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Saratoga Investment Corp. Announces Fiscal Year End and Fourth Quarter 2016 Financial Results

NEW YORK, May 17, 2016 /PRNewswire/ -- Saratoga Investment Corp. (NYSE: SAR) ("Saratoga Investment" or "the Company"), a business development company, today announced financial results for its 2016 fiscal year end and fourth quarter.

Summary Financial Information

Over the past twelve months, Saratoga Investment increased its Assets under management ("AUM") by 18.1% from $240.5 million as of February 28, 2015 to $284.0 million as of February 29, 2016. This increase reflects the healthy originations of $51.8 million new investments during the quarter ended February 29, 2016, as well as the success achieved from continuing to strengthen our team and increase our pipeline of deals reviewed.

As a result, both the year and quarter ended February 29, 2016 benefitted from higher investment income as compared  to the prior year - investment income increased to $30.1 million for the year ended February 29, 2016 from $27.4 million for the year ended February 28, 2015, and to $7.8 million from $7.5 million for the same quarterly periods.

Net investment income on a weighted average per share basis was $1.91 and $0.54 for the year and quarter ended February 29, 2016, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income on a weighted average per share basis was $1.90 and $0.45, respectively. This compares to adjusted net investment income per share of $1.85 and $0.50 for the year and quarter ended February 28, 2015, respectively.

Despite the $4.2 million realized loss in our legacy investments in Targus Group International and $4.7 million unrealized losses in our legacy investment Elyria Foundry Company, LLC, Net Asset Value ("NAV") increased $2.6 million from $122.6 million as of February 28, 2015 to $125.1 million as of February 29, 2016, and return on equity for the year ended February 29, 2016 was 9.4%. Both Targus and Elyria are legacy investments that pre-date Saratoga's management of the Company.

 


For the year
ended and as of
February 29, 2016

For the year
ended and as of
February 28, 2015


For the quarter
ended February
29, 2016

For the quarter
ended February
28, 2015


($ in thousands except per share)

AUM

283,966

240,537


-

-

NAV

125,150

122,599


-

-

Investment Income

30,051

27,375


7,795

7,451

Net Investment Income per share

1.91

1.80


0.54

0.53

Adjusted Net Investment Income per share

1.90

1.85


0.45

0.50

Return on Equity

9.4%

9.3%


(1.3%)

8.9%

 

The Company's summarized financial information is as follows:

Operating Results

For the fiscal year ended February 29, 2016, Saratoga Investment reported net investment income of $10.7 million, or $1.91 on a weighted average per share basis, and a net gain on investments of $1.0 million, or $0.17 on a weighted average per share basis, resulting in a net increase in net assets from operations of $11.6 million, or $2.09 on a weighted average per share basis. The $1.0 million net gain on investments was comprised largely of $0.2 million in net realized gain on investments and $0.7 million in net unrealized appreciation on investments. This compared to the fiscal year ended February 28, 2015 with net investment income of $9.7 million, or $1.80 on a weighted average per share basis, and a net gain on investments of $1.3 million, or $0.25 on a weighted average per share basis, resulting in a net increase in net assets from operations of $11.0 million, or $2.04 on a weighted average per share basis. The $1.3 million net gain on investments consisted of $3.3 million in net realized gains on investments, offset by $1.9 million unrealized depreciation.

Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $10.6 million and $10.0 million for the years ended February 29, 2016 and February 28, 2015, respectively - this is an increase of $0.7 million year-over-year, or 6.6%.

For the quarter ended February 29, 2016, Saratoga Investment reported net investment income of $3.1 million, or $0.54 on a weighted average per share basis, and a net loss on investments of $3.5 million, or $0.62 on a weighted average per share basis, resulting in a net decrease in net assets from operations of $0.4 million, or $0.07 on a weighted average per share basis. The $3.5 million net loss on investments was largely comprised of $0.5 million in net unrealized appreciation on investments, offset by $4.0 million in net realized losses. The realized loss of $4.0 million includes the $4.2 million realized loss in our legacy investments in Targus Group International, Inc. following a restructuring of the company that occurred during the quarter, resulting in the elimination of our former Unsecured Note and common equity, accompanied by a conversion of our prior first lien term loan into new equity. This compared to the quarter ended February 28, 2015 with net investment income of $2.9 million, or $0.53 on a weighted average per share basis, and a net loss on investments of $0.2 million, or $0.03 on a weighted average per share basis, resulting in a net increase in net assets from operations of $2.7 million, or $0.50 on a weighted average per share basis. The $0.2 million net loss on investments consisted of $0.3 million in net unrealized depreciation on investments, offset by $0.1 million in net realized gains.

Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $2.5 million and $2.6 million for the quarters ended February 29, 2016 and February 28, 2015, respectively - this is a decrease of $0.1 million year-over-year, or 5.5%.

Both the year and quarter ended February 29, 2016 benefitted from higher investment income as compared to the year and quarter ended February 28, 2015 - investment income increased to $30.1 million for the year ended February 29, 2016 from $27.4 million for the year ended February 28, 2015, and to $7.8 million from $7.5 million for the same quarterly periods. This increased investment income was generated from an investment base that has grown by 18.1% since last year. The investment income increase was offset by (i) increased debt and financing expenses from higher outstanding Notes payable and SBA debentures this year reflective of the growing investment and asset base, (ii) increased base and incentive management fees generated from the management of this larger pool of investments, and (iii) increased total expenses, excluding interest and debt financing expenses, base management fees and incentive fees, reflecting higher professional fees related to the issuance of Notes this year, as well as increased administrator and deal research fees.

Total expenses, excluding interest and debt financing expenses, base management fees and incentive management fees, increased from $3.6 million for the year ended February 28, 2015 to $4.2 million for the year ended February 29, 2016, staying consistent at 1.6% of average AUM for both the years ended February 29, 2016 and February 28, 2015.

Net Investment Income Yield was 8.6% and 9.8% for the year and quarter ended February 29, 2016, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 8.6% and 8.0% for the year and quarter ended February 29, 2016, respectively. Return on Equity was 9.4% and (1.3%) for the year and quarter ended February 29, 2016, respectively - the quarter's return on equity was impacted by the realized and unrealized losses on our legacy Targus and Elyria investments of $2.4 million (or -6.1% impact to return on equity).

Net Investment Income Yield was 8.2% and 9.5% for the year and quarter ended February 28, 2015, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 8.5% and 8.8% for the year and quarter ended February 28, 2015, respectively.

NAV was $125.1 million as of February 29, 2016, a $2.6 million increase from an NAV of $122.6 million as of February 28, 2015. During this period, $13.0 million of dividends were declared, $10.7 million of net investment income and $1.0 million of net realized and unrealized gains were earned, and $4.7 million of stock dividend distributions were made. NAV per share was $22.06 as of February 29, 2016, compared to $22.70 as of February 28, 2015. During these twelve months, NAV per share decreased by $0.64 per share, primarily reflecting the $2.6 million, or $0.45 per share, increase in net assets (net of the $2.36 dividend paid during fiscal year 2016), offset by the dilutive impact of the 295,745 shares issued pursuant to the dividend reinvestment plan. The dilutive share impact was reduced by 25,417 shares repurchased during the year.

"Despite the difficult market conditions that we faced in fiscal year 2016, we continued to pursue and achieve our strategic objectives of expanding our assets under management, improving investment quality, broadening our investor base and increasing our pipeline of available deal sources," said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. "In fiscal year 2016, we continued to deploy our available capital, while successfully managing the various liquidity sources available to us. At a time when many of our competitors were struggling to earn their existing dividends, we continued to increase our quarterly dividend and paid a total of $2.36 per share through a special dividend and our regular quarterly dividends. Thanks to our consistent performance, we found ourselves at the top of many of the analyst's BDC rankings based on some of our key performance metrics. This has been another strong year for Saratoga Investment, and we are extremely pleased with the strong risk-adjusted investment performance we have delivered for our shareholders this year."

Michael J. Grisius, President and Chief Investment Officer, added, "During fiscal year 2016, the steady expansion of our asset base continued, with a year-on-year increase in our investments at fair value of 18%, and a 199% increase since 2012. While growing, we were able to achieve an increase in quality as well. Over 98% of our debt portfolio bears our highest credit quality rating. Despite the challenging market dynamics we currently face, we deployed capital generally at multiples below market averages, while significantly increasing the number of deals we reviewed and the sources generating these deals. While the number of transactions in our market segment dropped significantly over the last twelve months, the number of deals that we closed remained strong. We continue to see demand for financing in the markets we serve and trust that our investments in new business development capabilities will result in a continued robust and productive pipeline."

Portfolio and Investment Activity

As of February 29, 2016, the fair value of Saratoga Investment's portfolio was $284.0 million (excluding $7.0 million in cash and cash equivalents), principally invested in 34 portfolio companies and one collateralized loan obligation fund ("CLO"). The overall portfolio composition consisted of 50.9% of first lien term loans, 31.1% of second lien term loans, 4.5% of subordinated notes in a CLO, 4.2% of syndicated loans, and 9.3% of common equity.

For the fiscal year ended February 29, 2016, Saratoga Investment invested $109.2 million in new or existing portfolio companies and had $68.2 million in aggregate amount of exits and repayments, resulting in net investments of $41.0 million for the year.  For the quarter ended February 29, 2016, Saratoga Investment invested $51.8 million in new or existing portfolio companies, and had $5.5 million in aggregate amount of exits and repayments, resulting in net investments of $46.3 million for the quarter.

As of February 29, 2016, the weighted average current yield on Saratoga Investment's portfolio for the twelve months ended February 29, 2016 was 11.1%, which was comprised of a weighted average current yield of 10.7% on first lien term loans, 11.5% on second lien term loans, 16.4% on CLO subordinated notes, and 7.6% on syndicated loans.

Liquidity and Capital Resources

As of February 29, 2016, Saratoga Investment had $0.0 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 $103.7 million outstanding of SBA debentures, $61.8 million of Baby Bonds (fair value of $60.2 million) and an aggregate of $7.0 million in cash and cash equivalents.

With the $45.0 million credit facility and the $46.3 million additional borrowing capacity at the SBIC subsidiary, as well as the $7.0 million of cash and cash equivalents, Saratoga Investment has a total of $98.3 million of undrawn borrowing capacity and cash and cash equivalents available as of February 29, 2016. The proceeds from the Dividend Reinvestment Program totaled $4.7 million of equity investments in fiscal 2016. Saratoga Investment also has the ability to issue additional baby bonds through the At-the-Market program outlined below.

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 Notes through an At-the-Market ("ATM") offering. As of February 29, 2016, 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).

Share Repurchase Plan

Saratoga Investment further exercised its share repurchase plan during the quarter ended February 29, 2016. In fiscal year 2015, the Company announced the approval of an open market share repurchase plan that allows 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 financial statements. Last quarter, this share repurchase plan was extended for another year, and increased to 400,000 shares through October 2016. As of May 16th, 2016, Saratoga repurchased 61,257 shares at a weighted average price of $14.89 per share under this plan.

Dividend

During fiscal year 2016, Saratoga Investment declared and paid dividends of $2.36 per share, composed of $0.27 for the quarter ended February 28, 2015, $0.33 per share for the quarter ended May 31, 2015, $0.36 per share for the quarter ended August 31, 2015, $0.40 per share for the quarter ended November 30, 2015, and a special dividend of $1.00 per share in the first quarter of fiscal year 2016. In addition, on March 31, 2016, Saratoga Investment announced a dividend of $0.41 per share for the fiscal quarter ended February 29, 2016, paid on April 27, 2016 to all stockholders of record at the close of business on April 15, 2016.

2016 Fiscal Year End and Fourth Quarter Conference Call/Webcast Information


When:     

Wednesday, May 18, 2016, 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 18, 2016 through 12:59 p.m. ET on Wednesday, May 25, 2016 by dialing (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (outside U.S. and Canada), passcode for both replay numbers: 94018191.



Webcast:  

Interested parties may access a simultaneous webcast of the call and find the FY2016 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 senior and unitranche leveraged loans, mezzanine debt, 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 29, 2016


February 28, 2015







ASSETS





Investments at fair value






Non-control/non-affiliate investments (amortized cost of $268,145,090 and $222,505,383, respectively)


$            271,168,186


$        223,506,589


Control investments (cost of $13,030,751 and $15,953,001, respectively)


12,827,980


17,031,146


Total investments at fair value (amortized cost of $281,175,841 and $238,458,384, respectively)


283,996,166


240,537,735

Cash and cash equivalents


2,440,277


1,888,158

Cash and cash equivalents, reserve accounts


4,594,506


18,175,214

Interest receivable, (net of reserve of $728,519 and $309,498, respectively)


3,195,919


2,469,398

Management fee receivable


170,016


171,913

Other assets


350,368


317,637

Receivable from unsettled trades


300,000


-


Total assets


$            295,047,252


$        263,560,055







LIABILITIES





Revolving credit facility


$                               -


$            9,600,000

Deferred debt financing costs, revolving credit facility


(515,906)


(594,845)

SBA debentures payable


103,660,000


79,000,000

Deferred debt financing costs, SBA debentures payable


(2,493,303)


(2,340,894)

Notes payable


61,793,125


48,300,000

Deferred debt financing costs, notes payable


(1,694,586)


(1,847,564)

Dividend payable


875,599


402,200

Base management and incentive fees payable


5,593,956


5,835,941

Accounts payable and accrued expenses


908,330


835,189

Interest and debt fees payable


1,552,069


1,405,466

Due to manager


218,093


365,820


Total liabilities


$            169,897,377


$        140,961,313













NET ASSETS





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






authorized, 5,672,227 and 5,401,899 common shares issued and outstanding, respectively


$                       5,672


$                   5,402

Capital in excess of par value


188,714,329


184,877,680

Distribution in excess of net investment income


(26,217,902)


(23,905,603)

Accumulated net realized loss from investments and derivatives


(40,172,549)


(40,458,088)

Accumulated net unrealized appreciation on investments and derivatives


2,820,325


2,079,351


Total net assets


125,149,875


122,598,742







Total liabilities and net assets


$            295,047,252


$        263,560,055







NET ASSET VALUE PER SHARE


$                       22.06


$                   22.70















Asset Coverage Ratio


302.5%


311.7%

 

 

Saratoga Investment Corp.











Consolidated Statements of Operations
















For the year ended
February 29, 2016


For the year ended
February 28, 2015


For the year ended
February 28, 2014











INVESTMENT INCOME









Interest from investments










Non-control/Non-affiliate investments




$              23,165,823


$                 20,790,324


$                      15,832,083


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




1,039,398


1,186,657


936,208


Control investments




2,665,648


2,707,230


3,410,868


     Total interest income




26,870,869


24,684,211


20,179,159

Interest from cash and cash equivalents




5,420


3,801


7,932

Management fee income




1,494,779


1,520,205


1,775,141

Other income




1,679,602


1,167,144


931,513


Total investment income




30,050,670


27,375,361


22,893,745











EXPENSES









Interest and debt financing expenses




8,456,467


7,375,022


6,083,891

Base management fees




4,528,589


4,156,955


3,326,879

Professional fees




1,336,214


1,301,713


1,211,836

Administrator expenses




1,175,000


1,000,000


1,000,000

Incentive management fees




2,232,188


2,547,773


938,694

Insurance




330,867


337,335


442,977

Directors fees and expenses




204,000


210,761


204,607

General & administrative




995,205


478,299


789,208

Excise tax expense




113,808


293,653


-

Other expense




-


-


21,207


Total expenses




19,372,338


17,701,511


14,019,299












NET INVESTMENT INCOME




10,678,332


9,673,850


8,874,446











REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:









Net realized gain (loss) from investments




226,252


3,276,450


1,270,765

Net unrealized appreciation (depreciation) on investments




740,974


(1,942,936)


(1,648,046)


Net gain (loss) on investments




967,226


1,333,514


(377,281)











NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS




$              11,645,558


$                 11,007,364


$                        8,497,165











WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE



$                         2.09


$                            2.04


$                                 1.73











WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED



5,582,453


5,385,049


4,920,517

 

 

Saratoga Investment Corp.










Consolidated Statements of Operations
















For the three months ended
February 29, 2016


For the three months ended
February 28, 2015










INVESTMENT INCOME








Interest from investments









Non-control/Non-affiliate investments





$                             6,204,079


$                                     5,995,982


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





43,933


284,121


Control investments





645,347


711,220


     Total interest income





6,893,359


6,991,323

Interest from cash and cash equivalents





2,646


1,063

Management fee income





373,493


369,700

Other income





525,764


88,905


Total investment income





7,795,262


7,450,991










EXPENSES








Interest and debt financing expenses





2,215,521


1,908,743

Base management fees





1,161,850


1,063,556

Professional fees





305,598


364,630

Administrator expenses





325,000


250,000

Incentive management fees





71,416


467,797

Insurance





70,972


85,333

Directors fees and expenses





51,000


51,000

General & administrative





256,961


77,812

Excise tax expense





237,146


293,653

Other expense





-


-


Total expenses





4,695,464


4,562,524











NET INVESTMENT INCOME





3,099,798


2,888,467










REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:








Net realized gain (loss) from investments





(4,004,754)


73,051

Net unrealized appreciation (depreciation) on investments





501,620


(256,673)


Net gain (loss) on investments





(3,503,134)


(183,622)










NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS





$                               (403,336)


$                                     2,704,845










WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE




$                                     (0.07)


0.50










WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED




5,688,697


5,401,651

 

 

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 29, 2016 and February 28, 2015.

 

 



For the three months ended
February 29 and 28


For the year ended
February 29 and 28



2016


2015


2016


2015











Net Investment Income

$       3,099,798


$   2,888,467


$ 10,678,332


$  9,673,850

Changes in accrued capital gains incentive fee expense/reversal

(563,081)


(203,701)


(45,777)


304,440


Adjusted net investment income

2,536,717


2,684,766


$10,632,555


9,978,290











Net investment income yield

9.8%


9.5%


8.6%


8.2%


Changes in accrued capital gains incentive fee expense/reversal

(1.8%)


(0.7%)


0.0%


0.3%


Adjusted net investment income yield (1)

8.0%


8.8%


8.6%


8.5%











Net investment income per share

$ 0.54


$ 0.53


$ 1.91


$ 1.80


Changes in accrued capital gains incentive fee expense/reversal

($ 0.09)


($ 0.03)


($ 0.01)


$ 0.05


Adjusted net investment income per share (2)

$ 0.45


$ 0.50


$ 1.90


$ 1.85


 

(1)

Adjusted net investment income 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.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/saratoga-investment-corp-announces-fiscal-year-end-and-fourth-quarter-2016-financial-results-300270378.html

SOURCE Saratoga Investment Corp.

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