Saratoga Investment Corp.
May 27, 2014

Saratoga Investment Corp. Announces Fiscal Fourth Quarter and Year End 2014 Financial Results

NEW YORK, May 27, 2014 /PRNewswire/ -- Saratoga Investment Corp. (NYSE: SAR) ("Saratoga Investment" or "the Company"), a business development company, today announced financial results for its 2014 fiscal fourth quarter and year end.

Summary Financial Information

  • Net investment income of $9.1 million and $1.5 million for the year and quarter ended February 28, 2014, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $8.8 million and $2.0 million, respectively.
  • Net investment income on a weighted average per share basis of $1.85 and $0.28 for the year and quarter ended February 28, 2014, respectively.
  • Net investment income yield as percentage of average net asset value ("Net Investment Income Yield") was 8.1% and 5.2% for the year and quarter ended February 28, 2014, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 7.9% and 6.9%, respectively.
  • Total return on equity for the year and quarter ended February 28, 2014, was 7.8% (offset 0.3% by net realized and unrealized depreciation on investments) and 13.2% (of which 7.8% was from net realized and unrealized appreciation on investments), respectively.
  • Net asset value ("NAV") was $114.9 million as of February 28, 2014, a $6.2 million increase from a NAV of $108.7 million as of February 28, 2013.
  • NAV per share was $21.36 as of February 28, 2014, compared to $22.98 as of February 28, 2013 - while aggregate NAV increased by $6.2 million, NAV per share was down due to the increased number of shares issued as part of the cash/stock dividend declared during the year.
  • Investment portfolio activity for the quarter ended February 28, 2014
    • Cost of investments made during the period: $11.0 million
    • Principal repayments during the period: $6.6 million

Operating Results

For the fiscal year ended February 28, 2014, Saratoga Investment reported net investment income of $9.1 million, or $1.85 on a weighted average per share basis, and a net loss on investments of $377,000, or $0.08 on a weighted average per share basis, resulting in a net increase in net assets from operations of $8.7 million, or $1.78 on a weighted average per share basis. The $377,000 net loss on investments was comprised largely of $1.6 million in net unrealized depreciation on investments. This compared to the fiscal year ended February 28, 2013 with net investment income of $7.0 million, or $1.71 on a weighted average per share basis, and a net gain on investments of $7.6 million, or $1.84 on a weighted average per share basis, resulting in a net increase in net assets from operations of $14.6 million, or $3.55 on a weighted average per share basis. The $7.5 million net gain on investments was comprised largely of $7.0 million in net unrealized appreciation on investments and derivatives.

For the quarter ended February 28, 2014, Saratoga Investment reported net investment income of $1.5 million, or $0.28 on a weighted average per share basis, and a net gain on investments of $2.2 million, or $0.42 on a weighted average per share basis, resulting in a net increase in net assets from operations of $3.7 million, or $0.69 on a weighted average per share basis. The $2.2 million net gain on investments was comprised of $2.1 million in net unrealized appreciation on investments.

Net Investment Income Yield was 8.1% and 5.2% for the year and quarter ended February 28, 2014, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 7.9% and 6.9% for the year and quarter ended February 28, 2014, respectively. Return on Equity was 7.8% and 13.2% for the year and quarter ended February 28, 2014, respectively.

Net Investment Income Yield was 6.8% and 7.4% for the year and quarter ended February 28, 2013, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 7.8% and 9.1% for the year and quarter ended February 28, 2013, respectively.

NAV was $114.9 million as of February 28, 2014, a $6.2 million increase from a NAV of $108.7 million as of February 28, 2013. NAV per share was $21.36 as of February 28, 2014, compared to $22.98 as of February 28, 2013. While the aggregate NAV increased by $6.2 million, the decrease in NAV per share from February 28, 2013 was mostly due to the issuance of 649,500 shares of common stock and a payment of $2.5 million in cash in connection with the Company's $12.5 million cash/stock dividend declared on October 30, 2013.

"We continue to pursue the long-term strategy of strengthening our financial foundation by expanding our assets under management, improving investment quality, broadening our investor base and adding quality senior management and professionals to our team," said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. "In 2014, we also completed a $48.3 million, 7.5% fixed-rate note issuance ("Baby Bonds"), which significantly expanded our liquidity resources and investor base. Market conditions and competition remain challenging, but we continue to have a positive view of the demand for financing in the markets we address."

Michael J. Grisius, President and Chief Investment Officer, added, "We continue building our team to achieve greater size investments and capabilities. During fiscal year 2014, we invested almost twice the amount in new or existing investments as the previous year and achieved a marked increase in the percentage of the highest rated credits in our portfolio. More than three quarters of our portfolio bears the highest quality rating that we can award."

Portfolio and Investment Activity

As of February 28, 2014, the fair value of Saratoga Investment's portfolio was $205.8 million (excluding $6.6 million in cash and cash equivalents), principally invested in 38 portfolio companies and one collateralized loan obligation fund ("CLO"). The overall portfolio composition consisted of 15.7% of middle market loans, 39.0% of first lien term loans, 13.5% of second lien term loans, 14.6% of senior secured notes, 2.7% of unsecured notes, 9.5% of subordinated notes in a CLO and 5.0% of common equity.

During the fiscal year 2014, Saratoga Investment invested $121.1 million in new or existing portfolio companies and had $71.6 million in aggregate amount of exits and repayments, resulting in net investments of $49.5 million for the year.  For the quarter ended February 28, 2014, Saratoga Investment invested $11.0 million in new or existing portfolio companies, and had $6.6 million in aggregate amount of exits and repayments, resulting in net investments of $4.4 million for the quarter.

As of February 28, 2014, the weighted average current yield on Saratoga Investment's portfolio for the twelve months ended February 28, 2014 was 11.8% which was comprised of a weighted average current yield of 10.7% on first lien term loans, 11.1% on second lien term loans, 13.8% on senior secured notes, 15.2% on unsecured notes, 18.6% on CLO subordinated notes, and 6.2% on middle market loans.

Liquidity and Capital Resources

As of February 28, 2014, Saratoga Investment had no outstanding borrowings under its $45 million senior secured revolving credit facility with Madison Capital Funding LLC. At the same time, Saratoga Investment had $50.0 million outstanding of SBA debentures, $48.3 million of Baby Bonds and an aggregate of $6.6 million in cash and cash equivalents.

With the $45 million credit facility and the up to $100 million additional borrowing capacity at the SBIC subsidiary, Saratoga Investment has a total of $145 million of undrawn borrowing capacity available as of Feb. 28, 2014.

During fiscal year 2014, Saratoga Investment closed an underwritten public offering of Baby Bonds that, as of February 28, 2014, had a carrying amount and fair value of $48.3 million and $48.6 million, respectively.

Dividend

Given the size of the Company's asset base and its pipeline of high-quality investments, the Company's board of directors believes that retaining its capital resources currently to build and diversify its portfolio further serves stockholders' interests best by better positioning the Company to generate current income and capital appreciation on an increasing scale in future periods. This is consistent with market commentators' classification of the Company being a growth/total return equity story. Therefore, the Company's board of directors determined in October 2013 to pay a 20% cash and 80% stock dividend with respect to a significant portion of the Company's taxable income for its 2014 fiscal year. This dividend maintains the Company's favorable regulated investment company tax status.

2014 Fiscal Fourth Quarter and Year End Conference Call/Webcast Information

When:

Wednesday, May 28, 2014, 10:00 a.m. Eastern Time (ET)



Call:

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




A replay of the call will be available from 1:00 p.m. ET on Wednesday, May 28, 2014 through 11:59 p.m. ET on Tuesday, June 3, 2014 by dialing (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (outside U.S. and Canada), passcode for both replay numbers: 46862972.



Webcast:

Interested parties may access a simultaneous webcast of the call and find the FY 2014 presentation by going to the "Events & Presentations" section of Saratoga Investment's investor relations website, http://www.saratogainvestmentcorp.com/investor.html

About Saratoga Investment Corp.

Saratoga Investment Corp. is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses.  The Company invests primarily in mezzanine debt, senior and unitranche leveraged loans and, to a lesser extent, equity to provide financing for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives in partnership with business owners, management teams and financial sponsors.  Saratoga Investment Corp.'s objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from its debt and equity investments.  Saratoga Investment Corp. has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940 and is externally-managed by Saratoga Investment Advisors, LLC, an SEC-registered investment advisor focusing on credit-driven strategies.  Saratoga Investment Corp. owns an SBIC-licensed subsidiary and manages a $300 million Collateralized Loan Obligation (CLO) fund.  It also owns 100% of the subordinated notes of the CLO.  These diverse funding sources, combined with a permanent capital base, enable Saratoga Investment Corp. to provide a broad range of financing solutions.

Forward Looking Statements

This press release contains certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties and other factors enumerated in this press release and the filings Saratoga Investment Corp. makes with the SEC.  Saratoga Investment Corp. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Financials

Saratoga Investment Corp.







Consolidated Statements of Assets and Liabilities










 As of  




February 28, 2014


February 28, 2013







ASSETS











Investments at fair value






Non-control/non-affiliate investments (amortized cost of $185,266,607 and $130,465,086, respectively)


$          186,275,106


$        129,563,428


Control investments (cost of $16,555,808 and $18,944,966 respectively)


19,569,596


25,516,959


Total investments at fair value (amortized cost of $201,822,415 and $149,410,052 respectively)


205,844,702


155,080,387

Cash and cash equivalents


3,293,898


149,025

Cash and cash equivalents, reserve accounts


3,293,113


12,086,142

Interest receivable, (net of reserve of $150,058 and $53,543, respectively)


2,571,853


2,889,358

Deferred debt financing costs, net


4,008,704


2,090,184

Management fee receivable


150,106


215,853

Other assets


14,461


83,407

Receivable from unsettled trades


-


1,817,074


Total assets


$          219,176,837


$        174,411,430







LIABILITIES





Revolving credit facility


$                             -


$          24,300,000

SBA debentures payable


50,000,000


36,000,000

Notes payable


48,300,000


-

Management and incentive fees payable


3,856,962


4,509,322

Accounts payable and accrued expenses


824,568


435,038

Interest and debt fees payable


873,135


257,796

Due to manager


398,154


222,513


Total liabilities


$          104,252,819


$          65,724,669


















NET ASSETS





Common stock, par value $.001, 100,000,000 common shares






authorized, 5,379,616 and 4,730,116 common shares issued and outstanding, respectively


$                     5,380


$                   4,730

Capital in excess of par value


184,851,154


174,824,076

Distribution in excess of net investment income


(29,627,578)


(24,522,951)

Accumulated net realized loss from investments and derivatives


(44,327,225)


(47,289,427)

Net unrealized appreciation  on investments and derivatives


4,022,287


5,670,333


Total Net Assets


114,924,018


108,686,761







Total liabilities and Net Assets


$          219,176,837


$        174,411,430







NET ASSET VALUE PER SHARE


$                     21.36


$                   22.98

 

Saratoga Investment Corp.












Consolidated Statements of Operations
















For the three months ended
February 28


For the year ended
February 28





2014


2013


2014


2013












INVESTMENT INCOME










Interest from investments











Non-control/Non-affiliate investments



$           4,297,812


$           3,046,648


$         15,832,083


$           9,176,156


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


301,800


240,857


936,208


1,062,687


Control investments



619,038


1,018,758


3,410,868


4,205,509


     Total interest income



5,218,650


4,306,263


20,179,159


14,444,352

Interest from cash and cash equivalents



751


588


7,932


5,956

Management fee income



375,102


499,553


1,775,141


2,000,072

Other income



92,557


384,117


931,513


556,427


Total investment income



5,687,060


5,190,521


22,893,745


17,006,807












EXPENSES










Interest and debt financing expenses



1,741,234


731,827


6,083,891


2,540,413

Base management fees



902,712


615,033


3,326,879


2,107,378

Professional fees



332,589


203,806


1,211,836


1,190,587

Administrator expenses



250,000


250,000


1,000,000


1,000,000

Incentive management fees



471,679


1,157,767


691,492


2,044,788

Insurance



85,793


126,615


442,977


516,121

Directors fees and expenses



72,629


51,000


204,607


206,705

General & administrative



348,364


103,095


789,208


368,815

Other expense



-


-


21,207


4,434


Total expenses



4,205,000


3,239,143


13,772,097


9,979,241













NET INVESTMENT INCOME



1,482,060


1,951,378


9,121,648


7,027,566












REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:










Net realized gain from investments



112,941


18,980


1,270,765


561,700

Net realized loss from derivatives



-


-


-


(131,000)

Net unrealized appreciation (depreciation) on investments



2,122,922


3,824,183


(1,648,046)


7,012,726

Net unrealized appreciation on derivatives



-


-


-


130,925


Net gain/(loss) on investments



2,235,863


3,843,163


(377,281)


7,574,351












NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS



$           3,717,923


$           5,794,541


$           8,744,367


$         14,601,917












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


$                    0.69


$                    1.23


$                    1.78


$                    3.55












WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED


5,379,616


4,730,116


4,920,517


4,110,484

Supplemental Information Regarding Adjusted Net Investment Income and Adjusted Net Investment Income Yield

On a supplemental basis, we provide information relating to adjusted net investment income and adjusted net investment income yield, which are non-GAAP measures. These measures are provided in addition to, but not as a substitute for, net investment income and net investment income yield. Adjusted net investment income represents net investment income excluding any capital gains incentive fee expense or reversal attributable to unrealized gains. The management agreement with our advisor provides that a capital gains incentive fee is determined and paid annually with respect to cumulative realized capital gains (but not unrealized capital gains) to the extent such realized capital gains exceed realized and unrealized losses for such year. In addition, we accrue, but do not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate. As such, we believe that adjusted net investment income and adjusted net investment income yield is a useful indicator of operations exclusive of any capital gains incentive fee expense or reversal attributable to unrealized gains. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. The following table provides a reconciliation of net investment income to adjusted net investment income and net investment income yield to adjusted net investment income yield for the three and twelve months ended February 28, 2014 and 2013.


For the three months ended February 28


For the year ended

February 28


2014


2013


2014


2013









Net Investment Income

$       1,482,060


$   1,951,378


$ 9,121,648


$  7,027,566

Changes in accrued capital gains incentive fee expense/reversal

471,678


453,535


(318,004)


1,025,346

Adjusted net investment income

1,953,738


2,404,913


8,803,644


8,052,912









Net investment income yield

5.2%


7.4%


8.1%


6.8%

Changes in accrued capital gains incentive fee expense/reversal

1.7%


1.7%


(0.3)%


1.0%

Adjusted net investment income yield (1)

6.9%


9.1%


7.9%


7.8%



(1)

Adjusted net investment income is calculated as adjusted net investment income divided by average net asset value.



SOURCE Saratoga Investment Corp.

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