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Saratoga Investment Corp. Announces Fiscal Second Quarter 2015 Financial Results

NEW YORK, Oct. 14, 2014 /PRNewswire/ -- Saratoga Investment Corp. (NYSE:SAR) ("Saratoga Investment" or "the Company"), a business development company, today announced financial results for its 2015 fiscal second quarter.

Corporate Updates

Summary Financial Information

Operating Results

For the quarter ended August 31, 2014, Saratoga Investment reported net investment income of $2.1 million, or $0.39 on a weighted average per share basis, and a net gain on investments of $1.1 million, or $0.19 on a weighted average per share basis, resulting in a net increase in net assets from operations of $3.1 million, or $0.58 on a weighted average per share basis. The $1.1 million net gain on investments was comprised largely of $703,506 in net unrealized appreciation on investments. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $2.3 million, and the net investment income per share was $0.43.

This compared to the quarter ended August 31, 2013 with net investment income of $2.3 million, or $0.48 on a weighted average per share basis, and a net loss on investments of $2.3 million, or $0.49 on a weighted average per share basis, resulting in a net decrease in net assets from operations of $41,297, or $0.01 on a weighted average per share basis. The $2.3 million net loss on investments was comprised of $2.9 million in net unrealized depreciation on investments offset by $545,642 in net realized gains on investments. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $2.1 million, and the net investment income per share was $0.45 last year.

The increase in adjusted net investment income for the year-over-year is primarily due to higher investment income generated from an investment base that has grown by 26% since last year, offset by a reduction in investment income from the CLO business following the refinancing of the CLO last year. This increase was offset by (i) increased debt and financing expenses from higher outstanding SBA debentures this year reflective of the growing investment and asset base, and (ii) increased base and incentive management fees generated from the management of this larger pool of investments. In addition, the decrease in the adjusted net investment income per share reflects the increased share count from the cash/stock dividend declared in FY 2014.

Net Investment Income Yield was 7.0% for the quarter ended August 31, 2014. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 7.7% for the quarter ended August 31, 2014, as compared to 7.5% for the quarter ended August 31, 2013. Return on equity was 10.6% for the quarter ended August 31, 2014.

NAV was $119.8 million as of August 31, 2014, a $4.9 million increase from a NAV of $114.9 million as of February 28, 2014. NAV per share was $22.27 as of August 31, 2014, compared to $21.36 as of February 28, 2014.

"Our commitment to a long-term strategy of improving financial strength by expanding the size and quality of our assets under management has achieved important positive results," said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. "We have recently accomplished important strategic objectives with the implementation of a quarterly cash dividend, a dividend reinvestment plan, a stock repurchase plan and the refinancing of our credit facility. Combined with our continued growth in assets and earnings, expansion of our management team and continued improvement in our corporate financing resources, we are confident that we are very well positioned to provide our portfolio companies with optimal financing solutions and to compete effectively for new investments."

Michael J. Grisius, President and Chief Investment Officer, added, "We continue to scale our abilities to support a growing asset base, while ensuring highest quality deal execution. During the second quarter of 2015, we continued to invest in new, high quality credits, while at the same time also increasing the size of our average investments. Excluding our CLO and equity-related investments, over 88% of our loan portfolio bears our highest quality rating that we designate."

Portfolio and Investment Activity

As of August 31, 2014, the fair value of Saratoga Investment's portfolio was $236.3 million (excluding $3.5 million in cash and cash equivalents), principally invested in 39 portfolio companies and one collateralized loan obligation fund ("CLO"). The overall portfolio composition consisted of 11.3% of middle market loans, 48.9% of first lien term loans, 12.4% of second lien term loans, 10.6% of senior secured notes, 2.5% of unsecured notes, 8.5% of subordinated notes in a CLO and 5.8% of common equity.

During the quarter ended August 31, 2014, Saratoga Investment invested $31.8 million in new or existing portfolio companies and had $15.7 million in aggregate amount of exits and repayments, resulting in net investments of $16.1 million for the quarter.  The weighted average current yield on Saratoga Investment's portfolio for the three months ended August 31, 2014 was 12.2%, which was comprised of a weighted average current yield of 11.0% on first lien term loans, 11.5% on second lien term loans, 14.7% on senior secured notes, 14.2% on unsecured notes, 23.9% on CLO subordinated notes and 6.5% on middle market loans.

Liquidity and Capital Resources

As of August 31, 2014, Saratoga Investment had $8.9 million in outstanding borrowings under its $45 million senior secured revolving credit facility with Madison Capital Funding LLC. At the same time, Saratoga Investment had $64.0 million outstanding of SBA debentures, $48.3 million outstanding of Baby Bonds (fair value of $49.4 million) and an aggregate of $3.5 million in cash and cash equivalents.

With $36.1 million undrawn under the Madison Capital Funding credit facility and the $86.0 million additional borrowing capacity at the SBIC subsidiary, Saratoga Investment has a total of $122.1 million of undrawn borrowing capacity available as of August 31, 2014.

On September 17, 2014, Saratoga Investment entered into a second amendment to its Madison Capital Funding credit facility which extended the commitment termination date to September 17, 2017, and the maturity date to September 17, 2022. The amendment also reduced the applicable margin rate and floor on both base rate and LIBOR borrowings by a combined 1.5%.

Dividend Policy and Declaration

On September 24, 2014, Saratoga Investment announced that its Board of Directors has adopted a new dividend policy to pay a regular quarterly cash dividend to shareholders. The Company will pay a quarterly dividend of $0.18 per share for the quarter ended August 31, 2014, which will be payable on November 28, 2014 to all stockholders of record at the close of business on November 3, 2014. The second dividend of $0.22 per share for the quarter ended November 30, 2014, will be payable on February 27, 2015 to all stockholders of record at the close of business on February 2, 2015.

Saratoga Investment has also adopted a new dividend reinvestment plan ("DRIP") that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. If Saratoga Investment declares a dividend, its stockholders who have not "opted out" of the DRIP by the dividend record date will have their dividend automatically reinvested into additional shares of its common stock. For more information, see the "Stock Information" section of the Company's investor relations website.

Share Repurchase Plan

On September 24, 2014, Saratoga Investment announced the approval of an open market share repurchase plan that allows the Company to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published financial statements.

2014 Annual Meeting of Stockholders

At Saratoga Investment's Annual Meeting of Stockholders held September 30, 2014, Mssrs. Michael J. Grisius and G. Cabell Williams were elected to serve on the Board until the 2017 Annual Meeting of Stockholders.  Also approved at the meeting was the proposal to reauthorize the Company to issue its common stock at an offering price per share not less than 85% of the Company's then current NAV per share.

2015 Fiscal Second Quarter Conference Call/Webcast Information

When:         

Wednesday, October 15, 2014


10:00 a.m. Eastern Time (ET)



How:           

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, October 15, 2014 through 11:59 p.m. ET on Tuesday, October 21, 2014 by dialing (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (outside U.S. and Canada), passcode for both replay numbers: 11687517.




Webcast: Interested parties may access a simultaneous webcast of the call and find the Q2 2015 presentation by going to the "Events & Presentations" section of Saratoga Investment Corp.'s investor relations website, http://www.saratogainvestmentcorp.com/investor.html



Information: 

Saratoga Investment Corp.'s Form 10-Q for the fiscal quarter ended August 31, 2014 will be filed on October 14, 2014 with the Securities and Exchange Commission.


 

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 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 




August 31, 2014


February 28, 2014




 (unaudited)



ASSETS





Investments at fair value






Non-control/non-affiliate investments (amortized cost of $215,422,798 and $185,266,607, respectively)


$            216,229,627


$        186,275,106


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


20,090,075


19,569,596


Total investments at fair value (amortized cost of $231,978,606 and $201,822,415 respectively)


236,319,702


205,844,702

Cash and cash equivalents


271,378


3,293,898

Cash and cash equivalents, reserve accounts


3,215,671


3,293,113

Interest receivable, (net of reserve of $184,818 and $150,058, respectively)


3,314,407


2,571,853

Deferred debt financing costs, net


3,879,035


4,008,704

Management fee receivable


167,031


150,106

Other assets


62,769


14,461


Total assets


$            247,229,993


$        219,176,837







LIABILITIES





Revolving credit facility


$                8,900,000


$                          -

SBA debentures payable


64,000,000


50,000,000

Notes payable


48,300,000


48,300,000

Management and incentive fees payable


4,221,591


3,856,962

Accounts payable and accrued expenses


536,355


824,568

Interest and debt fees payable


1,036,073


873,135

Due to manager


418,154


398,154


Total liabilities


$            127,412,173


$        104,252,819







Commitments and contingencies











NET ASSETS





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






authorized, 5,379,616 and 5,379,616 common shares issued and outstanding, respectively


$                       5,380


$                   5,380

Capital in excess of par value


184,851,154


184,851,154

Distribution in excess of net investment income


(25,494,426)


(29,627,578)

Accumulated net realized loss from investments and derivatives


(43,885,384)


(44,327,225)

Net unrealized appreciation  on investments and derivatives


4,341,096


4,022,287


Total Net Assets


119,817,820


114,924,018







Total liabilities and Net Assets


$            247,229,993


$        219,176,837







NET ASSET VALUE PER SHARE


$                       22.27


$                   21.36

 

Saratoga Investment Corp.












Consolidated Statements of Operations












(unaudited)






For the three months ended
August 31


For the six months ended
August 31





2014


2013


2014


2013












INVESTMENT INCOME










Interest from investments











Non-control/Non-affiliate investments



$                        5,047,571


$                        3,385,362


$                    9,755,465


$                          7,254,826


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



329,614


296,802


582,542


472,923


Control investments



660,031


1,109,535


1,301,369


2,235,539


     Total interest income



6,037,216


4,791,699


11,639,376


9,963,288

Interest from cash and cash equivalents



1,120


3,959


1,714


5,865

Management fee income



375,459


480,750


767,493


978,841

Other income



61,495


111,300


210,830


457,476


Total investment income



6,475,290


5,387,708


12,619,413


11,405,470












EXPENSES










Interest and debt financing expenses



1,809,516


1,603,581


3,597,103


2,731,436

Base management fees



1,037,186


811,106


2,005,665


1,547,822

Professional fees



275,933


235,191


711,307


566,255

Administrator expenses



250,000


250,000


500,000


500,000

Incentive management fees



789,714


(39,770)


1,170,617


781,352

Insurance



84,127


119,234


168,614


239,229

Directors fees and expenses



55,586


45,000


108,761


96,000

General & administrative



100,568


91,425


224,194


189,786

Other expense



-


75


-


12,035


Total expenses



4,402,630


3,115,842


8,486,261


6,663,915













NET INVESTMENT INCOME



2,072,660


2,271,866


4,133,152


4,741,555












REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:










Net realized gain from investments



360,161


545,642


441,841


1,074,942

Net unrealized appreciation (depreciation) on investments



703,506


(2,858,805)


318,809


(2,057,943)


Net gain/(loss) on investments



1,063,667


(2,313,163)


760,650


(983,001)












NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS



$                        3,136,327


$                           (41,297)


$                    4,893,802


$                          3,758,554












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


$                                 0.58


$                               (0.01)


$                             0.91


$                                   0.79












WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED


5,379,616


4,730,116


5,379,616


4,730,116

 

Supplemental Information Regarding Adjusted Net Investment Income, Adjusted Net Investment Income Yield and Adjusted Net Investment Income per Share

On a supplemental basis, we provide information relating to adjusted net investment income, adjusted net investment income yield and Adjusted Net Investment Income per Share, which are non-GAAP measures. These measures are provided in addition to, but not as a substitute for, net investment income, net investment income yield and adjusted net investment income per share. 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, adjusted net investment income yield and adjusted net investment income per share 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, net investment income yield to adjusted net investment income yield and net investment income per share to adjusted net investment income per share for the three months ended August 31, 2014 and 2013.

 


For the three months ended

August 31



2014


2013







Net Investment Income

$       2,072,660


$  2,271,866


Changes in accrued capital gains incentive fee expense/reversal

217,006


(162,742)


Adjusted net investment income

2,289,666


2,109,124







Net investment income yield

7.0%


8.1%


Changes in accrued capital gains incentive fee expense/reversal

0.7%


(0.6)%


Adjusted net investment income yield (1)

7.7%


7.5%


 

 

Net investment income per share

$              0.39


$           0.48


Changes in accrued capital gains incentive fee expense/reversal

0.04


(0.03)


Adjusted net investment income per share (2)

0.43


0.45


(1)   Adjusted net investment income yield is calculated as adjusted net investment income divided by average net asset value.

(2)   Adjusted net investment income per share is calculated as adjusted net investment income divided by weighted average common shares outstanding.

 

SOURCE Saratoga Investment Corp.

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