to capital gains. The accrual is 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 May 31, 2017, the base management fees accrual was $1.4 million and the incentive fees accrual was $2.6 million and is included in base management and incentive fees payable in the accompanying consolidated statements of assets and liabilities. As of February 28, 2017, the base management fees accrual was $1.2 million and the incentive fees accrual was $4.6 million and is included in base management and incentive fees payable in the accompanying consolidated statements 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 was 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 was capped at $1.0 million for the initial two year term of the

 

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Administration Agreement and subsequent renewals. On July 8, 2015, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company thereunder, which had not been increased since the inception of the agreement, to $1.3 million. On October 5, 2016, our board of directors determined to increase the cap on the payment or reimbursement of expenses by the Company under the Administration Agreement, from $1.3 million to $1.5 million, effective November 1, 2016. On July 11, 2017, our board of directors approved the renewal of the Administration Agreement for an additional one-year term, and determined to increase the cap on the payment or reimbursement of expenses by the Company from $1.5 million to $1.75 million, effective August 1, 2017.

For the three months ended May 31, 2017 and May 31, 2016, we recognized $0.4 million and $0.3 million, in administrator expenses, respectively, 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 May 31, 2017, $0.3 million of administrator expenses were accrued and included in due to manager in the accompanying consolidated statements of assets and liabilities. As of February 28, 2017, $0.4 million of administrator expenses were accrued and included in due to manager in the accompanying consolidated statements of assets and liabilities. For the three months ended May 31, 2017 and May 31, 2016, the Company neither bought nor sold any investments from the Saratoga CLO.

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 200.0% 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 were 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 the $45.0 million senior secured revolving credit facility (the “Credit Facility”) with Madison Capital Funding LLC, in each case, 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, other than those held by SBIC LP, have been pledged under the Credit 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:

 

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    expand the borrowing capacity under the Credit Facility from $40.0 million to $45.0 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, upon the occurrence of an event of default, by action of the lenders or automatically, be terminated. 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.

On September 17, 2014, we entered into a second amendment to the Credit Facility with Madison Capital Funding LLC to, among other things:

 

    extend the commitment termination date from February 24, 2015 to September 17, 2017;

 

    extend the maturity date of the Credit Facility from February 24, 2020 to September 17, 2022 (unless terminated sooner upon certain events);

 

    reduce the applicable margin rate on base rate borrowings from 4.50% to 3.75%, and on LIBOR borrowings from 5.50% to 4.75%; and

 

    reduce the floor on base rate borrowings from 3.00% to 2.25%; and on LIBOR borrowings from 2.00% to 1.25%.

On May 18, 2017, we entered into a third amendment to the Credit Facility with Madison Capital Funding LLC to, among other things:

 

    extend the commitment termination date from September 17, 2017 to September 17, 2020;

 

    extend the final maturity date of the Credit Facility from September 17, 2022 to September 17, 2025 (unless terminated sooner upon certain events);

 

    reduce the floor on base rate borrowings from 2.25% to 2.0%;

 

    reduce the floor on LIBOR borrowings from 1.25% to 1.00%; and

 

    reduce the commitment fee rate from 0.75% to 0.50% for any period during which the ratio of advances outstanding to aggregate commitments, expressed as a percentage, is greater than or equal to 50%.

As of May 31, 2017 and February 28, 2017, there was $24.5 million and $0.0, respectively, of outstanding borrowings under the Credit Facility and the Company was in compliance with all of the limitations and requirements of the Credit Facility. Financing costs of $3.1 million related to the Credit Facility have been capitalized and are being amortized over the term of the facility. For the three months ended May 31, 2017 and May 31, 2016, we recorded $0.1 million and $0.1 million of interest expense, respectively. For the three months ended May 31, 2017 and May 31, 2016, we recorded $0.02 million and $0.02 million of amortization of deferred financing costs related to the Credit Facility and Revolving Facility, respectively. The interest rate during the three months ended May 31, 2017 on the outstanding borrowings under the Credit Facility was 5.83%. During the three months ended May 31, 2017 and May 31, 2016, the average dollar amount of outstanding borrowings under the Credit Facility was $0.5 million and $0.0, respectively.

The Credit 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 Credit 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 Credit 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 Credit Facility will be subject to a borrowing base calculation, based on, among other things, applicable advance rates (which vary from 50.0% to 75.0% 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 1.00%, plus an applicable margin of 4.75%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 2.00%, and the applicable margin over such alternative base rate is 3.75%. In addition, the Company will pay the lenders a commitment fee of 0.75% per year (or 0.50% if the ratio of advances outstanding to aggregate commitments is greater than or equal to 50%) on the unused amount of the Credit Facility for the duration of the Revolving Period.

 

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Our borrowing base under the Credit Facility was $45.0 million subject to the Credit Facility cap of $45.0 million at May 31, 2017. 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 May 31, 2017 borrowing base relies upon the valuations set forth in the Annual Report on Form 10-K for the year ended February 28, 2017. 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 May 31, 2017, we have funded SBIC LP with $75.0 million of equity capital, and have $134.7 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 $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the two most recent fiscal years. In addition, an SBIC must devote 25.0% 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 $6.0 million and has average annual fully taxed net income not exceeding $2.0 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 and debtholders 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 SEC to permit it to exclude the debt of SBIC LP guaranteed by the SBA from the definition of senior securities in the 200.0% asset coverage test under the 1940 Act. This allows the Company increased flexibility under the 200.0% asset coverage test by permitting it to borrow up to $150.0 million more than it would otherwise be able to absent the receipt of this exemptive relief.

As of May 31, 2017 and February 28, 2017, there was $134.7 million and $112.7 million outstanding of SBA debentures, respectively. The carrying amount of the amount outstanding of SBA debentures approximates its fair value, which is based on a waterfall analysis showing adequate collateral coverage, $4.6 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 May 31, 2017 and May 31, 2016, we recorded $0.9 million and $0.8 million of interest expense related to the SBA debentures, respectively. For the three months ended May 31, 2017 and May 31, 2016, we recorded $0.1 million and $0.1 million of amortization of deferred financing costs related to the SBA debentures, respectively. The weighted average interest rate during the three months ended May 31, 2017 and May 31, 2016 on the outstanding borrowings of the SBA debentures was 3.18% and 3.09%, respectively. During the three months ended May 31, 2017 and May 31, 2016, the average dollar amount of SBA debentures outstanding was $114.2 million and $103.7 million, respectively.

In December 2015, the 2016 omnibus spending bill approved by Congress and signed into law by the President increased the amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval. SBA regulations currently limit the amount of SBA-guaranteed debentures that an SBIC may issue to $150.0 million when it has at least $75.0 million in regulatory capital. Affiliated SBICs are permitted to issue up to a combined maximum amount of $350.0 million in SBA-guaranteed debentures when they have at least $175.0 million in combined regulatory capital.

 

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On April 2, 2015, the SBA issued a “green light” letter inviting the Company to continue the application process to obtain a license to form and operate its second SBIC subsidiary. On September 27, 2016, the SBA informed us that as part of their continued review of our application for a second license, and in order to ensure that they were reviewing the most current information available, we would need to update all previously submitted materials and invited us to reapply. As a result of this request, with which we are in the process of complying, the existing “green light” letter that the SBA issued to us has expired. If approved in the future, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue up to $150.0 million of additional SBA-guaranteed debentures in addition to the $150.0 million already approved under the first license.

Notes

On May 10, 2013, the Company issued $42.0 million in aggregate principal amount of 7.50% fixed-rate notes due 2020 (the “2020 Notes”). The 2020 Notes will mature on May 31, 2020, and since May 31, 2016, may be redeemed in whole or in part at any time or from time to time at the Company’s option. Interest will be payable quarterly beginning August 15, 2013.

On May 17, 2013, the Company closed an additional $6.3 million in aggregate principal amount of the 2020 Notes, pursuant to the full exercise of the underwriters’ option to purchase additional 2020 Notes. On May 29, 2015, the Company entered into a Debt Distribution Agreement with Ladenburg Thalmann & Co. through which the Company may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the 2020 Notes through an At-the-Market (“ATM”) offering. As of May 31, 2017, the Company sold 539,725 bonds with a principal of $13,493,125 at an average price of $25.31 for aggregate net proceeds of $13,385,766 (net of transaction costs).

On December 21, 2016, the Company issued $74.5 million in aggregate principal amount of our 6.75% fixed-rate notes due 2023 (the “2023 Notes”) for net proceeds of $71.7 million after deducting underwriting commissions of approximately $2.3 million and offering costs of approximately $0.5 million. The issuance included the exercise of substantially all of the underwriters’ option to purchase an additional $9.8 million aggregate principal amount of 2023 Notes within 30 days. Interest on the 2023 Notes is paid quarterly in arrears on March 15, June 15, September 15 and December 15, at a rate of 6.75% per year, beginning March 30, 2017. The 2023 Notes mature on December 30, 2023, and commencing December 21, 2019, may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used to repay all of the outstanding indebtedness under the 2020 Notes, which amounted to $61.8 million, and for general corporate purposes in accordance with our investment objective and strategies. The 2023 Notes are listed on the NYSE under the trading symbol “SAB” with a par value of $25.00 per share. The remaining unamortized deferred debt financing costs of $1.5 million (including underwriting commissions and net of issuance premiums), was recorded within loss on debt extinguishment in the consolidated statements of operations in the fourth quarter of the fiscal year ended February 28, 2017, when the related 2020 Notes were extinguished. As of May 31, 2017, $2.8 million of financing costs related to the 2023 Notes have been capitalized and are being amortized over the term of the 2023 Notes.

As of May 31, 2017, the carrying amount and fair value of the 2023 Notes was $74.5 million and $78.1 million, respectively. The fair value of the 2023 Notes, which are publicly traded, is based upon closing market quotes as of the measurement date and would be classified as a Level 1 liability within the fair value hierarchy. For the three months ended May 31, 2017, we recorded $1.3 million of interest expense and $0.1 million of amortization of deferred financing costs related to the 2023 Notes. As of February 28, 2017, the carrying amount and fair value of the 2023 Notes was $74.5 million and $77.1 million, respectively. For the three months ended May 31, 2016, we recorded $1.2 million of interest expense and $0.1 million of amortization of deferred financing costs related to the 2020 Notes. During the three months ended May 31, 2017, the average dollar amount of 2023 Notes outstanding was $74.5 million. During the three months ended May 31, 2016, the average dollar amount of 2020 Notes outstanding was $61.8 million.

Note 7. Commitments and contingencies

Contractual obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at May 31, 2017:

 

            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

   $ 233,611      $ —      $ —      $ —        $ 233,611  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Off-balance sheet arrangements

The Company’s off-balance sheet arrangements consisted of $7.0 million and $2.0 million of unfunded commitments to provide debt financing to its portfolio companies or to fund limited partnership interests as of May 31, 2017 and February 28, 2017, respectively. Such commitments are generally up to the Company’s discretion to approve, or the satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Company’s consolidated statements of assets and liabilities and are not reflected in the Company’s consolidated statements of assets and liabilities.

A summary of the composition of the unfunded commitments as of May 31, 2017 and February 28, 2017 is shown in the table below (dollars in thousands):

 

    As of  
    May 31, 2017     February 28, 2017  

CLEO Communications Holding, LLC

  $ 5,000     $ —    

GreyHeller LLC

    2,000       2,000  

TM Restaurant Group L.L.C.

    17     —    
 

 

 

   

 

 

 

Total

  $ 7,017     $ 2,000  
 

 

 

   

 

 

 

Note 8. 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 May 31, 2017 and May 31, 2016, we incurred $0.05 million and $0.07 million for directors’ fees and expenses, respectively. As of May 31, 2017 and February 28, 2017, $0.05 million and $0.05 million in directors’ fees and expenses were accrued and unpaid, respectively. As of May 31, 2017, we had not issued any common stock to our directors as compensation for their services.

Note 9. Stockholders’ Equity

On May 16, 2006, GSC Group, Inc. capitalized the LLC, by contributing $1,000 in exchange for 67 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, we 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.

On August 12, 2010, we 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.

 

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On November 12, 2010, we 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 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, we 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.

On October 30, 2013, the Company declared a dividend of $2.65 per share payable on December 27, 2013. 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 $2.5 million or $0.53 per share. Based on shareholder elections, the dividend consisted of approximately $2.5 million in cash and 649,500 shares of common stock.

On September 24, 2014, the Company declared a dividend of $0.18 per share payable on November 28, 2014. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $0.6 million in cash and 22,283 newly issued shares of common stock.

On September 24, 2014, the Company declared a dividend of $0.22 per share payable on February 27, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.8 million in cash and 26,858 newly issued shares of common stock.

On April 9, 2015, the Company declared a dividend of $0.27 per share payable on May 29, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.9 million in cash and 33,766 newly issued shares of common stock.

On May 14, 2015, the Company declared a special dividend of $1.00 per share payable on June 5, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $3.4 million in cash and 126,230 newly issued shares of common stock.

On July 8, 2015, the Company declared a dividend of $0.33 per share payable on August 31, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 47,861 newly issued shares of common stock.

On October 7, 2015, the Company declared a dividend of $0.36 per share payable on November 30, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 61,029 newly issued shares of common stock.

On January 12, 2016, the Company declared a dividend of $0.40 per share payable on February 29, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.4 million in cash and 66,765 newly issued shares of common stock.

 

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On March 31, 2016, the Company declared a dividend of $0.41 per share payable on April 27, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 56,728 newly issued shares of common stock.

On July 7, 2016, the Company declared a dividend of $0.43 per share payable on August 9, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 58,167 newly issued shares of common stock.

On August 8, 2016, the Company declared a special dividend of $0.20 per share payable on September 5, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.7 million in cash and 24,786 newly issued shares of common stock.

On October 5, 2016, the Company declared a dividend of $0.44 per share payable on November 9, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 58,548 newly issued shares of common stock.

On January 12, 2017, the Company declared a dividend of $0.45 per share payable on February 9, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.6 million in cash and 50,453 newly issued shares of common stock.

On February 28, 2017, the Company declared a dividend of $0.46 per share payable on March 28, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $2.0 million in cash and 29,096 newly issued shares of common stock.

On September 24, 2014, the Company announced the approval of an open market share repurchase plan that allowed it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published consolidated financial statements. On October 7, 2015, the Company’s board of directors extended the open market share repurchase plan for another year and increased the number of shares the Company is permitted to repurchase at prices below its NAV, as reported in its then most recently published consolidated financial statements, to 400,000 shares of its common stock. On October 5, 2016, the Company’s board of directors extended the open market share repurchase plan for another year to October 15, 2017 and increased the number of shares the Company is permitted to repurchase at prices below its NAV, as reported in its then most recently published consolidated financial statements, to 600,000 shares of its common stock. As of May 31, 2017, the Company purchased 218,491 shares of common stock, at the average price of $16.87 for approximately $3.7 million pursuant to this repurchase plan.

On March 16, 2017, we entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc., through which we may offer for sale, from time to time, up to $30.0 million of our common stock through an ATM offering. As of May 31, 2017, the Company sold 60,779 shares for gross proceeds of $1.4 million at an average price of $22.49 for aggregate net proceeds of $1.3 million (net of transaction costs).

Note 10. Summarized Financial Information of Our Unconsolidated Subsidiary

In accordance with SEC Regulation S-X Rules 3-09 and 4-08(g), the Company must determine which of its unconsolidated controlled portfolio companies, if any, are considered “significant subsidiaries.” After performing this analysis, the Company determined that one of its portfolio companies, Easy Ice, LLC (“Easy Ice”) is not a significant subsidiary for the three months ended May 31, 2017 under at least one of the significance conditions of Rule 4-08(g) of SEC Regulation S-X, but was a significant subsidiary for the year ended February 28, 2017. Accordingly, audited financial information for the year ended December 31, 2016 and as of December 31, 2016 has been included as follows (in thousands):

 

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     As of  

Balance Sheet – Easy Ice, LLC

   December 31, 2016  

Current assets

   $ 1,058  

Noncurrent assets

   $ 18,245  

Current liabilities

   $ 3,473  

Noncurrent liabilities

   $ 23,113  

Total deficit

   $ (7,283

 

     For the year ended  

Statement of Operations – Easy Ice, LLC

   December 31, 2016  

Rental income

   $ 14,463  

Rental expenses

   $ 8,463  

Gross margin

   $ 6,000  

Operating expenses

   $ 5,123  

Income from operations

   $ 877  

Net loss

   $ (1,356

Note 11. 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 months ended May 31, 2017 and May 31, 2016 (dollars in thousands except share and per share amounts):

 

     For the three months ended  

Basic and diluted

   May 31,
2017
     May 31,
2016
 

Net increase in net assets from operations

   $ 1,014      $ 3,288  

Weighted average common shares outstanding

     5,861,654        5,737,496  

Weighted average earnings per common share

   $ 0.17      $ 0.57  

Note 12. Dividend

On February 28, 2017, the Company declared a dividend of $0.46 per share which was paid on March 28, 2017, to common stockholders of record as of March 15, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to our DRIP.

Based on shareholder elections, the dividend consisted of approximately $2.0 million in cash and 29,096 newly issued shares of common stock, or 0.5% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $21.38 per share, which equaled the volume weighted average trading price per share of the common stock on March 15, 16, 17, 20, 21, 22, 23, 24, 27 and 28, 2017.

The following table summarizes dividends declared for the three months ended May 31, 2017 (dollars in thousands except per share amounts):

 

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Date Declared

   Record Date      Payment Date      Amount
Per Share*
     Total
Amount
 

February 28, 2017

     March 15, 2017        March 28, 2017      $ 0.46      $ 2,666  
        

 

 

    

 

 

 

Total dividends declared

         $ 0.46      $ 2,666  
        

 

 

    

 

 

 

 

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

The following table summarizes dividends declared for the three months ended May 31, 2016 (dollars in thousands except per share amounts):

 

Date Declared

   Record Date      Payment Date      Amount
Per Share*
     Total
Amount
 

March 31, 2016

     April 15, 2016        April 27, 2016      $ 0.41      $ 2,346  
        

 

 

    

 

 

 

Total dividends declared

         $ 0.41      $ 2,346  
        

 

 

    

 

 

 

 

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

Note 13. Financial Highlights

The following is a schedule of financial highlights for the three months ended May 31, 2017 and May 31, 2016:

 

     May 31, 2017     May 31, 2016  

Per share data:

  

Net asset value at beginning of period

   $ 21.97     $ 22.06  

Net investment income(1)

     0.60       0.44  

Net realized and unrealized gains and losses on investments

     (0.43     0.13  
  

 

 

   

 

 

 

Net increase in net assets from operations

     0.17       0.57  

Distributions declared from net investment income

     (0.46     (0.41
  

 

 

   

 

 

 

Total distributions to stockholders

     (0.46     (0.41

Dilution(4)

     0.01       (0.11

Net asset value at end of period

   $ 21.69     $ 22.11  

Net assets at end of period

   $ 127,608,653     $ 127,128,868  

Shares outstanding at end of period

     5,884,475       5,750,222  

Per share market value at end of period

   $ 22.13     $ 16.39  

Total return based on market value(2)

     (0.59 )%      19.71

Total return based on net asset value(3)

     0.85     4.10

Ratio/Supplemental data:

  

Ratio of net investment income to average net assets(8)

     11.29     7.98

Ratio of operating expenses to average net assets(7)

     7.77     7.15

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

     0.14     0.58

Ratio of interest and debt financing expenses to average net assets(7)

     7.84     7.44

Ratio of total expenses to average net assets(8)

     15.75     15.17

Portfolio turnover rate(5)

     2.00     N/A  

Asset coverage ratio per unit(6)

     2,290       3,057  

Average market value per unit:

  

Credit Facility(9)

     N/A       N/A  

SBA Debentures(9)

     N/A       N/A  

2020 Notes

     N/A       25.02  

2023 Notes

     26.04       N/A  

 

 

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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 DRIP. 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 DRIP. 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 in connection with the satisfaction of the Company’s annual RIC distribution requirement. See Note 12, Dividend.
(5) Portfolio turnover rate is calculated using the lesser of year-to-date sales or year-to-date purchases over the average of the invested assets at fair value.
(6) Ratios are not annualized.
(7) Ratios are annualized.
(8) Ratios are annualized. Incentive management fees included within the ratio are not annualized.
(9) The Credit Facility and SBA Debentures are not registered for public trading.

Note 14. Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-Q and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the consolidated financial statements except for the following:

On May 30, 2017, the Company declared a dividend of $0.47 per share payable on June 27, 2017, to common stockholders of record on June 15, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $2.3 million in cash and 26,222 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $20.04 per share, which equaled the volume weighted average trading price per share of the common stock on June 14, 15, 16, 19, 20, 21, 22, 23, 26 and 27, 2017.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated 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 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 under Part I. Item 1A in our Annual Report on Form 10-K for the fiscal year ended February 28, 2017.

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 (“BDC”), or to operate our small business investment company (“SBIC”) subsidiary, and to continue to qualify to be taxed as a regulated investment company (“RIC”);

 

    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 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 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, which we define as companies having EBITDA of between $2 million and $50 million, both through direct lending and through participation in loan syndicates. We may also invest up to 30.0% of the portfolio in opportunistic investments in order to seek to enhance returns to

 

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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. Although we have no current intention to do so, to the extent we invest in private equity funds, we will limit our investments in entities that are excluded from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, which includes private equity funds, to no more than 15.0% of its net assets. We have elected and qualified to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

Corporate History and Recent Developments

We commenced operations, at the time known as GSC Investment Corp., on March 23, 2007 and completed an initial public offering of shares of common stock 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 a recapitalization transaction on July 30, 2010, as described below we engaged Saratoga Investment Advisors (“SIA”) to replace GSCP (NJ), L.P. as our investment adviser and changed our name to Saratoga Investment Corp.

As a result of the event of default under a revolving securitized credit facility with Deutsche Bank we previously had in place, in December 2008 we engaged the investment banking firm of Stifel, Nicolaus & Company to evaluate strategic transaction opportunities and consider alternatives for us. On April 14, 2010, GSC Investment Corp. entered into a stock purchase agreement with Saratoga Investment Advisors and certain of its affiliates and an assignment, assumption and novation agreement with Saratoga Investment Advisors, pursuant to which GSC Investment Corp. assumed certain rights and obligations of Saratoga Investment Advisors under a debt commitment letter Saratoga Investment Advisors received from Madison Capital Funding LLC, which indicated Madison Capital Funding’s willingness to provide GSC Investment Corp. with a $40.0 million senior secured revolving credit facility, subject to the satisfaction of certain terms and conditions. In addition, GSC Investment Corp. and GSCP (NJ), L.P. 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 Saratoga Investment Advisors and certain of its affiliates were completed, the private sale of 986,842 shares of our common stock for $15.0 million in aggregate purchase price to Saratoga Investment Advisors and certain of its affiliates closed, the Company entered into the Credit Facility, and the Company began doing business as Saratoga Investment Corp.

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

On August 12, 2010, we 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.

In January 2011, we registered for public resale of the 986,842 shares of our common stock issued to Saratoga Investment Advisors and certain of its affiliates.

On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP (“SBIC LP”), received an SBIC license from the Small Business Administration (“SBA”).

In May 2013, we issued $48.3 million in aggregate principal amount of our 7.50% unsecured notes due 2020 (the “2020 Notes”) for net proceeds of $46.1 million after deducting underwriting commissions of $1.9 million and offering costs of $0.3 million. The proceeds included the underwriters’ full exercise of their overallotment option. Interest on these 2020 Notes is paid quarterly in arrears on February 15, May 15, August 15 and November 15, at a rate of 7.50% per year, beginning August 15, 2013. The 2020 Notes mature on May 31, 2020 and since May 31, 2016, may be redeemed in whole or in part at any time or from time to time at our option. The 2020 Notes were listed on the NYSE under the trading symbol “SAQ” with a par value of $25.00 per share. The 2020 Notes were redeemed in full on January 13, 2017.

 

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On May 29, 2015, we entered into a Debt Distribution Agreement with Ladenburg Thalmann & Co. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the 2020 Notes through an At-the-Market (“ATM”) offering. As of May 31, 2017, the Company sold 539,725 bonds with a principal of $13,493,125 at an average price of $25.31 for aggregate net proceeds of $13,385,766 (net of transaction costs).

On December 21, 2016, we issued $74.5 million in aggregate principal amount of our 6.75% fixed-rate notes due 2023 (the “2023 Notes”) for net proceeds of $72.1 million after deducting underwriting commissions of approximately $2.0 million and offering costs of approximately $0.5 million. The issuance included the exercise of substantially all of the underwriters’ option to purchase an additional $9.8 million aggregate principal amount of 2023 Notes within 30 days. Interest on the 2023 Notes is paid quarterly in arrears on March 15, June 15, September 15 and December 15, at a rate of 6.75% per year, beginning March 30, 2017. The 2023 Notes mature on December 20, 2023, and commencing December 21, 2019, may be redeemed in whole or in part at any time or from time to time at our option. The 2023 Notes are listed on the NYSE under the trading symbol “SAB” with a par value of $25.00 per share.

On March 16, 2017, we entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc., through which we may offer for sale, from time to time, up to $30.0 million of our common stock through an ATM offering. As of May 31, 2017, the Company sold 60,779 shares for gross proceeds of $1.4 million at an average price of $22.49 for aggregate net proceeds of $1.3 million (net of transaction costs).

Critical Accounting Policies

Basis of Presentation

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“U.S. 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 balance sheet date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from Saratoga Investment Advisers, 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 Saratoga Investment Advisors and preliminary valuation conclusions are documented and discussed with our senior management; and

 

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

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

 

    The audit committee of our board of directors reviews and approves each preliminary valuation and Saratoga Investment Advisors and an 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 Saratoga Investment Advisors, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

Our investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”) is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by SIA 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 flow 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 amortization of premiums on investments.

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

Payment-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 leveraged 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 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. The Saratoga CLO was initially refinanced in October 2013 and its reinvestment period ended in October 2016. On November 15, 2016, we completed the second refinancing of the Saratoga CLO. The Saratoga CLO refinancing, among other things, extended its reinvestment period to October 2018, and extended its legal maturity date to October 2025. Following the refinancing, the Saratoga CLO portfolio remained at the same size and with a similar capital structure of approximately $300.0 million in aggregate principal amount of predominantly senior secured first lien term loans. In addition to refinancing its liabilities, we also purchased $4.5 million in aggregate principal amount of the Class F notes tranche of the Saratoga CLO at par, with a coupon of LIBOR plus 8.5%.

The Saratoga CLO remains effectively 100% owned and managed by Saratoga Investment Corp. Following the refinancing, we receive a base management fee of 0.10% and a subordinated management fee of 0.40% of the fee basis amount at the beginning of the collection period, paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20.0% of excess cash flow to the extent the Saratoga CLO subordinated notes receive an internal rate of return paid in cash equal to or greater than 12.0%.

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;

 

    expenses incurred by our investment adviser payable for travel and due diligence on our prospective portfolio companies;

 

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    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;

 

    costs of preparing and filing reports or other documents required by governmental bodies (including the Securities and Exchange Commission (“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)).

Pursuant to the investment advisory and management agreement that we had with GSCP (NJ), L.P., our former investment adviser and administrator, we had agreed to pay GSCP (NJ), L.P. as investment adviser a quarterly base management fee of 1.75% of the average value of our total 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 an incentive fee.

The incentive fee had two parts:

 

    A fee, payable quarterly in arrears, equal to 20.0% of our pre-incentive fee net investment income, expressed as a rate of return on the value of the net assets at the end of the immediately preceding quarter, that exceeded a 1.875% quarterly hurdle rate measured as of the end of each fiscal quarter. Under this provision, in any fiscal quarter, our investment adviser received no incentive fee unless our pre-incentive fee net investment income exceeded the hurdle rate of 1.875%. Amounts received as a return of capital were not included in calculating this portion of the incentive fee. Since the hurdle rate was based on net assets, a return of less than the hurdle rate on total assets could still have resulted in an incentive fee.

 

    A fee, payable at the end of each fiscal year, equal to 20.0% of our net realized capital gains, if any, computed net of all realized capital losses and unrealized capital depreciation, in each case on a cumulative basis, less the aggregate amount of capital gains incentive fees paid to the investment adviser through such date.

We deferred cash payment of any incentive fee otherwise earned by our former investment adviser if, during the then most recent four full fiscal quarters ending on or prior to the date such payment was to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less liabilities) (before taking into account any incentive fees payable during that period) was less than 7.5% of our net assets at the beginning of such period. These calculations were appropriately pro-rated for the first three fiscal quarters of operation and adjusted for any share issuances or repurchases during the applicable period. Such incentive fee would become payable on the next date on which such test had been satisfied for the most recent four full fiscal quarters or upon certain terminations of the investment advisory and management agreement. We commenced deferring cash payment of incentive fees during the quarterly period ended August 31, 2007, and continued to defer such payments through the quarterly period ended May 31, 2010. As of July 30, 2010, the date on which GSCP (NJ), L.P. ceased to be our investment adviser and administrator, we owed GSCP (NJ), L.P. $2.9 million in fees for services previously provided to us; of which $0.3 million has been paid by us. GSCP (NJ), L.P. agreed to waive payment by us of the remaining $2.6 million in connection with the consummation of the stock purchase transaction with Saratoga Investment Advisors and certain of its affiliates described elsewhere in this Quarterly Report.

 

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The terms of the investment advisory and management agreement with Saratoga Investment Advisors, our current investment adviser, are substantially similar to the terms of the investment advisory and management agreement we had entered into with GSCP (NJ), L.P., our former investment adviser, except for the following material distinctions in the fee terms:

 

    The capital gains portion of the incentive fee was reset with respect to gains and losses from May 31, 2010, and therefore losses and gains incurred prior to such time will not be taken into account when calculating the capital gains fee payable to Saratoga Investment Advisors and, as a result, Saratoga Investment Advisors will be entitled to 20.0% of net gains that arise after May 31, 2010. In addition, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 equal the fair value of such investment as of such date. Under the investment advisory and management agreement with our former investment adviser, GSCP (NJ), L.P., the capital gains fee was calculated from March 21, 2007, and the gains were substantially outweighed by losses.

 

    Under the “catch up” provision, 100.0% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income that exceeds 1.875% but is less than or equal to 2.344% in any fiscal quarter is payable to Saratoga Investment Advisors. This will enable Saratoga Investment Advisors to receive 20.0% of all net investment income as such amount approaches 2.344% in any quarter, and Saratoga Investment Advisors will receive 20.0% of any additional net investment income. Under the investment advisory and management agreement with our former investment adviser, GSCP (NJ), L.P. only received 20.0% of the excess net investment income over 1.875%.

 

    We will no longer have deferral rights regarding incentive fees in the event that the distributions to stockholders and change in net assets is less than 7.5% for the preceding four fiscal quarters.

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.

New Accounting Pronouncements

In October 2016, the SEC adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Company’s consolidated financial statements and related disclosures.

In August 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods therein. Early adoption is permitted. Management is currently evaluating the impact ASU 2016-15 will have on the Company’s consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Amendments to the Leases (“ASU Topic 842”), which will require for all operating leases the recognition of a right-of-use asset and a lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. This guidance is effective for annual and interim periods beginning after December 15, 2018. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management is currently evaluating the impact the adoption of this standard has on our consolidated financial statements and disclosures.

 

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In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In May 2016, ASU 2016-12 amended ASU 2014-09 and deferred the effective period to December 15, 2017. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

Portfolio and investment activity

Corporate Debt Portfolio Overview

 

     At May 31,
2017
     At February 28,
2017
 
     ($ in millions)      ($ in millions)  

Number of investments(1)

     57        52  

Number of portfolio companies(3)

     31        28  

Average investment size(1)

   $ 5.6      $ 5.4  

Weighted average maturity(1)

     3.7 yrs        3.8 yrs  

Number of industries(3)

     9        9  

Average investment per portfolio company(1)

   $ 9.9      $ 9.7  

Non-performing or delinquent investments

   $ 11.3      $ 8.4  

Fixed rate debt (% of interest bearing portfolio)(2)

   $ 44.0(14.9%)      $ 44.2(16.9%)  

Weighted average current coupon(2)

     11.9%        11.4%  

Floating rate debt (% of interest bearing portfolio)(2)

   $   252.2(85.1%)      $   217.6(83.1%)  

Weighted average current spread over LIBOR(2)(4)

     9.3%        9.3%  

 

(1) Excludes our investment in the subordinated notes of Saratoga CLO.
(2) Excludes our investment in the subordinated notes of Saratoga CLO and equity interests.
(3) Excludes our investment in the subordinated notes of Saratoga CLO and Class F notes tranche of Saratoga CLO.
(4) Calculation uses either 1-month or 3-month LIBOR, depending on the contractual turns, and after factoring in any existing LIBOR floors.

During the three months ended May 31, 2017, we invested $45.0 million in new or existing portfolio companies and had $5.9 million in aggregate amount of exits and repayments resulting in net investments of $39.1 million for the period. During the three months ended May 31, 2016, we did not invest in any new or existing portfolio companies and had $20.6 million in aggregate amount of exits and repayments resulting in net repayments of $20.6 million for the period.

Our portfolio composition at May 31, 2017 and February 28, 2017 at fair value was as follows:

Portfolio composition

 

     At May 31, 2017     At February 28, 2017  
     Percentage
of Total
Portfolio
    Weighted
Average
Current
Yield
    Percentage
of Total
Portfolio
    Weighted
Average
Current
Yield
 

Syndicated loans

     2.8     5.3     3.4     5.3

First lien term loans

     56.4       10.8       54.3       10.5  

Second lien term loans

     29.1       12.5       30.0       11.7  

Structured finance securities

     4.9       16.0       5.3       12.7  

Equity interests

     6.8       4.0       7.0       0.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     11.4     100.0     10.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Our investment in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at May 31, 2017 and February 28, 2017 was composed of $299.3 million and $297.1 million, respectively, in aggregate principal amount of

 

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predominantly senior secured first lien term loans. This investment is subject to unique risks. (See “Risk Factors—Our investment in Saratoga CLO 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 fiscal year ended February 28, 2017). We do not consolidate the Saratoga CLO portfolio in our consolidated financial statements. Accordingly, the metrics below do not include the underlying Saratoga CLO portfolio investments. However, at May 31, 2017, $290.2 million or 98.5% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and there was one Saratoga CLO portfolio investment in default with a fair value of $1.4 million. At February 28, 2017, $288.5 million or 98.7% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and one Saratoga CLO portfolio investment was in default with a fair value of $1.4 million.

Saratoga Investment Advisors 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)—performing credit; (Yellow)—underperforming credit; (Red)—in payment default and/or risk of principal recovery.

The CMR distribution of our investments at May 31, 2017 and February 28, 2017 was as follows:

Portfolio CMR distribution

 

     At May 31, 2017     At February 28, 2017  

Color Score

   Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Green

   $ 284,624        86.3   $ 245,678        83.9

Yellow

     8,280        2.5       8,423        2.9  

Red

     2,702        0.8       7,069        2.4  

N/A(1)

     34,084        10.4       31,491        10.8  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 329,690        100.0   $ 292,661        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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

The change in reserve from $0.2 million as of February 28, 2017 to $0.8 million as of May 31, 2017 primarily related to the increase in reserve for the quarter on two non-performing and delinquent investments, TM Restaurant Group L.L.C and My Alarm Center, LLC.

The CMR distribution of Saratoga CLO investments at May 31, 2017 and February 28, 2017 was as follows:

Portfolio CMR distribution

 

     At May 31, 2017     At February 28, 2017  

Color Score

   Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Green

   $ 270,009        91.6   $ 266,449        91.1

Yellow

     20,194        6.9       22,064        7.6  

Red

     4,476        1.5       3,925        1.3  

N/A(1)

     34        0.0       23        0.0  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 294,713        100.0   $ 292,461        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of Saratoga CLO’s equity interests.

 

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Portfolio composition by industry grouping at fair value

The following table shows our portfolio composition by industry grouping at fair value at May 31, 2017 and February 28, 2017:

 

     At May 31, 2017     At February 28, 2017  
     Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Business Services

   $ 187,407        56.8   $ 161,212        55.1

Healthcare Services

     37,836        11.5       38,544        13.2  

Education

     26,725        8.1       10,928        3.7  

Media

     18,106        5.5       18,698        6.4  

Consumer Services

     16,217        4.9       20,748        7.1  

Structured Finance Securities(1)

     16,111        4.9       15,450        5.3  

Real Estate

     15,749        4.8       16,839        5.7  

Food and Beverage

     8,646        2.6       8,423        2.9  

Metals

     1,896        0.6       851        0.3  

Consumer Products

     997        0.3       968        0.3  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 329,690        100.0   $ 292,661        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of our investment in the subordinated notes and Class F Note of Saratoga CLO.

 

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The following table shows Saratoga CLO’s portfolio composition by industry grouping at fair value at May 31, 2017 and February 28, 2017:

 

     At May 31, 2017     At February 28, 2017  
     Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Services: Business

   $ 37,393        12.7   $ 40,675        13.9

Healthcare & Pharmaceuticals

     32,381        11.0       33,002        11.3  

High Tech Industries

     21,233        7.2       17,851        6.1  

Chemicals/Plastics

     20,805        7.1       21,492        7.4  

Banking, Finance, Insurance & Real Estate

     19,378        6.6       14,752        5.0  

Retailers (Except Food and Drugs)

     14,890        5.1       14,706        5.0  

Aerospace and Defense

     14,143        4.8       11,643        4.0  

Telecommunications

     14,065        4.8       13,704        4.7  

Media

     12,110        4.1       11,283        3.9  

Leisure Goods/Activities/Movies

     10,466        3.6       9,627        3.3  

Industrial Equipment

     9,323        3.2       9,853        3.4  

Electronics/Electric

     7,951        2.7       8,036        2.7  

Automotive

     7,750        2.6       6,088        2.1  

Financial Intermediaries

     6,553        2.2       9,476        3.2  

Capital Equipment

     6,518        2.2       6,026        2.1  

Utilities

     5,348        1.8       4,944        1.7  

Drugs

     4,638        1.6       5,394        1.8  

Publishing

     4,542        1.5       4,580        1.6  

Lodging and Casinos

     4,274        1.4       4,311        1.5  

Food Services

     4,273        1.4       5,932        2.0  

Beverage, Food & Tobacco

     3,977        1.3       3,013        1.0  

Transportation

     3,834        1.3       2,731        0.9  

Technology

     3,788        1.3       3,935        1.3  

Oil & Gas

     3,132        1.1       3,209        1.1  

Insurance

     2,931        1.0       3,001        1.0  

Conglomerate

     2,560        0.9       3,584        1.2  

Construction & Building

     2,466        0.8       1,974        0.7  

Brokers/Dealers/Investment Houses

     2,435        0.8       2,479        0.8  

Containers/Glass Products

     2,356        0.8       2,008        0.7  

Hotel, Gaming and Leisure

     2,019        0.7       2,025        0.7  

Food Products

     2,013        0.7       3,147        1.1  

Cable and Satellite Television

     1,614        0.5       1,617        0.6  

Food/Drug Retailers

     1,403        0.5       2,877        1.0  

Services: Consumer

     1,276        0.4       788        0.3  

Forest Products & Paper

     502        0.2       —          —    

Broadcast Radio and Television

     373        0.1       343        0.1  

Nonferrous Metals/Minerals

     —          —         1,312        0.4  

Environmental Industries

     —          —         800        0.3  

Building and Development

     —          —         243        0.1  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 294,713        100.0   $ 292,461        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Portfolio composition by geographic location at fair value

The following table shows our portfolio composition by geographic location at fair value at May 31, 2017 and February 28, 2017. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

 

     At May 31, 2017     At February 28, 2017  
     Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Southeast

   $ 144,013        43.7   $ 116,186        39.7

Midwest

     88,586        26.9       75,154        25.7  

Southwest

     34,018        10.3       34,060        11.6  

Northeast

     33,952        10.3       38,880        13.3  

Other(1)

     16,111        4.9       15,450        5.3  

Northwest

     7,850        2.4       7,780        2.6  

West

     5,160        1.5       5,151        1.8  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 329,690        100.0   $ 292,661        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of our investment in the subordinated notes and Class F Note of Saratoga CLO.

Results of operations

Operating results for the three months ended May 31, 2017 and May 31, 2016 were as follows:

 

     For the three months ended  
     May 31,
2017
     May 31,
2016
 
     ($ in thousands)  

Total investment income

   $ 8,707      $ 7,908  

Total expenses

     5,203        5,369  
  

 

 

    

 

 

 

Net investment income

     3,504        2,539  

Net realized gains from investments

     96        6,103  

Net unrealized depreciation on investments

     (2,586      (5,354
  

 

 

    

 

 

 

Net increase in net assets resulting from operations

   $ 1,014      $ 3,288  
  

 

 

    

 

 

 

Investment income

The composition of our investment income for the three months ended May 31, 2017 and May 31, 2016 was as follows:

 

     For the three months ended  
     May 31,
2017
     May 31,
2016
 
     ($ in thousands)  

Interest from investments

   $ 7,741      $ 7,281  

Management fee income

     376        374  

Incentive fee income

     105        —    

Interest from cash and cash equivalents and other income

     485        253  
  

 

 

    

 

 

 

Total

   $ 8,707      $ 7,908  
  

 

 

    

 

 

 

For the three months ended May 31, 2017, total investment income of $8.7 million increased $0.8 million, or 10.1% compared to $7.9 million for the three months ended May 31, 2016. Interest income from investments increased $0.4 million, or 6.3%, to $7.7 million for the three months ended May 31, 2017 from $7.3 million for the three months ended May 31, 2016. This reflects an

 

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increase of 24.7% in total investments to $329.7 million at May 31, 2017 from $264.4 million at May 31, 2016, with some of the new investments being towards the end of the period. The increase was offset by the weighted average current coupon decreasing from 11.5% to 11.4%.

For the three months ended May 31, 2017 and May 31, 2016, total PIK income was $0.5 million and $0.1 million, respectively.

For the three months ended May 31, 2017, incentive fee income of $0.1 million was recognized related to Saratoga CLO, reflecting the 12.0% hurdle rate that has been achieved.

Operating expenses

The composition of our operating expenses for the three months ended May 31, 2017 and May 31, 2016 was as follows:

Operating Expenses

 

     For the three months ended  
     May 31,
2017
     May 31,
2016
 
     ($ in thousands)  

Interest and debt financing expenses

   $ 2,524      $ 2,368  

Base management fees

     1,391        1,227  

Professional fees

     384        359  

Administrator expenses

     375        325  

Incentive management fees

     176        728  

Insurance

     66        71  

Directors fees and expenses

     51        66  

General and administrative and other expenses

     236        225  
  

 

 

    

 

 

 

Total expenses

   $ 5,203      $ 5,369  
  

 

 

    

 

 

 

For the three months ended May 31, 2017, total operating expenses decreased $0.2 million, or 3.1% compared to the three months ended May 31, 2016.

For the three months ended May 31, 2017 and May 31, 2016, the increase in interest and debt financing expenses is primarily attributable to an increase in outstanding debt as compared to the prior year, with increased levels of outstanding SBA debentures, as well as additional notes being issued. Our SBA debentures increased from $103.7 million at May 31, 2016 to $134.7 million at May 31, 2017, while the 2020 Notes were repaid and the 2023 Notes issued, increasing the notes payable from $61.8 million outstanding to $74.5 million outstanding for these same periods. For the three months ended May 31, 2017, the weighted average interest rate on our outstanding indebtedness was 4.59% compared to 4.74% for the three months ended May 31, 2016. This decrease was primarily driven by an increase in SBA debentures that carry a lower interest rate as well as the notes payable interest rate decreasing from 7.50% to 6.75% following the refinancing of the 2020 Notes. SBA debentures decreased from 62.7% of overall debt as of May 31, 2016 to 57.6% as of May 31, 2017, primarily due to $24.5 million outstanding on the Credit Facility, which was drawn towards the end of the quarter.

For the three months ended May 31, 2017, base management fees increased $0.2 million, or 13.4% compared to the three months ended May 31, 2016. The increase in base management fees results from the 13.4% increase in the average value of our total assets, less cash and cash equivalents, from $278.2 million as of May 31, 2016 to $315.4 million as of May 31, 2017.

For the three months ended May 31, 2017, professional fees increased $0.03 million, or 7.0%, compared to the three months ended May 31, 2016.

For the three months ended May 31, 2017, incentive management fees decreased $0.6 million, or 75.8%, compared to the three months ended May 31, 2016. The first part of the incentive management fees increased this year from $0.65 million to $0.74 million as higher average total assets of 13.4% has led to increased net investment income above the hurdle rate pursuant to the investment advisory and management agreement. However, for the three months ended May 31, 2017, incentive management fees in total decreased $0.6 million as the incentive management fees related to capital gains decreased from incentive fees of $0.1 million for the three months ended May 31, 2016 to a reduction in incentive fees of $0.6 million, reflecting the $2.5 million net loss on investments for the three months ended May 31, 2017.

 

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As discussed above, the increase in interest and debt financing expenses for the three months ended May 31, 2017 as compared to the three months ended May 31, 2016 is primarily attributable to an increase in the amount of outstanding debt. For the three months ended May 31, 2017, there was also $24.5 million of outstanding borrowings under the Credit Facility. For the three months ended May 31, 2016, there were no outstanding borrowings under the Credit Facility. For the three months ended May 31, 2017 and May 31, 2016, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 3.18% and 3.09%, respectively.

Net realized gains (losses) on sales of investments

For the three months ended May 31, 2017, the Company had $5.9 million of sales, repayments, exits or restructurings resulting in $0.1 million of net realized gains. The most significant realized gains during the three months ended May 31, 2017 were as follows (dollars in thousands):

Three Months ended May 31, 2017

 

Issuer

   Asset Type      Gross
Proceeds
     Cost      Net
Realized
Gain
 

Take 5 Oil Change, L.L.C

     Common Stock      $ 124      $ —        $ 124  

Mercury Funding

     Second Lien Term Loan        2,786        2,767        19  

For the three months ended May 31, 2016, the Company had $20.6 million of sales, repayments, exits or restructurings resulting in $6.1 million of net realized gains. The most significant realized gains during the three months ended May 31, 2016 were as follows (dollars in thousands):

Three Months ended May 31, 2016

 

Issuer

   Asset Type      Gross
Proceeds
     Cost      Net
Realized
Gain
 

Take 5 Oil Change, L.L.C

     Common Stock      $ 6,457      $ 481      $ 5,976  

Advanced Air & Heat of Florida, LLC

     First Lien Term Loan        7,100        7,037        63  

The $6.0 million of realized gain on our investment in Take 5 Oil Change, L.L.C. was due to the completion of a sales transaction with a strategic acquirer.

Net unrealized appreciation (depreciation) on investments

For the three months ended May 31, 2017, our investments had net unrealized depreciation of $2.6 million versus net unrealized depreciation of $5.4 million for the three months ended May 31, 2016. The most significant cumulative changes in unrealized appreciation and depreciation for the three months ended May 31, 2017, were the following (dollars in thousands):

 

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Three Months ended May 31, 2017

 

Issuer

  Asset Type     Cost     Fair
Value
    Total
Unrealized
Appreciation
(Depreciation)
    YTD Change
in Unrealized
Appreciation
(Depreciation)
 

Saratoga Investment Corp. CLO 2013-1, Ltd

    Structured Finance Securities     $ 9,520     $ 11,563     $ 2,043     $ 1,412  

Mercury Network, LLC

    Common Stock       858     2,631     1,773       1,120  

Elyria Foundry Company, L.L.C.

    Common Stock       9,218       1,458     (7,760     1,044  

Ohio Medical, LLC

    Second Lien Term Loan       7,241       6,396       (846     (597

My Alarm Center, LLC

    Second Lien Term Loan       10,330       2,696       (7,634     (5,336

The $1.1 million of change in unrealized appreciation in our investment in Mercury Network, LLC was driven by the completion of a sales transaction with a strategic acquirer.

The $1.0 million of change in unrealized appreciation in our investment in Elyria Foundry Company, L.L.C. was driven by an increase in oil and gas end markets since year-end, positively impacting the Company’s performance.

The $5.3 million of change in unrealized depreciation in our investment in My Alarm Center, LLC was driven by increasing leverage levels combined with declining market conditions in the sector.

The most significant cumulative changes in unrealized appreciation and depreciation for the three months ended May 31, 2016, were the following (dollars in thousands):

Three Months ended May 31, 2016

 

Issuer

  Asset Type   Cost     Fair
Value
    Total
Unrealized
Appreciation
(Depreciation)
     YTD Change
in Unrealized
Appreciation
(Depreciation)
 

Take 5 Oil Change, L.L.C

  Common Stock   $ —     $ —     $ —      $ (5,755

Elyria Foundry Company, L.L.C

  Common Stock     9,218       583       (8,635      (1,443

Prime Security Services, LLC

  Second Lien Term Loan     11,835       12,092       257        1,106  

The $5.8 million of change in unrealized depreciation in our investment in Take 5 Oil Change, L.L.C. was driven by the completion of a sales transaction with a strategic acquirer. In realizing this gain as a result of the sale, unrealized appreciation was adjusted to zero, which resulted in a $5.8 million change in unrealized depreciation for the quarter.

The $1.4 million of change in unrealized depreciation in our investment in Elyria Foundry Company, L.L.C. was driven by a continued decline in oil and gas end markets since quarter end, negatively impacting the company’s performance.

The $1.1 million of change in unrealized appreciation in our investment in Prime Security Services, LLC was driven by a narrowing of credit spreads since quarter end.

Changes in net assets resulting from operations

For the three months ended May 31, 2017 and May 31, 2016, we recorded a net increase in net assets resulting from operations of $1.0 million and $3.3 million, respectively. Based on 5,861,654 weighted average common shares outstanding as of May 31, 2017, our per share net increase in net assets resulting from operations was $0.17 for the three months ended May 31, 2017. This compares to a per share net increase in net assets resulting from operations of $0.57 for the three months ended May 31, 2016 based on 5,737,496 weighted average common shares outstanding as of May 31, 2016.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We intend to continue to generate cash primarily from cash flows from operations, including interest earned from our investments in debt in middle market companies, 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.

 

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Although we expect to fund the growth of our investment portfolio through the net proceeds from SBA debenture drawdowns and future equity offerings, including our dividend reinvestment plan (“DRIP”), 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.

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 the Code. In satisfying this distribution requirement, we have in the past relied on Internal Revenue Service (“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 20.0% 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 200.0%. This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 229.0% as of May 31, 2017 and 271.0% as of February 28, 2017. 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.

Madison revolving credit facility

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

Availability. The Company can draw up to the lesser of (i) $40.0 million (the “Facility Amount”) and (ii) the product of the applicable advance rate (which varies from 50.0% to 75.0% depending on the type of loan asset) and the value, determined in accordance with the Credit 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 outstanding borrowings. Each loan asset held by the Company as of the date on which the Credit 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 Credit 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 Credit Facility is secured by substantially all of the assets of the Company (other than assets held by our SBIC subsidiary) and includes the subordinated notes (“CLO Notes”) issued by Saratoga CLO and the Company’s rights under the CLO Management Agreement (as defined below).

Interest Rate and Fees. Under the Credit Facility, funds are borrowed from or through certain lenders at the greater of the

 

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prevailing LIBOR rate and 1.00%, plus an applicable margin of 4.75%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 2.00%, and the applicable margin over such alternative base rate is 3.75%. In addition, the Company pays the lenders a commitment fee of 0.75% per year on the unused amount of the Credit Facility for the duration of the Revolving Period (defined below). Accrued interest and commitment fees are payable monthly. The Company was also obligated to pay certain other fees to the lenders in connection with the closing of the Credit Facility.

Revolving Period and Maturity Date. The Company may make and repay borrowings under the Credit Facility for a period of three years following the closing of the Credit 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 Credit 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 Credit Facility that the principal amount outstanding under the Credit 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 Credit Facility, to accrued interest and commitment fees and any breakage costs payable to the lenders under the Credit Facility for the last 6 payment periods must equal at least 175.0%.

 

    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 Credit Facility plus the Unfunded Exposure Amount must equal at least 200.0%.

 

    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 72.0% and 80.0% during the one-year periods prior to the first and second anniversary of the closing date, respectively, and 85.0% at all times thereafter.

The Credit 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 Credit 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 Credit 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 15.0% 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.

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”) 100.0% 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 Credit 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.

 

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Operating Expenses. The priority of payments provision of the Credit 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 5.0% 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 Credit 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 Credit Facility contains certain negative covenants, customary representations and warranties and affirmative covenants and events of default. The Credit 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 Credit Facility include, among other things, the following:

 

    an Interest Coverage Ratio of less than 150.0%;

 

    an Overcollateralization Ratio of less than 175.0%;

 

    the filing of certain ERISA or tax liens;

 

    the occurrence of certain “Manager Events” such as:

 

    failure by Saratoga Investment Advisors and its affiliates to maintain collectively, directly or indirectly, a cash equity investment in the Company in an amount equal to at least $5.0 million at any time prior to the third anniversary of the closing date;

 

    failure of the Management Agreement between Saratoga Investment Advisors and the Company to be in full force and effect;

 

    indictment or conviction of Saratoga Investment Advisors or any “key person” for a felony offense, or any fraud, embezzlement or misappropriation of funds by Saratoga Investment Advisors 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 Saratoga Investment Advisors’ 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 Credit 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 Saratoga Investment Advisors’ policies, personnel and processes relating to the loan assets.

Fees and Expenses. The Company paid certain fees and reimbursed Madison Capital Funding LLC for the aggregate amount of all documented, out-of-pocket costs and expenses, including the reasonable fees and expenses of lawyers, incurred by Madison Capital Funding LLC in connection with the Credit 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 Saratoga Investment Advisors and certain of its affiliates. These amounts totaled $2.0 million.

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 $40.0 million to $45.0 million;

 

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    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, upon the occurrence of an event of default, by action of the lenders or automatically, be terminated. 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 the administrative agent.

On September 17, 2014, we entered into a second amendment to the Revolving Facility with Madison Capital Funding LLC to, among other things:

 

    extend the commitment termination date from February 24, 2015 to September 17, 2017;

 

    extend the maturity date of the Revolving Facility from February 24, 2020 to September 17, 2022 (unless terminated sooner upon certain events);

 

    reduce the applicable margin rate on base rate borrowings from 4.50% to 3.75%, and on LIBOR borrowings from 5.50% to 4.75%; and

 

    reduce the floor on base rate borrowings from 3.00% to 2.25%; and on LIBOR borrowings from 2.00% to 1.25%.

On May 18, 2017, we entered into a third amendment to the Credit Facility with Madison Capital Funding LLC to, among other things:

 

    extend the commitment termination date from September 17, 2017 to September 17, 2020;

 

    extend the final maturity date of the Credit Facility from September 17, 2022 to September 17, 2025;

 

    reduce the floor on base rate borrowings from 2.25% to 2.0%;

 

    reduce the floor on LIBOR borrowings from 1.25% to 1.00%; and

 

    reduce the commitment fee rate from 0.75% to 0.50% for any period during which the ratio of advances outstanding to aggregate commitments, expressed as a percentage, is greater than or equal to 50%.

As of May 31, 2017, we had $24.5 million of outstanding borrowings under the Credit Facility and $134.7 million of SBA-guaranteed debentures outstanding (which are discussed below). As of February 28, 2017, we had no outstanding borrowings under the Credit Facility and $112.7 million SBA-guaranteed debentures outstanding. Our borrowing base under the Credit Facility at May 31, 2017 and February 28, 2017 was $45.0 million and $24.7 million, respectively.

Our asset coverage ratio, as defined in the 1940 Act, was 229.0% as of May 31, 2017 and 271.0% as of February 28, 2017.

SBA-guaranteed debentures

In addition, 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 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. 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 $150.0 million when it has at least $75.0 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 May 31, 2017, our SBIC subsidiary had $75.0 million in regulatory capital and $134.7 million SBA-guaranteed debentures outstanding.

We received exemptive relief from the SEC to permit us to exclude the debt of our SBIC subsidiary guaranteed by the SBA

 

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from the definition of senior securities in the 200.0% asset coverage test under the 1940 Act. This allows us increased flexibility under the 200.0% asset coverage test by permitting us to borrow up to $150.0 million more than we would otherwise be able to absent the receipt of this exemptive relief.

On April 2, 2015, the SBA issued a “green light” letter inviting the Company to continue our application process to obtain a license to form and operate its second SBIC subsidiary. On September 27, 2016, the SBA informed us that as part of their continued review of our application for a second license, and in order to ensure that they were reviewing the most current information available, we would need to update all previously submitted materials and invited us to reapply. As a result of this request, with which we are in the process of complying, the existing “green light” letter that the SBA issued to us has expired. If approved in the future, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue up to $150.0 million of additional SBA-guaranteed debentures in addition to the $150.0 million already approved under the first license.

Unsecured notes

In May 2013, we issued $48.3 million in aggregate principal amount of our 2020 Notes for net proceeds of $46.1 million after deducting underwriting commissions of $1.9 million and offering costs of $0.3 million. The proceeds included the underwriters’ full exercise of their overallotment option. Interest on these 2020 Notes is paid quarterly in arrears on February 15, May 15, August 15 and November 15, at a rate of 7.50% per year, beginning August 15, 2013. The 2020 Notes mature on May 31, 2020 and since May 31, 2016, may be redeemed in whole or in part at any time or from time to time at our option. In connection with the issuance of the 2020 Notes, we agreed to the following covenants for the period of time during which the 2020 Notes are outstanding:

 

    we will not violate (whether or not we are subject to) Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect to any exemptive relief granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200.0% after such borrowings.

 

    we will not violate (regardless of whether we are subject to) Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect to (i) any exemptive relief granted to us by the SEC and (ii) no-action relief granted by the SEC to another BDC (or to the Company if it determines to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a) (1)(B) as modified by Section 61(a)(1) of the 1940 Act in order to maintain the BDC’s status as a regulated investment company under the Code. Currently these provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200.0% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase.

The 2020 Notes were redeemed in full on January 13, 2017 and are no longer listed on the NYSE.

On May 29, 2015, we entered into a Debt Distribution Agreement with Ladenburg Thalmann & Co. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the 2020 Notes through an ATM offering. As of May 31, 2017, the Company sold 539,725 bonds with a principal of $13,493,125 at an average price of $25.31 for aggregate net proceeds of $13,385,766 (net of transaction costs).

On December 21, 2016, we issued $74.5 million in aggregate principal amount of our 2023 Notes for net proceeds of $71.7 million after deducting underwriting commissions of approximately $2.3 million and offering costs of approximately $0.5 million. The issuance included the exercise of substantially all of the underwriters’ option to purchase an additional $9.8 million aggregate principal amount of 2023 Notes within 30 days. Interest on the 2023 Notes is paid quarterly in arrears on March 15, June 15, September 15 and December 15, at a rate of 6.75% per year, beginning March 30, 2017. The 2023 Notes mature on December 30, 2023, and commencing December 21, 2019, may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used to repay all of the outstanding indebtedness under the 2020 Notes on January 13, 2017, which amounts to $61.8 million, and for general corporate purposes in accordance with our investment objective and strategies. The 2020 Notes were redeemed in full on January 13, 2017. The 2023 Notes are listed on the NYSE under the trading symbol “SAB” with a par value of $25.00 per share. In connection with the issuance of the 2023 Notes, we agreed to the following covenants for the period of time during which the notes are outstanding:

 

   

we will not violate (whether or not we are subject to) Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940

 

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Act or any successor provisions, but giving effect to any exemptive relief granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings.

 

    if, at any time, we are not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, to file any periodic reports with the SEC, we agree to furnish to holders of the 2023 Notes and the Trustee, for the period of time during which the 2023 Notes are outstanding, our audited annual consolidated financial statements, within 90 days of our fiscal year end, and unaudited interim consolidated financial statements, within 45 days of our fiscal quarter end (other than our fourth fiscal quarter). All such financial statements will be prepared, in all material respects, in accordance with applicable United States generally accepted accounting principles.

At May 31, 2017 and February 28, 2017, the fair value of investments, cash and cash equivalents and cash and cash equivalents, reserve accounts were as follows:

 

     At May 31, 2017     At February 28, 2017  
     Fair Value      Percentage
of
Total
    Fair Value      Percentage
of
Total
 
     ($ in thousands)  

Cash and cash equivalents

   $ 1,247        0.4   $ 9,307        3.0

Cash and cash equivalents, reserve accounts

     26,527        7.4       12,781        4.1  

Syndicated loans

     9,068        2.5       9,823        3.1  

First lien term loans

     186,015        52.0       159,097        50.5  

Second lien term loans

     95,975        26.9       87,750        27.9  

Structured finance securities

     16,111        4.5       15,450        4.9  

Equity interests

     22,521        6.3       20,541        6.5  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 357,464        100.0   $ 314,749        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

On March 16, 2017, we entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc., through which we may offer for sale, from time to time, up to $30.0 million of our common stock through an ATM offering. As of May 31, 2017, the Company sold 60,779 shares for gross proceeds of $1.4 million at an average price of $22.49 for aggregate net proceeds of $1.3 million (net of transaction costs).

On September 24, 2014, we announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of our common stock at prices below our NAV as reported in its then most recently published consolidated financial statements, which was subsequently increased to 400,000 shares of our common stock. On October 5, 2016, our board of directors extended the open market share repurchase plan for another year to October 15, 2017 and increased the number of shares we are permitted to repurchase at prices below our NAV, as reported in its then most recently published consolidated financial statements, to 600,000 shares of our common stock. As of May 31, 2017, we purchased 218,491 shares of common stock, at the average price of $16.87 for approximately $3.7 million pursuant to this repurchase plan.

On May 30, 2017, we declared a dividend of $0.47 per share payable on June 27, 2017, to common stockholders of record on June 15, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based on shareholder elections, the dividend consisted of approximately $2.3 million in cash and 26,222 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $20.04 per share, which equaled the volume weighted average trading price per share of the common stock on June 14, 15, 16, 19, 20, 21, 22, 23, 26 and 27, 2017.

On February 28, 2017, our board of directors declared a dividend of $0.46 per share, which was paid on March 28, 2017, to common stockholders of record as of March 15, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $2.0 million in cash and 29,096 newly issued shares of common stock, or 0.5% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $21.38 per share, which equaled the volume weighted average trading price per share of the common stock on March 15, 16, 17, 20, 21, 22, 23, 24, 27 and 28, 2017.

 

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On January 12, 2017, our board of directors declared a dividend of $0.45 per share, which was paid on February 9, 2017, to common stockholders of record as of January 31, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.6 million in cash and 50,453 newly issued shares of common stock, or 0.9% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $20.25 per share, which equaled the volume weighted average trading price per share of the common stock on January 27, 30, 31 and February 1, 2, 3, 6, 7, 8 and 9, 2017.

On October 5, 2016, our board of directors declared a dividend of $0.44 per share, which was paid on November 9, 2016, to common stockholders of record as of October 31, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 58,548 newly issued shares of common stock, or 1.0% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $17.12 per share, which equaled the volume weighted average trading price per share of the common stock on October 27, 28, 31 and November 1, 2, 3, 4, 7, 8 and 9, 2016.

On August 8, 2016, our board of directors declared a special dividend of $0.20 per share, which was paid on September 5, 2016, to common stockholders of record as of August 24, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.7 million in cash and 24,786 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $17.06 per share, which equaled the volume weighted average trading price per share of the common stock on August 22, 23, 24, 25, 26, 29, 30, 31 and September 1 and 2, 2016.

On July 7, 2016, our board of directors declared a dividend of $0.43 per share, which was paid on August 9, 2016, to common stockholders of record as of July 29, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 58,167 newly issued shares of common stock, or 1.0% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $16.32 per share, which equaled the volume weighted average trading price per share of the common stock on July 27, 28, 29 and August 1, 2, 3, 4, 5, 8 and 9, 2016.

On March 31, 2016, our board of directors declared a dividend of $0.41 per share, which was paid on April 27, 2016, to common stockholders of record as of April 15, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 56,728 newly issued shares of common stock, or 1.0% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.43 per share, which equaled the volume weighted average trading price per share of the common stock on April 14, 15, 18, 19, 20, 21, 22, 25, 26 and 27, 2016.

On January 12, 2016, our board of directors declared a dividend of $0.40 per share, which was paid on February 29, 2016, to common stockholders of record as of February 1, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.4 million in cash and 66,765 newly issued shares of common stock, or 1.2% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $13.11 per share, which equaled the volume weighted average trading price per share of the common stock on February 16, 17, 18, 19, 22, 23, 24, 25, 26 and 29, 2016.

On October 7, 2015, our board of directors declared a dividend of $0.36 per share, which was paid on November 30, 2015, to common stockholders of record as of November 2, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 61,029 newly issued shares of common stock, or 1.1% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.53 per share, which equaled the volume weighted average trading price per share of the common stock on November 16, 17, 18, 19, 20, 23, 24, 25, 27 and 30, 2015.

On July 8, 2015, our board of directors declared a dividend of $0.33 per share, which was paid on August 31, 2015, to common stockholders of record as of August 3, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares

 

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of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 47,861 newly issued shares of common stock, or 0.9% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.28 per share, which equaled the volume weighted average trading price per share of the common stock on August 18, 19, 20, 21, 24, 25, 26, 27, 28 and 31, 2015.

On May 14, 2015, our board of directors declared a special dividend of $1.00 per share, which was paid on June 5, 2015, to common stockholders of record on as of May 26, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $3.4 million in cash and 126,230 newly issued shares of common stock, or 2.3% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $16.47 per share, which equaled the volume weighted average trading price per share of the common stock on May 22, 26, 27, 28, 29 and June 1, 2, 3, 4, and 5, 2015.

On April 9, 2015, our board of directors declared a dividend of $0.27 per share, which was paid on May 29, 2015, to common stockholders of record as of May 4, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.9 million in cash and 33,766 newly issued shares of common stock, or 0.6% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $16.78 per share, which equaled the volume weighted average trading price per share of the common stock on May 15, 18, 19, 20, 21, 22, 26, 27, 28 and 29, 2015.

On September 24, 2014, our board of directors declared a dividend of $0.22 per share, which was paid on February 27, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.8 million in cash and 26,858 newly issued shares of common stock, or 0.5% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.97 per share, which equaled the volume weighted average trading price per share of the common stock on February 13, 17, 18, 19, 20, 23, 24, 25, 26 and 27, 2015.

Also on September 24, 2014, our board of directors declared a dividend of $0.18 per share, which was paid on November 28, 2014. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.6 million in cash and 22,283 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.37 per share, which equaled the volume weighted average trading price per share of the common stock on November 14, 17, 18, 19, 20, 21, 24, 25, 26 and 28, 2014.

On October 30, 2013, our board of directors declared a dividend of $2.65 per share, which was paid on December 27, 2013, to common stockholders of record as of November 13, 2013. 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 $2.5 million or $0.53 per share. This dividend was declared in reliance on certain private letter rulings issued by the IRS 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 20.0% of the aggregate declared distribution.

Based on shareholder elections, the dividend consisted of approximately $2.5 million in cash and 649,500 shares of common stock, or 13.7% 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 $15.439 per share, which equaled the volume weighted average trading price per share of the common stock on December 11, 13, and 16, 2013.

On November 9, 2012, our board of directors declared a dividend of $4.25 per share, which was paid on December 31, 2012, to common stockholders of record as of November 20, 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 $3.3 million in cash and 853,455 shares of common stock, or 22.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash

 

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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 and 19, 2012.

On November 15, 2011, our board of directors declared a dividend of $3.00 per share, which was paid on December 30, 2011, to common stockholders of record as of November 25, 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 $2.0 million or $0.60 per share.

Based on shareholder elections, the dividend consisted of $2.0 million in cash and 599,584 shares of common stock, or 18.0% 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 $13.117067 per share, which equaled the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2011.

On November 12, 2010, our board of directors declared a dividend of $4.40 per share to shareholders payable in cash or shares of our common stock, in accordance with the provisions of the IRS Revenue Procedure 2010-12, which allows a publicly-traded regulated investment company to satisfy its distribution requirements with a distribution paid partly in common stock provided that at least 10.0% of the distribution is payable in cash. The dividend was paid on December 29, 2010 to common shareholders of record on November 19, 2010.

Based on shareholder elections, the dividend consisted of $1.2 million in cash and 596,235 shares of common stock, or 22.0% 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 10.0% 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 $17.8049 per share, which equaled the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2010.

On November 13, 2009, our board of directors declared a dividend of $18.25 per share, which was paid on December 31, 2009, to common stockholders of record as of November 25, 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 $0.25 per share.

Based on shareholder elections, the dividend consisted of $2.1 million in cash and 864,872.5 shares of common stock, or 104.0% 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 13.7% 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 $1.5099 per share, which equaled the volume weighted average trading price per share of the common stock on December 24 and 28, 2009.

We cannot provide any assurance that these measures will provide sufficient sources of liquidity to support our operations and growth.

Contractual obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at May 31, 2017:

 

            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

   $ 233,611      $ —        $ —        $ —        $ 233,611  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Off-balance sheet arrangements

The Company’s off-balance sheet arrangements consisted of $7.0 million and $2.0 million of unfunded commitments to provide debt financing to its portfolio companies or to fund limited partnership interests as of May 31, 2017 and February 28, 2017, respectively. Such commitments are generally up to the Company’s discretion to approve, or the satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Company’s consolidated statements of assets and liabilities and are not reflected in the Company’s consolidated statements of assets and liabilities.

A summary of the composition of the unfunded commitments as of May 31, 2017 and February 28, 2017 is shown in the table below (dollars in thousands):

 

     As of  
     May 31, 2017      February 28, 2017  

CLEO Communications Holding, LLC

   $ 5,000      $ —    

GreyHeller LLC

     2,000        2,000  

TM Restaurant Group L.L.C.

     17      —    
  

 

 

    

 

 

 

Total

   $ 7,017      $ 2,000  
  

 

 

    

 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our business activities contain elements of market risk. We consider our principal market risk to be the fluctuation in interest rates. Managing this risk is essential to our business. Accordingly, we have systems and procedures designed to identify and analyze our risks, to establish appropriate policies and thresholds and to continually monitor this risk and thresholds by means of administrative and information technology systems and other policies and processes.

Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, including relative changes in different interest rates, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest earning assets and our interest expense incurred in connection with our interest bearing debt and liabilities. Changes in interest rates can also affect, among other things, our ability to acquire leveraged loans, high yield bonds and other debt investments and the value of our investment portfolio.

Our investment income is affected by fluctuations in various interest rates, including LIBOR and the prime rate. A large portion of our portfolio is, and we expect will continue to be, comprised of floating rate investments that utilize LIBOR. Our interest expense is affected by fluctuations in LIBOR only on our revolving credit facility. At May 31, 2017, we had $233.6 million of borrowings outstanding, of which $24.5 million was outstanding on the revolving credit facility.

We have analyzed the potential impact of changes in interest rates on interest income from investments. Assuming that our investments as of May 31, 2017 were to remain constant for a full fiscal year and no actions were taken to alter the existing interest rate terms, a hypothetical change of 1.0% in interest rates would cause a corresponding increase of approximately $2.5 million to our interest income.

Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the statements of assets and liabilities and other business developments that could magnify or diminish our sensitivity to interest rate changes, nor does it account for divergences in LIBOR and the commercial paper rate, which have historically moved in tandem but, in times of unusual credit dislocations, have experienced periods of divergence. Accordingly no assurances can be given that actual results would not materially differ from the potential outcome simulated by this estimate.

 

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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 May 31, 2017 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

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

In addition to information set forth in this report, you should carefully consider the “Risk Factors” discussed in our Annual Report on Form 10-K for the year ended February 28, 2017, which could materially affect our business, financial condition and/or operating results. Additional risks or uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

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.

 

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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

3.1(a)   Articles of Incorporation of Saratoga Investment Corp. (incorporated by reference to Saratoga Investment Corp.’s Form 10-Q for the quarterly period ended May 31, 2007, File No. 001-33376).
3.1(b)   Articles of Amendment of Saratoga Investment Corp. (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed August 3, 2010).
3.1(c)   Articles of Amendment of Saratoga Investment Corp. (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed August 13, 2010).
3.2   Amended and Restated Bylaws of Saratoga Investment Corp. (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on March 5, 2008).
4.1   Specimen certificate of Saratoga Investment Corp.’s common stock, par value $0.001 per share. (incorporated by reference to Saratoga Investment Corp.’s Registration Statement on Form N-2, File No. 333-169135, filed on September 1, 2010).
4.2   Registration Rights Agreement dated July 30, 2010 between GSC Investment Corp., GSC CDO III L.L.C., and the investors party thereto (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on August 3, 2010).
4.3   Dividend Reinvestment Plan (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on September 24, 2014).
4.4   Form of Indenture by and between the Company and U.S. Bank National Association, as trustee (incorporated by reference to Saratoga Investment Corp.’s Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2, File No. 333-186323 filed April 30, 2013).
4.5   Form of First Supplemental Indenture between the Company and U.S. Bank National Association (incorporated by reference to Saratoga Investment Corp.’s Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2, File No. 333-186323 filed April 30, 2013).
4.6   Form of Note (incorporated by reference to Exhibit 4.5 hereto, and Exhibit A therein).
4.7   Form of Second Supplemental Indenture between the Company and U.S. Bank National Association (incorporated by reference to Amendment No. 2 to Saratoga Investment Corp.’s Registration Statement on Form N-2, File No. 333-214182, filed on December 12, 2016).
4.8   Form of Global Note (incorporated by reference to Exhibit 4.7 hereto, and Exhibit A therein).
4.9   Form of Articles Supplementary Establishing and Fixing the Rights and Preferences of Preferred Stock (incorporated by reference to Saratoga Investment Corp.’s registration statement on Form N-2 Pre-Effective Amendment No. 1, File No. 333-196526, filed on December 5, 2014).
10.1   Investment Advisory and Management Agreement dated July 30, 2010 between GSC Investment Corp. and Saratoga Investment Advisors, LLC (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on August 3, 2010).
10.2   Custodian Agreement dated March 21, 2007 between GSC Investment LLC and U.S. Bank National Association (incorporated by reference to Saratoga Investment Corp.’s Form 10-Q for the quarterly period ended May 31, 2007).
10.3   Administration Agreement dated July 30, 2010 between GSC Investment Corp. and Saratoga Investment Advisors, LLC (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on August 3, 2010).
10.4   Trademark License Agreement dated July 30, 2010 between Saratoga Investment Advisors, LLC and GSC Investment Corp. (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on August 3, 2010).
10.5   Credit, Security and Management Agreement dated July 30, 2010 by and among GSC Investment Funding LLC, Saratoga Investment Corp., Saratoga Investment Advisors, LLC, Madison Capital Funding LLC and U.S. Bank National Association (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on August 3, 2010).

 

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10.6    Form of Indemnification Agreement between Saratoga Investment Corp. and each officer and director of Saratoga Investment Corp. (incorporated by reference to Amendment No. 2 to Saratoga Investment Corp.’s Registration Statement on Form N-2 filed on January 12, 2007).
10.7    Amendment No. 1 to Credit, Security and Management Agreement dated February 24, 2012 by and among Saratoga Investment Funding LLC, Saratoga Investment Corp., Saratoga Investment Advisors, LLC, Madison Capital Funding LLC and U.S. Bank National Association (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on February 29, 2012).
10.8    Indenture, dated as of January 22, 2008, among GSC Investment Corp. CLO 2007, Ltd., GSC Investment Corp. CLO 2007, Inc. and U.S. Bank National Association (incorporated by reference to Saratoga Investment Corp.’s Registration Statement on Form N-2, File No. 333-186323, filed on April 30, 2013).
10.9    Indenture, dated as of October 17, 2013, among Saratoga Investment Corp. CLO 2013-1, Ltd., Saratoga Investment Corp. CLO 2013-1, Inc. and U.S. Bank National Association (incorporated by reference to Saratoga Investment Corp.’s Registration Statement on Form N-2, File No. 333-196526, filed on December 5, 2014).
10.10    Amended and Restated Indenture, dated as of November 15, 2016, among Saratoga Investment Corp. CLO 2013-1, Ltd., Saratoga Investment Corp. CLO 2013-1, Inc. and U.S. Bank National Association (incorporated by reference to Saratoga Investment Corp.’s Registration Statement on Form N-2, File No. 333-216344, filed on February 28, 2017).
10.11    Amended and Restated Collateral Management Agreement, dated October 17, 2013, by and between Saratoga Investment Corp. and Saratoga Investment Corp. CLO 2013-1, Ltd. (incorporated by reference to Saratoga Investment Corp.’s Registration Statement on Form N-2, File No. 333-196526, filed on December 5, 2014).
10.12    Investment Advisory and Management Agreement dated July 30, 2010 between Saratoga Investment Corp. and Saratoga Investment Advisors, LLC (incorporated by reference to Saratoga Investment Corp.’s Registration Statement on Form N-2, File No. 333-196526, filed on December 5, 2014).
10.13    Amendment No. 2 to Credit, Security and Management Agreement dated September 17, 2014 by and among Saratoga Investment Funding LLC, Saratoga Investment Corp., Saratoga Investment Advisors, LLC, Madison Capital Funding LLC and U.S. Bank National Association (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on September 18, 2014).
10.14    Amendment No. 3 to Credit, Security and Management Agreement, dated May 18, 2017, by and among Saratoga Investment Funding LLC, Saratoga Investment Corp., Saratoga Investment Advisors, LLC, Madison Capital Funding LLC and U.S. Bank National Association (incorporated by reference to Saratoga Investment Corp.’s Current Report on Form 8-K filed on May 18, 2017).
10.15    Equity Distribution Agreement dated March 16, 2017, by and among Saratoga Investment Corp., Saratoga Investment Advisors, LLC, Ladenburg Thalmann and Co. Inc. and BB&T Capital Markets, a division of BB&T Securities, LLC (incorporated by reference to Saratoga Investment Corp.’s Post-Effective Amendment No. 1 to the Registration Statement on Form N-2, File No. 333-216344, filed on March 16, 2017).
11    Computation of Per Share Earnings (included in Note 12 to the consolidated financial statements contained in this report).
14    Code of Ethics of the Company adopted under Rule 17j-1 (incorporated by reference to Amendment No.7 to Saratoga Investment Corp.’s Registration Statement on Form N-2, File No. 333-138051, filed on March 22, 2007).
21.1    List of Subsidiaries and jurisdiction of incorporation/organization: Saratoga Investment Funding LLC—Delaware; Saratoga Investment Corp. SBIC, LP—Delaware; and Saratoga Investment Corp. GP, LLC—Delaware.
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)

 

* Submitted herewith.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: July 12, 2017     By:  

/s/ CHRISTIAN L. OBERBECK

      Christian L. Oberbeck
      Chief Executive Officer
    By:  

/s/ HENRI J. STEENKAMP

      Henri J. Steenkamp
      Chief Financial Officer and Chief Compliance Officer

 

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