Form 10-Q
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, 2020

 

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

Commission File No. 814-00732

 

 

SARATOGA INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland    20-8700615
(State or other jurisdiction of    (I.R.S. Employer
incorporation or organization)    Identification Number)

535 Madison Avenue

New York, New York 10022

(Address of principal executive offices)

(212) 906-7800

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.001 per share   SAR   The New York Stock Exchange
6.25% Notes due 2025   SAF   The New York Stock Exchange
7.25% Notes due 2025   SAK   The New York Stock Exchange

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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.

 

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 Act).    Yes  ☐    No  ☒

The number of outstanding common shares of the registrant as of July 8, 2020 was 11,217,545.

 

 

 


Table of Contents

 

TABLE OF CONTENTS

 

 

 

         Page  

PART I.

  FINANCIAL INFORMATION   

Item 1.

  Consolidated Financial Statements      3  
  Consolidated Statements of Assets and Liabilities as of May 31, 2020 (unaudited) and February 29, 2020      3  
  Consolidated Statements of Operations for the three months ended May 31, 2020 (unaudited) and May 31, 2019 (unaudited)      4  
  Consolidated Statements of Changes in Net Assets for three months ended May 31, 2020 (unaudited) and May 31, 2019 (unaudited)      5  
  Consolidated Statements of Cash Flows for the three months ended May 31, 2020 (unaudited) and May 31, 2019 (unaudited)      6  
  Consolidated Schedules of Investments as of May 31, 2020 (unaudited) and February 29, 2020      7  
  Notes to Consolidated Financial Statements as of May 31, 2020 (unaudited)      11  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      49  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      76  

Item 4.

  Controls and Procedures      77  

PART II.

  OTHER INFORMATION      78  

Item 1.

  Legal Proceedings      78  

Item 1A.

  Risk Factors      78  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      78  

Item 3.

  Defaults Upon Senior Securities      78  

Item 4.

  Mine Safety Disclosures      78  

Item 5.

  Other Information      78  

Item 6.

  Exhibits      79  

Signatures

     81  

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 

     May 31, 2020     February 29, 2020  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Non-control/Non-affiliate investments (amortized cost of $442,916,804 and $418,006,725, respectively)

   $ 420,930,113     $ 420,442,928  

Affiliate investments (amortized cost of $25,998,569 and $23,998,917, respectively)

     18,041,254       18,485,854  

Control investments (amortized cost of $46,649,515 and $44,293,619, respectively)

     43,975,865       46,703,192  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $515,564,888 and $486,299,261, respectively)

     482,947,232       485,631,974  

Cash and cash equivalents

     12,842,608       24,598,905  

Cash and cash equivalents, reserve accounts

     12,952,393       14,851,447  

Interest receivable (net of reserve of $1,500,123 and $1,238,049, respectively)

     4,308,981       4,810,456  

Management fee receivable

     285,588       272,207  

Other assets

     660,775       701,007  
  

 

 

   

 

 

 

Total assets

   $ 513,997,577     $ 530,865,996  
  

 

 

   

 

 

 

LIABILITIES

    

Revolving credit facility

   $ —       $ —    

Deferred debt financing costs, revolving credit facility

     (489,361     (512,628

SBA debentures payable

     170,000,000       150,000,000  

Deferred debt financing costs, SBA debentures payable

     (2,892,760     (2,561,495

2025 Notes payable

     60,000,000       60,000,000  

Deferred debt financing costs, 2025 notes payable

     (1,953,054     (2,046,735

Base management and incentive fees payable

     3,552,457       15,800,097  

Deferred tax liability

     1,070,678       1,347,363  

Accounts payable and accrued expenses

     1,580,913       1,713,157  

Interest and debt fees payable

     994,956       2,234,042  

Directors fees payable

     63,000       61,500  

Due to manager

     439,730       543,842  
  

 

 

   

 

 

 

Total liabilities

     232,366,559       226,579,143  
  

 

 

   

 

 

 

Commitments and contingencies (See Note 8)

    

NET ASSETS

    

Common stock, par value $0.001, 100,000,000 common shares authorized, 11,217,545 and 11,217,545 common shares issued and outstanding, respectively

     11,218       11,218  

Capital in excess of par value

     289,476,991       289,476,991  

Total distributable earnings (loss)

     (7,857,191     14,798,644  
  

 

 

   

 

 

 

Total net assets

     281,631,018       304,286,853  
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 513,997,577     $ 530,865,996  
  

 

 

   

 

 

 

NET ASSET VALUE PER SHARE

   $ 25.11     $ 27.13  
  

 

 

   

 

 

 

 

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, 2020     May 31, 2019  

INVESTMENT INCOME

    

Interest from investments

    

Interest income:

    

Non-control/Non-affiliate investments

   $ 9,955,562     $ 8,527,740  

Affiliate investments

     398,370       249,325  

Control investments

     1,133,584       1,648,146  

Payment-in-kind interest income:

    

Non-control/Non-affiliate investments

     581,946       151,897  

Affiliate investments

     46,223       40,150  

Control investments

     34,782       985,869  
  

 

 

   

 

 

 

Total interest from investments

     12,150,467       11,603,127  

Interest from cash and cash equivalents

     11,796       51,359  

Management fee income

     634,572       629,516  

Structuring and advisory fee income*

     313,306       316,375  

Other income*

     187,000       150,807  
  

 

 

   

 

 

 

Total investment income

     13,297,141       12,751,184  
  

 

 

   

 

 

 

OPERATING EXPENSES

    

Interest and debt financing expenses

     2,563,876       3,864,576  

Base management fees

     2,160,528       1,812,169  

Incentive management fees expense (benefit)

     (1,858,310     2,113,169  

Professional fees

     386,888       395,126  

Administrator expenses

     556,250       500,000  

Insurance

     67,726       64,619  

Directors fees and expenses

     60,000       60,000  

General & administrative

     350,814       258,601  

Income tax expense (benefit)

     (8,945     2,136  
  

 

 

   

 

 

 

Total operating expenses

     4,278,827       9,070,396  
  

 

 

   

 

 

 

NET INVESTMENT INCOME

     9,018,314       3,680,788  
  

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS

    

Net realized gain (loss) from investments:

    

Non-control/Non-affiliate investments

     8,480       —    
  

 

 

   

 

 

 

Net realized gain (loss) from investments

     8,480       —    
  

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investments:

    

Non-control/Non-affiliate investments

     (24,422,894     2,393,191  

Affiliate investments

     (2,444,252     169,944  

Control investments

     (5,083,223     1,425,995  
  

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on investments

     (31,950,369     3,989,130  

Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments

     267,740       (20,930
  

 

 

   

 

 

 

Net realized and unrealized gain (loss) on investments

     (31,674,149     3,968,200  
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ (22,655,835   $ 7,648,988  
  

 

 

   

 

 

 

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

   $ (2.02   $ 0.99  

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC AND DILUTED

     11,217,545       7,746,187  

 

*

Certain prior period amounts have been reclassified to conform to current period presentation.

 

See accompanying notes to consolidated financial statements.

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Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Changes in Net Assets

(unaudited)

 

     For the three months ended  
     May 31, 2020     May 31, 2019  

INCREASE (DECREASE) FROM OPERATIONS:

    

Net investment income

   $ 9,018,314     $ 3,680,788  

Net realized gain from investments

     8,480       —    

Net change in unrealized appreciation (depreciation) on investments

     (31,950,369     3,989,130  

Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments

     267,740       (20,930
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     (22,655,835     7,648,988  
  

 

 

   

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

    

Total distributions to shareholders

     —         (4,176,132
  

 

 

   

 

 

 

Net decrease in net assets from shareholder distributions

     —         (4,176,132
  

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS:

    

Proceeds from issuance of common stock

     —         1,772,634  

Stock dividend distribution

     —         667,389  

Offering costs

     —         (4,365
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     —         2,435,658  
  

 

 

   

 

 

 

Total increase (decrease) in net assets

     (22,655,835     5,908,514  

Net assets at beginning of period

     304,286,853       180,875,187  
  

 

 

   

 

 

 

Net assets at end of period

   $ 281,631,018     $ 186,783,701  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

     For the three months ended  
     May 31, 2020     May 31, 2019  

Operating activities

    

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ (22,655,835   $ 7,648,988  

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

    

Payment-in-kind and other adjustments to cost

     703,636       (2,672,834

Net accretion of discount on investments

     (312,430     (318,260

Amortization of deferred debt financing costs

     272,683       341,688  

Income tax expense (benefit)

     (8,945     2,136  

Net realized (gain) loss from investments

     (8,480     —    

Net change in unrealized (appreciation) depreciation on investments

     31,950,369       (3,989,130

Net change in provision for deferred taxes on unrealized appreciation (depreciation) on investments

     (267,740     20,930  

Proceeds from sales and repayments of investments

     9,350,378       26,917,351  

Purchases of investments

     (38,998,731     (27,368,748

(Increase) decrease in operating assets:

    

Interest receivable

     501,475       (68,898

Due from affiliate

     —         430,550  

Management and incentive fee receivable

     (13,381     262,266  

Other assets

     40,232       45,304  

Increase (decrease) in operating liabilities:

    

Base management and incentive fees payable

     (12,247,640     837,285  

Accounts payable and accrued expenses

     (132,244     (184,742

Interest and debt fees payable

     (1,239,086     (1,246,177

Directors fees payable

     1,500       1,500  

Due to manager

     (104,112     22,661  
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     (33,168,351     681,870  
  

 

 

   

 

 

 

Financing activities

    

Borrowings on debt

     20,000,000       —    

Payments of deferred debt financing costs

     (487,000     (39,689

Proceeds from issuance of common stock

     —         1,772,634  

Payments of cash dividends

     —         (3,508,743

Payments of offering costs

     —         (4,219
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     19,513,000       (1,780,017
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND CASH AND CASH EQUIVALENTS, RESERVE ACCOUNTS

     (13,655,351     (1,098,147

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

     39,450,352       62,094,394  
  

 

 

   

 

 

 

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

   $ 25,795,001     $ 60,996,247  
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid during the period

   $ 3,530,278     $ 4,769,065  

Cash paid for taxes

     1,006       5,761  

Supplemental non-cash information:

    

Payment-in-kind interest income

     (703,636     2,672,834  

Net accretion of discount on investments

     312,430       318,260  

Amortization of deferred debt financing costs

     272,683       341,688  

Stock dividend distribution

     —         667,389  

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

May 31, 2020

(unaudited)

 

Company

  Industry    

Investment Interest Rate/

Maturity

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

Non-control/Non-affiliate investments—149.5% (b)

             

Apex Holdings Software Technologies, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+8.00%), 9.00% Cash, 9/21/2021

    9/21/2016     $ 18,000,000     $ 17,958,108     $ 17,220,600       6.1

Apex Holdings Software Technologies, LLC

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+8.00%), 9.00% Cash, 9/21/2021

    10/1/2018     $ 1,500,000       1,493,070       1,435,050       0.5

ArbiterSports, LLC (d)

    Business Services    

First Lien Term Loan

(3M USD LIBOR+6.50%), 8.25% Cash, 2/21/2025

    2/21/2020     $ 26,000,000       25,776,666       24,195,600       8.6

Arbiter Sports, LLC (d)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+6.50%), 8.25% Cash, 2/21/2025

    2/21/2020     $ 1,000,000       1,000,000       930,600       0.3

Avionte Holdings, LLC (h)

    Business Services     Class A Units     1/8/2014       100,000       100,000       652,755       0.2

CLEO Communications Holding, LLC (d)

    Business Services    

First Lien Term Loan

(3M USD LIBOR+8.00%), 9.00% Cash/2.00% PIK, 3/31/2022

    3/31/2017     $ 13,862,297       13,845,633       13,748,626       4.9

CLEO Communications Holding, LLC (d)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+8.00%), 9.00% Cash/2.00% PIK, 3/31/2022

    3/31/2017     $ 20,144,170       20,036,042       19,978,987       7.1

CoConstruct, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.50%), 10.00% Cash, 7/5/2024

    7/5/2019     $ 4,200,000       4,163,653       4,082,400       1.4

CoConstruct, LLC

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.50%), 10.00% Cash, 7/5/2024

    7/5/2019     $ 3,500,000       3,467,047       3,402,000       1.2

Davisware, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.00%), 9.00% Cash, 7/31/2024

    9/6/2019     $ 3,000,000       2,973,420       2,844,300       1.0

Davisware, LLC (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.00%), 9.00% Cash, 7/31/2024

    9/6/2019     $ 977,790       968,436       873,990       0.3

Destiny Solutions Inc. (d)

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.25%), 9.25% Cash, 10/23/2024

    5/16/2018     $ 36,000,000       35,709,234       34,311,600       12.2

Destiny Solutions Inc. (h), (i)

    Business Services     Limited Partner Interests     5/16/2018       2,342       2,468,464       2,765,313       1.0

Emily Street Enterprises, L.L.C.

    Business Services    

Senior Secured Note

(3M USD LIBOR+8.50%), 10.00% Cash, 12/31/2020

    12/28/2012     $ 3,300,000       3,299,985       3,230,700       1.1

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

    Business Services    

Warrant Membership Interests

Expires 12/28/2022

    12/28/2012       49,318       400,000       307,450       0.1

Erwin, Inc. (d)

    Business Services    

Second Lien Term Loan

(3M USD LIBOR+11.50%), 12.50% Cash/1.00% PIK, 8/28/2021

    2/29/2016     $ 16,090,374       16,042,089       16,021,185       5.7

FMG Suite Holdings, LLC (d)

    Business Services    

Second Lien Term Loan

(1M USD LIBOR+8.00%), 9.00% Cash, 11/16/2023

    5/16/2018     $ 23,000,000       22,875,335       22,896,500       8.1

GDS Software Holdings, LLC (h)

    Business Services     Common Stock Class A Units     8/23/2018       250,000       250,000       416,431       0.1

Identity Automation Systems (h)

    Business Services     Common Stock Class A-2 Units     8/25/2014       232,616       232,616       697,848       0.2

Identity Automation Systems (h)

    Business Services     Common Stock Class A-1 Units     3/6/2020       43,715       171,571       174,870       0.1

Identity Automation Systems (d)

    Business Services    

First Lien Term Loan

(3M USD LIBOR+9.24%), 10.99% Cash, 5/8/2024

    8/25/2014     $ 17,378,750       17,338,112       16,673,173       5.9

inMotionNow, Inc.

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.25), 9.75% Cash, 5/15/2024

    5/15/2019     $ 12,200,000       12,100,642       11,403,340       4.0

inMotionNow, Inc. (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.25) 9.75% Cash, 5/15/2024

    5/15/2019     $ 2,000,000       1,982,887       1,869,400       0.7

Knowland Group, LLC

    Business Services    

Second Lien Term Loan

(3M USD LIBOR+8.00%), 10.00% Cash, 5/9/2024

    11/9/2018     $ 15,379,167       15,379,167       11,445,176       4.1

LogicMonitor, Inc.

    Business Services    

First Lien Term Loan

(3M USD LIBOR+5.00), 6.00% Cash, 5/17/2023

    3/20/2020     $ 18,000,000       17,872,544       17,305,200       6.1

National Waste Partners (d)

    Business Services    

Second Lien Term Loan

10.00% Cash, 2/13/2022

    2/13/2017     $ 9,000,000       8,965,278       8,805,600       3.1

Omatic Software, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+8.00%), 9.75% Cash, 5/29/2023

    5/29/2018     $ 5,500,000       5,463,118       5,358,650       2.0

Passageways, Inc.

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.00%), 8.75% Cash, 7/5/2023

    7/5/2018     $ 5,000,000       4,963,510       4,849,500       1.8

Passageways, Inc. (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.00%), 8.75% Cash, 7/5/2023

    1/3/2020     $ 2,000,000       1,991,661       1,849,500       0.7

Passageways, Inc. (h)

    Business Services     Series A Preferred Stock     7/5/2018       2,027,205       1,000,000       2,105,112       0.8

Sceptre Hospitality Resources, LLC

    Business Services    

First Lien Term Loan

(1M USD LIBOR+9.00%), 10.00% Cash, 4/27/2025

    4/27/2020     $ 3,000,000       2,970,794       2,970,000       1.1

Vector Controls Holding Co., LLC (d)

    Business Services     First Lien Term Loan 10.50% (9.00% Cash/1.50% PIK), 3/6/2022     3/6/2013     $ 7,849,846       7,849,770       7,649,675       2.7

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

    Business Services     Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027     5/31/2015       343       —         2,289,966       0.8
         

 

 

   

 

 

   

 

 

 
    Total Business Services         271,108,852       264,761,097       94.0
         

 

 

   

 

 

   

 

 

 

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

    Consumer Products     Common Stock     12/31/2009       210,456       1,589,630       409,172       0.1
         

 

 

   

 

 

   

 

 

 
    Total Consumer Products         1,589,630       409,172       0.1
         

 

 

   

 

 

   

 

 

 

My Alarm Center, LLC (k)

    Consumer Services    

Preferred Equity Class A Units

8.00% PIK

    7/14/2017       2,227       2,357,879       —         0.0

My Alarm Center, LLC (h)

    Consumer Services     Preferred Equity Class B Units     7/14/2017       1,797       1,796,880       —         0.0

My Alarm Center, LLC (h)

    Consumer Services     Preferred Equity Class Z Units     9/12/2018       676       712,343       1,997,158       0.6

My Alarm Center, LLC (h)

    Consumer Services     Common Stock     7/14/2017       96,224       —         —         0.0
         

 

 

   

 

 

   

 

 

 
    Total Consumer Services         4,867,102       1,997,158       0.6
         

 

 

   

 

 

   

 

 

 

C2 Educational Systems (d)

    Education    

First Lien Term Loan

(3M USD LIBOR+7.00%), 8.50% Cash, 5/31/2020

    5/31/2017     $ 16,000,000       15,987,433       12,872,000       4.6

EMS LINQ, Inc.

    Education    

First Lien Term Loan

(1M USD LIBOR+8.50%), 9.75% Cash, 8/9/2024

    8/9/2019     $ 14,887,500       14,771,175       13,875,150       4.9

GoReact

    Education    

First Lien Term Loan

(3M USD LIBOR+7.50%), 9.50% Cash, 1/17/2025

    1/17/2020     $ 5,000,000       4,934,208       4,709,000       1.7

GoReact (j)

    Education    

Delayed Draw Term Loan

(3M USD LIBOR+7.50%), 9.50% Cash, 1/17/2025

    1/17/2020     $ —         —         (116,400     0.0

Kev Software Inc. (a)

    Education    

First Lien Term Loan

(1M USD LIBOR+8.63%), 9.63% Cash, 9/13/2023

    9/13/2018     $ 21,178,171       21,046,716       20,210,328       7.2

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

    Education     Common Stock     12/2/2015       750,000       750,000       648,428       0.2

Texas Teachers of Tomorrow, LLC (d)

    Education    

First Lien Term Loan

(3M USD LIBOR+7.25%), 9.75% Cash, 6/28/2024

    6/28/2019     $ 18,945,824       18,782,577       17,871,596       6.3
         

 

 

   

 

 

   

 

 

 
    Total Education         76,272,109       70,070,102       24.9
         

 

 

   

 

 

   

 

 

 

TMAC Acquisition Co., LLC (k)

    Food and Beverage    

Unsecured Term Loan

8.00% PIK, 9/01/2023

    3/1/2018     $ 2,261,017       2,261,017       1,848,422       0.7
         

 

 

   

 

 

   

 

 

 
    Total Food and Beverage         2,261,017       1,848,422       0.7
         

 

 

   

 

 

   

 

 

 

Axiom Parent Holdings, LLC (h)

    Healthcare Services     Common Stock Class A Units     6/19/2018       400,000       400,000       331,445       0.1

Axiom Purchaser, Inc. (d)

    Healthcare Services    

First Lien Term Loan

(3M USD LIBOR+6.00%), 7.75% Cash, 6/19/2023

    6/19/2018     $ 10,000,000       9,940,487       9,488,000       3.4

Axiom Purchaser, Inc. (d)

    Healthcare Services    

Delayed Draw Term Loan

(3M USD LIBOR+6.00%), 7.75% Cash, 6/19/2023

    6/19/2018     $ 4,000,000       3,970,740       3,795,200       1.3

ComForCare Health Care

    Healthcare Services    

First Lien Term Loan

(3M USD LIBOR+7.50%), 8.50% Cash, 1/31/2022

    1/31/2017     $ 15,000,000       14,936,996       14,737,500       5.2

HemaTerra Holding Company, LLC

    Healthcare Services    

First Lien Term Loan

(3M USD LIBOR+6.75%), 9.25% Cash, 4/15/2024

    4/15/2019     $ 6,000,000       5,947,515       5,868,000       2.1

HemaTerra Holding Company, LLC (d), (j)

    Healthcare Services    

Delayed Draw Term Loan

(3M USD LIBOR+6.75%), 9.25% Cash, 4/15/2024

    4/15/2019     $ 12,000,000       11,896,667       11,692,000       4.2

TRC HemaTerra, LLC (h)

    Healthcare Services     Class D Membership Interests     4/15/2019       2,000,000       2,000,000       2,289,018       0.8

Ohio Medical, LLC (h)

    Healthcare Services     Common Stock     1/15/2016       5,000       500,000       743,607       0.3

Ohio Medical, LLC

    Healthcare Services    

Senior Subordinated Note

12.00% Cash, 6/30/2022

    1/15/2016     $ 7,300,000       7,279,283       7,300,000       2.6

PDDS Buyer, LLC

    Healthcare Services    

First Lien Term Loan

(3M USD LIBOR+7.00%), 9.50% Cash, 7/15/2024

    7/15/2019     $ 12,000,000       11,894,752       11,648,400       4.1

 

See accompanying notes to consolidated financial statements.

 

7


Table of Contents

Company

  Industry    

Investment Interest Rate/

Maturity

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

PDDS Buyer, LLC (j)

    Healthcare Services     Delayed Draw Term Loan(3M USD LIBOR+7.00%), 9.50% Cash, 7/15/2024     7/15/2019     $ 2,000,000       1,980,790       1,941,400       0.7

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

    Healthcare Services     Common Stock     3/26/2014       5,081       508,077       —         0.0

Roscoe Medical, Inc. (k)

    Healthcare Services    

Second Lien Term Loan

11.25% Cash, 3/28/2021

    3/26/2014     $ 4,200,000       4,200,000       2,029,020       0.7
         

 

 

   

 

 

   

 

 

 
    Total Healthcare Services         75,455,307       71,863,590       25.5
         

 

 

   

 

 

   

 

 

 

Village Realty Holdings LLC

    Property Management    

First Lien Term Loan

(3M USD LIBOR+6.75%), 9.00% Cash, 10/8/2024

    10/8/2019     $ 7,250,000       7,183,577       6,443,075       2.3

Village Realty Holdings LLC (j)

    Property Management    

Delayed Draw Term Loan

(3M USD LIBOR+6.75%), 9.00% Cash, 10/8/2024

    10/8/2019     $ 3,876,322       3,840,981       3,319,822       1.3

V Rental Holdings LLC (h)

    Property Management     Class A-1 Membership Units     10/8/2019       116,700       338,229       217,675       0.1
         

 

 

   

 

 

   

 

 

 
    Total Property Management         11,362,787       9,980,572       3.7
         

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliate investments

        442,916,804       420,930,113       149.5
         

 

 

   

 

 

   

 

 

 

Affiliate investments - 6.4% (b)

         

GreyHeller LLC (f)

    Business Services    

First Lien Term Loan

(3M USD LIBOR+11.00%), 12.00% Cash, 11/16/2021

    11/17/2016     $ 7,000,000       6,975,912       6,930,000       2.5

GreyHeller LLC (f), (h)

    Business Services     Series A Preferred Units     11/17/2016       850,000       850,000       2,693,054       1.0

Top Gun Pressure Washing, LLC (f)

    Business Services     First Lien Term Loan(3M USD LIBOR+7.00%), 9.50% Cash, 8/12/2024     8/12/2019     $ 5,000,000       4,955,507       4,828,000       1.7

Top Gun Pressure Washing, LLC (f), (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.00%), 9.50% Cash, 8/12/2024

    8/12/2019     $ 1,825,000       1,807,719       1,762,220       0.6

TG Pressure Washing Holdings, LLC (f), (h)

    Business Services     Preferred Equity     8/12/2019       488,148       488,148       410,913       0.1
         

 

 

   

 

 

   

 

 

 
    Total Business Services         15,077,286       16,624,187       5.9
         

 

 

   

 

 

   

 

 

 

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

    Metals     Common Stock     7/30/2010       60,000       9,685,028       427,692       0.2

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

    Metals    

Second Lien Term Loan

15.00% PIK, 8/10/2022

    7/30/2010     $ 1,236,255       1,236,255       989,375       0.3
         

 

 

   

 

 

   

 

 

 
    Total Metals         10,921,283       1,417,067       0.5
         

 

 

   

 

 

   

 

 

 

Sub Total Affiliate investments

        25,998,569       18,041,254       6.4
         

 

 

   

 

 

   

 

 

 

Control investments - 15.6% (b)

         

Netreo Holdings, LLC (g)

    Business Services    

First Lien Term Loan

(3M USD LIBOR +6.25%), 9.00% Cash/2.75% PIK,

7/3/2023

    7/3/2018     $ 5,188,591       5,151,190       5,178,733       1.8

Netreo Holdings, LLC (g)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR +6.25%), 9.00% Cash/2.75% PIK,

7/3/2023

    5/26/2020     $ 1,200,000       1,188,071       1,197,720       0.4

Netreo Holdings, LLC (g), (h)

    Business Services     Common Stock Class A Unit     7/3/2018       3,150,000       3,150,000       6,330,311       2.3
         

 

 

   

 

 

   

 

 

 
    Total Business Services         9,489,261       12,706,764       4.5
         

 

 

   

 

 

   

 

 

 

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

   
Structured Finance
Securities
 
 
 

Other/Structured Finance Securities

9.85%, 1/20/2030

    1/22/2008     $ 69,500,000       22,160,254       18,084,700       6.4

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-R-2 Note (a), (g)

   
Structured Finance
Securities
 
 
 

Other/Structured Finance Securities

(3M USD LIBOR+8.75%), 9.09%, 1/20/2030

    12/14/2018     $ 2,500,000       2,500,000       2,303,000       0.8

Saratoga Investment Corp. CLO 2013-1, Ltd. Class G-R-2 Note (a), (g)

   
Structured Finance
Securities
 
 
 

Other/Structured Finance Securities

(3M USD LIBOR+10.00%), 10.34%, 1/20/2030

    12/14/2018     $ 7,500,000       7,500,000       6,918,750       2.5

Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd. (a), (g), (j)

   
Structured Finance
Securities
 
 
 

Unsecured Loan

(3M USD LIBOR+7.50%), 7.84%, 8/20/2021

    2/18/2020     $ 5,000,000       5,000,000       3,962,651       1.4
         

 

 

   

 

 

   

 

 

 
    Total Structured Finance Securities         37,160,254       31,269,101       11.1
         

 

 

   

 

 

   

 

 

 

Sub Total Control investments

        46,649,515       43,975,865       15.6
         

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS - 171.5% (b)

      $ 515,564,888     $ 482,947,232       171.5
         

 

 

   

 

 

   

 

 

 
                    Number of
Shares
    Cost     Fair Value     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 9.2% (b)

 

       

U.S. Bank Money Market (l)

          25,795,001     $ 25,795,001     $ 25,795,001       9.2
       

 

 

   

 

 

   

 

 

   

 

 

 

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

 

    25,795,001     $ 25,795,001     $ 25,795,001       9.2
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

Represents a non-qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940, as amended. As of May 31, 2020, non-qualifying assets represent 10.7% 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 $281,631,018 as of May 31, 2020.

(c)

Because there is no readily available market value for these investments, the fair values of these investments were determined using significant unobservable inputs and approved in good faith by our board of directors. These investments have been included as Level 3 in the Fair Value Hierarchy (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 7 to the consolidated financial statements).

(e)

This investment does not have a stated interest rate that is payable thereon. As a result, the 9.85% 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, this portfolio company is an Affiliate as we own between 5.0% and 25.0% of the voting securities. Transactions during the quarter ended May 31, 2020 in which the issuer was an Affiliate are as follows:

 

Company

   Purchases      Sales      Total Interest from
Investments
     Management Fee
Income
     Net Realized
Gain (Loss) from
Investments
     Net Change in
Unrealized
Appreciation
(Depreciation)
 

Elyria Foundry Company, L.L.C.

   $ —        $ —        $ 46,223      $ —        $ —        $ (1,758,988

GreyHeller LLC

     —          —          230,371        —          —          (363,252

Top Gun Pressure Washing, LLC

     1,806,750        —          167,999        —          —          (244,777

TG Pressure Washing Holdings, LLC

     138,148        —          —          —          —          (77,235
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,944,898      $ —        $ 444,593      $ —        $ —        $ (2,444,252
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g)

As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the quarter ended May 31, 2020 in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

Company

   Purchases      Sales      Total Interest from
Investments
     Management Fee
Income
     Net Realized
Gain (Loss) from
Investments
     Net Change in
Unrealized
Appreciation
(Depreciation)
 

Netreo Holdings, LLC

   $ 1,188,000      $ —        $ 150,833      $ —        $ —        $ (537,967

Saratoga Investment Corp. CLO 2013-1, Ltd.

     —          —          628,877        634,572        —          (3,112,366

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-R-2 Notes

     —          —          65,530        —          —          (175,000

Saratoga Investment Corp. CLO 2013-1, Ltd. Class G-R-2 Notes

     —          —          220,549        —          —          (516,000

Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd. (j)

     2,500,000        —          102,577        —          —          (741,890
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,688,000      $ —        $ 1,168,366      $ 634,572      $ —        $ (5,083,223
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(h)

Non-income producing at May 31, 2020.

(i)

Includes securities issued by an affiliate of the Company.

(j)

All or a portion of this investment has an unfunded commitment as of May 31, 2020. (see Note 8 to the consolidated financial statements).

(k)

As of May 31, 2020, the investment was on non-accrual status. The fair value of these investments was approximately $3.9 million, which represented 0.8% of the Company’s portfolio (see Note 2 to the consolidated financial statements).

(l)

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, 2020.

LIBOR - London Interbank Offered Rate

1M USD LIBOR - The 1 month USD LIBOR rate as of May 31, 2020 was 0.18%.

3M USD LIBOR - The 3 month USD LIBOR rate as of May 31, 2020 was 0.34%.

PIK - Payment-in-Kind (see Note 2 to the consolidated financial statements).

 

 

See accompanying notes to consolidated financial statements.

 

8


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

February 29, 2020

 

Company

  Industry    

Investment Interest Rate/

Maturity

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

Non-control/Non-affiliate investments - 138.2% (b)

             

Apex Holdings Software Technologies, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+8.00%), 9.46% Cash, 9/21/2021

    9/21/2016     $ 18,000,000     $ 17,951,463     $ 17,589,600       5.8

Apex Holdings Software Technologies, LLC

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+8.00%), 9.46% Cash, 9/21/2021

    10/1/2018     $ 1,500,000       1,491,938       1,465,800       0.5

ArbiterSports, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+6.50%), 8.25% Cash, 2/21/2025

    2/21/2020     $ 26,000,000       25,765,288       25,740,000       8.6

Arbiter Sports, LLC (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+6.50%), 8.25% Cash, 2/21/2025

    2/21/2020     $ —         —         —         0.0

Avionte Holdings, LLC (h)

    Business Services     Class A Units     1/8/2014       100,000       100,000       922,337       0.3

CLEO Communications Holding, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+8.00%), 9.46% Cash/2.00% PIK, 3/31/2022

    3/31/2017     $ 13,791,686       13,773,206       14,048,211       4.6

CLEO Communications Holding, LLC

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+8.00%), 9.46% Cash/2.00% PIK, 3/31/2022

    3/31/2017     $ 20,041,560       19,919,746       20,414,333       6.7

CoConstruct, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.50%), 10.00% Cash, 7/5/2024

    7/5/2019     $ 4,200,000       4,161,917       4,284,000       1.4

CoConstruct, LLC (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.50%), 10.00% Cash, 7/5/2024

    7/5/2019     $ —         —         —         0.0

Davisware, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.00%), 9.00% Cash, 7/31/2024

    9/6/2019     $ 3,000,000       2,971,896       2,970,000       1.0

Davisware, LLC (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.00%), 9.00% Cash, 7/31/2024

    9/6/2019     $ —         —         —         0.0

Destiny Solutions Inc. (d)

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.25%), 9.25% Cash, 10/23/2024

    5/16/2018     $ 36,000,000       35,686,318       35,888,400       11.8

Destiny Solutions Inc. (h), (i)

    Business Services     Limited Partner Interests     5/16/2018       2,342       2,468,464       2,805,839       0.9

Emily Street Enterprises, L.L.C.

    Business Services    

Senior Secured Note

(3M USD LIBOR+8.50%), 10.00% Cash, 4/22/2020

    12/28/2012     $ 3,300,000       3,299,987       3,300,000       1.1

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

    Business Services    

Warrant Membership Interests

Expires 12/28/2022

    12/28/2012       49,318       400,000       499,464       0.2

Erwin, Inc. (d)

    Business Services    

Second Lien Term Loan

(3M USD LIBOR+11.50%), 12.96% Cash/1.00% PIK, 8/28/2021

    2/29/2016     $ 16,049,804       15,990,286       16,049,804       5.3

FMG Suite Holdings, LLC (d)

    Business Services    

Second Lien Term Loan

(1M USD LIBOR+8.00%), 9.52% Cash, 11/16/2023

    5/16/2018     $ 23,000,000       22,863,835       23,000,000       7.6

GDS Holdings US, Inc. (d)

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.00%), 8.50% Cash, 8/23/2023

    8/23/2018     $ 7,500,000       7,444,170       7,650,000       2.5

GDS Holdings US, Inc. (d)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.00%), 8.50% Cash, 8/23/2023

    8/23/2018     $ 1,000,000       990,526       1,020,000       0.3

GDS Software Holdings, LLC (h)

    Business Services     Common Stock Class A Units     8/23/2018       250,000       250,000       421,291       0.1

Identity Automation Systems (h)

    Business Services     Common Stock Class A Units     8/25/2014       232,616       232,616       860,269       0.4

Identity Automation Systems (d)

    Business Services    

First Lien Term Loan

(3M USD LIBOR+9.24%), 10.99% Cash, 5/8/2024

    8/25/2014     $ 15,422,500       15,389,090       15,524,289       5.1

inMotionNow, Inc.

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.25), 9.75% Cash, 5/15/2024

    5/15/2019     $ 12,200,000       12,094,364       12,200,000       4.1

inMotionNow, Inc. (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.25) 9.75% Cash, 5/15/2024

    5/15/2019     $ 2,000,000       1,981,329       2,000,000       0.0

Knowland Group, LLC

    Business Services    

Second Lien Term Loan

(3M USD LIBOR+8.00%), 10.00% Cash, 5/9/2024

    11/9/2018     $ 15,000,000       15,000,000       14,893,500       4.9

National Waste Partners (d)

    Business Services    

Second Lien Term Loan

10.00% Cash, 2/13/2022

    2/13/2017     $ 9,000,000       8,959,602       9,000,000       3.0

Omatic Software, LLC

    Business Services    

First Lien Term Loan

(3M USD LIBOR+8.00%), 9.75% Cash, 5/29/2023

    5/29/2018     $ 5,500,000       5,459,192       5,554,999       1.9

Omatic Software, LLC (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+8.00%), 9.75% Cash, 5/29/2023

    5/29/2018     $ —         —         —         0.0

Passageways, Inc.

    Business Services    

First Lien Term Loan

(3M USD LIBOR+7.00%), 8.75% Cash, 7/5/2023

    7/5/2018     $ 5,000,000       4,961,214       5,034,500       1.7

Passageways, Inc. (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.00%), 8.75% Cash, 7/5/2023

    1/3/2020     $ 2,000,000       1,991,001       2,013,800       0.7

Passageways, Inc. (h)

    Business Services     Series A Preferred Stock     7/5/2018       2,027,205       1,000,000       2,042,180       0.8

Vector Controls Holding Co., LLC (d)

    Business Services     First Lien Term Loan 10.50% (9.00% Cash/1.50% PIK), 3/6/2022     3/6/2013     $ 7,849,846       7,849,846       7,928,345       2.6

Vector Controls Holding Co., LLC (h)

    Business Services     Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027     5/31/2015       343       —         2,850,231       0.9
         

 

 

   

 

 

   

 

 

 
    Total Business Services         250,447,294       257,971,192       84.8
         

 

 

   

 

 

   

 

 

 

Targus Holdings, Inc. (h)

    Consumer Products     Common Stock     12/31/2009       210,456       1,589,630       417,619       0.1
         

 

 

   

 

 

   

 

 

 
    Total Consumer Products         1,589,630       417,619       0.1
         

 

 

   

 

 

   

 

 

 

My Alarm Center, LLC (k)

    Consumer Services    

Preferred Equity Class A Units

8.00% PIK

    7/14/2017       2,227       2,357,879       —         0.0

My Alarm Center, LLC (h)

    Consumer Services     Preferred Equity Class B Units     7/14/2017       1,797       1,796,880       —         0.0

My Alarm Center, LLC (h)

    Consumer Services     Preferred Equity Class Z Units     9/12/2018       676       712,343       1,997,158       0.6

My Alarm Center, LLC (h)

    Consumer Services     Common Stock     7/14/2017       96,224       —         —         0.0
         

 

 

   

 

 

   

 

 

 
    Total Consumer Services         4,867,102       1,997,158       0.6
         

 

 

   

 

 

   

 

 

 

C2 Educational Systems (d)

    Education    

First Lien Term Loan

(3M USD LIBOR+7.00%), 8.50% Cash, 5/31/2020

    5/31/2017     $ 16,000,000       15,981,853       16,000,000       5.3

EMS LINQ, Inc.

    Education    

First Lien Term Loan

(1M USD LIBOR+8.50%), 10.02% Cash, 8/9/2024

    8/9/2019     $ 14,925,000       14,780,293       14,823,510       4.8

GoReact

    Education    

First Lien Term Loan

(3M USD LIBOR+7.50%), 9.50% Cash, 1/17/2025

    1/17/2020     $ 5,000,000       4,930,819       4,950,000       1.6

GoReact (j)

    Education    

Delayed Draw Term Loan

(3M USD LIBOR+7.50%), 9.50% Cash, 1/17/2025

    1/17/2020     $ —         —         —         0.0

Kev Software Inc. (a)

    Education    

First Lien Term Loan

(1M USD LIBOR+8.63%), 10.15% Cash, 9/13/2023

    9/13/2018     $ 21,231,923       21,086,573       21,202,198       7.0

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

    Education     Common Stock     12/2/2015       750,000       750,000       703,910       0.2

Texas Teachers of Tomorrow, LLC (d)

    Education    

First Lien Term Loan

(3M USD LIBOR+7.25%), 9.75% Cash, 6/28/2024

    6/28/2019     $ 19,661,200       19,483,213       19,661,200       6.5
         

 

 

   

 

 

   

 

 

 
    Total Education         77,012,751       77,340,818       25.4
         

 

 

   

 

 

   

 

 

 

TMAC Acquisition Co., LLC

    Food and Beverage    

Unsecured Term Loan

8.00% PIK, 9/01/2023

    3/1/2018     $ 2,261,017       2,261,017       2,140,880       0.7
         

 

 

   

 

 

   

 

 

 
    Total Food and Beverage         2,261,017       2,140,880       0.7
         

 

 

   

 

 

   

 

 

 

Axiom Parent Holdings, LLC (h)

    Healthcare Services     Common Stock Class A Units     6/19/2018       400,000       400,000       428,706       0.1

Axiom Purchaser, Inc. (d)

    Healthcare Services    

First Lien Term Loan

(3M USD LIBOR+6.00%), 7.75% Cash, 6/19/2023

    6/19/2018     $ 10,000,000       9,936,612       9,944,000       3.3

Axiom Purchaser, Inc. (d), (j)

    Healthcare Services    

Delayed Draw Term Loan

(3M USD LIBOR+6.00%), 7.75% Cash, 6/19/2023

    6/19/2018     $ 3,000,000       2,977,619       2,983,200       1.0

ComForCare Health Care

    Healthcare Services    

First Lien Term Loan

(3M USD LIBOR+7.50%), 8.96% Cash, 1/31/2022

    1/31/2017     $ 15,000,000       14,929,216       15,099,000       5.0

HemaTerra Holding Company, LLC

    Healthcare Services    

First Lien Term Loan

(3M USD LIBOR+6.75%), 9.25% Cash, 4/15/2024

    4/15/2019     $ 6,000,000       5,944,473       6,120,000       2.0

HemaTerra Holding Company, LLC (j)

    Healthcare Services    

Delayed Draw Term Loan

(3M USD LIBOR+6.75%), 9.25% Cash, 4/15/2024

    4/15/2019     $ 10,000,000       9,912,295       10,200,000       3.4

TRC HemaTerra, LLC (h)

    Healthcare Services     Class D Membership Interests     4/15/2019       2,000,000       2,000,000       2,259,190       0.7

Ohio Medical, LLC (h)

    Healthcare Services     Common Stock     1/15/2016       5,000       500,000       416,550       0.1

Ohio Medical, LLC

    Healthcare Services    

Senior Subordinated Note

12.00% Cash, 7/15/2021

    1/15/2016     $ 7,300,000       7,274,482       7,300,000       2.4

PDDS Buyer, LLC

    Healthcare Services    

First Lien Term Loan

(3M USD LIBOR+7.00%), 9.50% Cash, 7/15/2024

    7/15/2019     $ 12,000,000       11,888,585       12,184,800       4.0

 

See accompanying notes to consolidated financial statements.

 

9


Table of Contents

Company

  Industry    

Investment Interest Rate/

Maturity

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

PDDS Buyer, LLC (j)

    Healthcare Services     Delayed Draw Term Loan(3M USD LIBOR+7.00%), 9.50% Cash, 7/15/2024     7/15/2019     $ —         —         —         0.0

Roscoe Medical, Inc. (h)

    Healthcare Services     Common Stock     3/26/2014       5,081       508,077       —         0.0

Roscoe Medical, Inc. (k)

    Healthcare Services    

Second Lien Term Loan

11.25% Cash, 3/28/2021

    3/26/2014     $ 4,200,000       4,200,000       2,136,960       0.7
         

 

 

   

 

 

   

 

 

 
    Total Healthcare Services         70,471,359       69,072,406       22.7
         

 

 

   

 

 

   

 

 

 

Village Realty Holdings LLC

   
Property
Management
 
 
 

First Lien Term Loan

(3M USD LIBOR+6.50%), 8.75% Cash, 10/8/2024

    10/8/2019     $ 7,250,000       7,180,560       7,264,500       2.4

Village Realty Holdings LLC (j)

   
Property
Management
 
 
 

Delayed Draw Term Loan

(3M USD LIBOR+6.50%), 8.75% Cash, 10/8/2024

    10/8/2019     $ 3,876,322       3,838,783       3,884,075       1.4

V Rental Holdings LLC (h)

   
Property
Management
 
 
  Class A-1 Membership Units     10/8/2019       116,700       338,229       354,280       0.1
         

 

 

   

 

 

   

 

 

 
    Total Property Management         11,357,572       11,502,855       3.9
         

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliate investments

        418,006,725       420,442,928       138.2
         

 

 

   

 

 

   

 

 

 

Affiliate investments—6.0% (b)

         

Top Gun Pressure Washing, LLC (f)

    Business Services     First Lien Term Loan(3M USD LIBOR+7.00%), 9.50% Cash, 8/12/2024     8/12/2019     $ 5,000,000       4,952,729       5,024,500       1.7

Top Gun Pressure Washing, LLC (f), (j)

    Business Services    

Delayed Draw Term Loan

(3M USD LIBOR+7.00%), 9.50% Cash, 8/12/2024

    8/12/2019     $ —         —         —         0.0

TG Pressure Washing Holdings, LLC (f), (h)

    Business Services     Preferred Equity     8//12/2019       350,000       350,000       350,000       0.1

GreyHeller LLC (f)

    Business Services    

First Lien Term Loan

(3M USD LIBOR+11.00%), 12.46% Cash, 11/16/2021

    11/17/2016     $ 7,000,000       6,971,109       7,000,000       2.2

GreyHeller LLC (f), (h)

    Business Services     Series A Preferred Units     11/17/2016       850,000       850,000       2,981,503       1.0
         

 

 

   

 

 

   

 

 

 
    Total Business Services         13,123,838       15,356,003       5.0
         

 

 

   

 

 

   

 

 

 

Elyria Foundry Company, L.L.C. (f), (h)

    Metals     Common Stock     7/30/2010       60,000       9,685,028       1,939,800       0.6

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

    Metals    

Second Lien Term Loan

15.00% PIK, 8/10/2022

    7/30/2010     $ 1,190,051       1,190,051       1,190,051       0.4
         

 

 

   

 

 

   

 

 

 
    Total Metals         10,875,079       3,129,851       1.0
         

 

 

   

 

 

   

 

 

 

Sub Total Affiliate investments

        23,998,917       18,485,854       6.0
         

 

 

   

 

 

   

 

 

 

Control investments - 15.4% (b)

         

Netreo Holdings, LLC (g)

    Business Services    

First Lien Term Loan

(3M USD LIBOR +6.25%), 9.00% Cash/2.00% PIK,

7/3/2023

    7/3/2018     $ 5,162,734       5,123,191       5,265,989       1.7

Netreo Holdings, LLC (g), (h)

    Business Services     Common Stock Class A Unit     7/3/2018       3,150,000       3,150,000       6,762,672       2.3
         

 

 

   

 

 

   

 

 

 
    Total Business Services         8,273,191       12,028,661       4.0
         

 

 

   

 

 

   

 

 

 

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

   
Structured Finance
Securities
 
 
 

Other/Structured Finance Securities

10.97%, 1/20/2030

    1/22/2008     $ 69,500,000       23,520,428       22,557,240       7.4

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-R-2 Note (a), (g)

   
Structured Finance
Securities
 
 
 

Other/Structured Finance Securities

(3M USD LIBOR+8.75%), 10.21%, 1/20/2030

    12/14/2018     $ 2,500,000       2,500,000       2,478,000       0.8

Saratoga Investment Corp. CLO 2013-1, Ltd. Class G-R-2 Note (a), (g)

   
Structured Finance
Securities
 
 
 

Other/Structured Finance Securities

(3M USD LIBOR+10.00%), 11.46%, 1/20/2030

    12/14/2018     $ 7,500,000       7,500,000       7,434,750       2.4

Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd. (a), (g), (j)

   
Structured Finance
Securities
 
 
 

Unsecured Loan

(3M USD LIBOR+7.50%), 8.96%, 8/20/2021

    2/18/2020     $ 2,500,000       2,500,000       2,204,541       0.8
         

 

 

   

 

 

   

 

 

 
    Total Structured Finance Securities         36,020,428       34,674,531       11.4
         

 

 

   

 

 

   

 

 

 

Sub Total Control investments

        44,293,619       46,703,192       15.4
         

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS—159.6% (b)

      $ 486,299,261     $ 485,631,974       159.6
         

 

 

   

 

 

   

 

 

 
                    Number of
Shares
    Cost     Fair Value     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 13.0% (b)

 

       

U.S. Bank Money Market (l)

          39,450,352     $ 39,450,352     $ 39,450,352       13.0
       

 

 

   

 

 

   

 

 

   

 

 

 

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

 

    39,450,352     $ 39,450,352     $ 39,450,352       13.0
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

Represents a non-qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940, as amended. As of February 29, 2020, non-qualifying assets represent 11.5% 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 $304,286,853 as of February 29, 2020.

(c)

Because there is no readily available market value for these investments, the fair values of these investments were determined using significant unobservable inputs and approved in good faith by our board of directors. These investments have been included as Level 3 in the Fair Value Hierarchy (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 7 to the consolidated financial statements).

(e)

This investment does not have a stated interest rate that is payable thereon. As a result, the 10.97% 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, this portfolio company is an Affiliate as we own between 5.0% and 25.0% of the voting securities. Transactions during the year ended February 29, 2020 in which the issuer was an Affiliate are as follows:

 

Company

   Purchases      Sales      Total Interest from
Investments
     Management
Fee Income
     Net Realized
Gain (Loss) from
Investments
     Net Change in
Unrealized
Appreciation
(Depreciation)
 

GreyHeller LLC

   $ —        $ —        $ 961,322      $ —        $ —        $ 1,331,201  

Elyria Foundry Company, L.L.C.

     —          —          167,835        —          —          135,600  

Top Gun Pressure Washing, LLC

     4,950,000        —          269,257        —          —          71,771  

TG Pressure Washing Holdings, LLC

     350,000        —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,300,000      $ —        $ 1,398,414      $ —        $ —        $ 1,538,572  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g)

As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the year ended February 29, 2020 in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

Company

   Purchases      Sales     Total Interest from
Investments
     Management Fee
Income
     Net Realized
Gain (Loss) from
Investments
     Net Change in
Unrealized
Appreciation
(Depreciation)
 

Easy Ice, LLC

   $ —        $ (65,219,080   $ 3,335,320      $ —        $ 31,225,165      $ (3,816,610

Easy Ice Masters, LLC

     —          (4,169,121     382,066        —          —          (51,436

Netreo Holdings, LLC

     —          —         578,617        —          —          1,654,603  

Saratoga Investment Corp. CLO 2013-1, Ltd.

     —          —         4,058,715        2,503,804        —          (2,840,298

Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-R-2 Notes

     —          —         280,689        —          —          (5,500

Saratoga Investment Corp. CLO 2013-1, Ltd. Class G-R-2 Notes

     —          —         937,378        —          —          (15,750

Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd (j)

     2,500,000        —         7,642        —          —          (295,459
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,500,000      $ (69,388,201   $ 9,580,427      $ 2,503,804      $ 31,225,165      $ (5,370,450
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(h)

Non-income producing at February 29, 2020.

(i)

Includes securities issued by an affiliate of the Company.

(j)

All or a portion of this investment has an unfunded commitment as of February 29, 2020. (see Note 8 to the consolidated financial statements).

(k)

As of February 29, 2020, the investment was on non-accrual status. The fair value of these investments was approximately $2.1 million, which represented 0.4% of the Company’s portfolio (see Note 2 to the consolidated financial statements).

(l)

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 29, 2020.

LIBOR - London Interbank Offered Rate

1M USD LIBOR - The 1 month USD LIBOR rate as of February 29, 2020 was 1.52%.

3M USD LIBOR - The 3 month USD LIBOR rate as of February 29, 2020 was 1.46%.

PIK - Payment-in-Kind (see Note 2 to the consolidated financial statements).

See accompanying notes to consolidated financial statements.

 

10


Table of Contents

SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2020

(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, as amended (the “1940 Act”). The Company commenced operations on March 23, 2007 as GSC Investment Corp. and completed its 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 of 1986, as amended (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” or “Saratoga Investment Advisors”), pursuant to an investment advisory and 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-GH, Inc., SIA-MAC, Inc., SIA-TG, Inc., SIA-TT, Inc., SIA-Vector, Inc. and SIA-VR, Inc., which are structured as Delaware entities, or tax blockers (“Taxable 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 U.S. federal income tax purposes and may incur U.S. federal income tax expenses as a result of their ownership of portfolio companies.

On February 11, 2020, the Company entered into an unsecured loan agreement (“CLO 2013-1 Warehouse 2 Loan”) with Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd. (“CLO 2013-1 Warehouse 2”), a wholly-owned subsidiary of Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”), pursuant to which CLO 2013-1 Warehouse 2 may borrow from time to time up to $20.0 million from the Company in order to provide capital necessary to support warehouse activities. The CLO 2013-1 Warehouse 2 Loan, which expires on August 20, 2021, bears interest at an annual rate of 3M USD LIBOR + 7.5%. As of May 31, 2020, the Company’s investment in the CLO 2013-1 Warehouse 2 had a fair value of $4.0 million.

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 August 14, 2019, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC II LP (“SBIC II LP”), also received an SBIC license from the SBA. The new license will provide up to $175.0 million in additional long- term capital in the form of SBA debentures.

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 U.S. generally accepted accounting principles (“U.S. GAAP”), are stated in U.S. Dollars and include the accounts of the Company and its special purpose financing subsidiaries, Saratoga Investment Funding, LLC (previously known as GSC Investment Funding LLC), SBIC LP, SBIC II LP, SIA-Avionte, Inc., SIA-GH, Inc., SIA-MAC, Inc., SIA-TG, Inc., SIA-TT, Inc., SIA-Vector, Inc. and SIA-VR, 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.

 

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The Company, SBIC LP and SBIC II LP are all 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, SBIC LP or SBIC II LP’s status as investment companies during the three months ended May 31, 2020.

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, 2020, 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 subsidiaries, SBIC LP and SBIC II LP.

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 and restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts.

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:

 

     May 31,
2020
     May 31,
2019
 

Cash and cash equivalents

   $ 12,842,608      $ 37,183,604  

Cash and cash equivalents, reserve accounts

     12,952,393        23,812,643  
  

 

 

    

 

 

 

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

   $ 25,795,001      $ 60,996,247  
  

 

 

    

 

 

 

 

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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 Measurement (“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 or its liabilities are to be transferred 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 the Manager and preliminary valuation conclusions are documented, reviewed 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 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 the 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.

 

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Derivative Financial Instruments

The Company accounts for derivative financial instruments in accordance with FASB 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 using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts over the life of the investment and amortization of premiums on investments up to the earliest call date.

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. At May 31, 2020, certain investments in three portfolio companies, including preferred equity interests, were on non-accrual status with a fair value of approximately $3.9 million, or 0.8% of the fair value of our portfolio. At February 29, 2020, certain investments in two portfolio companies, including preferred equity interests, were on non-accrual status with a fair value of approximately $2.1 million, or 0.4% of the fair value of our portfolio.

Interest income on our investment in Saratoga CLO is recorded using the effective interest method in accordance with the provisions of ASC Topic 325, Investments-Other, Beneficial Interests in Securitized Financial Assets, (“ASC 325”), 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 and preferred equity 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. The Company stops accruing PIK interest if it is expected that the issuer will not be able to pay all principal and interest when due.

Structuring and Advisory Fee Income

Structuring and advisory fee income represents various fee income earned and received performing certain investment structuring and advisory activities during the closing of new investments.

Other Income

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

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 straight-line method over the life of the debentures.

The Company presents deferred debt financing costs on the balance sheet as a contra-liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.

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.

 

 

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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 elected 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, except as related to the Taxable Blockers when applicable.

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.

The Company may utilize wholly-owned holding companies taxed under Subchapter C of the Code or tax blockers, when making equity investments in portfolio companies taxed as pass-through entities to meet its source-of-income requirements as a RIC. Taxable Blockers are consolidated in the Company’s U.S. GAAP financial statements and may result in current and deferred federal and state income tax expense with respect to income derived from those investments. Such income, net of applicable income taxes, is not included in the Company’s tax-basis net investment income until distributed by the Taxable Blocker, which may result in timing and character differences between the Company’s U.S. GAAP and tax-basis net investment income and realized gains and losses. Income tax expense or benefit from Taxable Blockers related to net investment income are included in total operating expenses, while any expense or benefit related to federal or state income tax originated for capital gains and losses are included together with the applicable net realized or unrealized gain or loss line item. Deferred tax assets of the Taxable Blockers are reduced by a valuation allowance when, in the opinion of management, it is more-likely than-not that some portion or all of the deferred tax assets will not be realized.

FASB ASC Topic 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 29, 2020, the Company did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. The 2017, 2018 and 2019 federal tax years for the Company remain subject to examination by the IRS. As of May 31, 2020 and February 29, 2020, 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.

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.

 

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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 the Manager 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 Manager if the Company were to liquidate its investment portfolio at such time.

The actual incentive fee payable to the Company’s Manager related to capital gains will be determined and payable in arrears at the end of each fiscal year and only reflected those realized capital gains net of realized and unrealized losses for the period.

New Accounting Pronouncements

There are currently no new accounting pronouncements that would have a material impact on the Company.

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.

 

 

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Level 2— Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. Such inputs may be quoted prices for similar assets or liabilities, quoted markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full character of the financial instrument, or inputs that are derived principally from, or corroborated by, observable market information. Investments which are generally included in this category include illiquid debt securities and less liquid, privately held or restricted equity securities, for which some level of recent trading activity has been observed.

 

   

Level 3— Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs may be based on the Company’s own assumptions about how market participants would price the asset or liability or may use Level 2 inputs, as adjusted, to reflect specific investment attributes relative to a broader market assumption. These inputs into the determination of fair value may require significant management judgment or estimation. Even if observable market data for comparable performance or valuation measures (earnings multiples, discount rates, other financial/valuation ratios, etc.) are available, such investments are grouped as Level 3 if any significant data point that is not also market observable (private company earnings, cash flows, etc.) is used in the valuation methodology.

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, 2020 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

First lien term loans

   $ —        $ —        $ 354,435      $ 354,435  

Second lien term loans

     —          —          69,487        69,487  

Unsecured term loans

     —          —          5,811        5,811  

Structured finance securities

     —          —          27,306        27,306  

Equity interests

     —          —          25,908        25,908  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 482,947      $ 482,947  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents fair value measurements of investments, by major class, as of February 29, 2020 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

First lien term loans

   $ —        $ —        $ 346,233      $ 346,233  

Second lien term loans

     —          —          73,570        73,570  

Unsecured term loans

     —          —          4,346        4,346  

Structured finance securities

     —          —          32,470        32,470  

Equity interests

     —          —          29,013        29,013  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ —        $ 485,632      $ 485,632  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, 2020 (dollars in thousands):

 

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

Balance as of February 29, 2020

   $ 346,233     $ 73,570     $ 4,346     $ 32,470     $ 29,013     $ 485,632  

Payment-in-kind and other adjustments to cost

     191       466       —         (1,361     —         (704

Net accretion of discount on investments

     279       33       —         —         —         312  

Net change in unrealized appreciation (depreciation) on investments

     (19,115     (4,582     (1,035     (3,803     (3,415     (31,950

Purchases

     36,189       —         2,500       —         310       38,999  

Sales and repayments

     (9,350     —         —         —         —         (9,350

Net realized gain (loss) from investments

     8       —         —         —         —         8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of May 31, 2020

   $ 354,435     $ 69,487     $ 5,811     $ 27,306     $ 25,908     $ 482,947  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (18,880   $ (4,583   $ (1,034   $ (3,804   $ (3,414   $ (31,715
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 interests.

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. There were no transfers or restructures in or out of Levels 1, 2 or 3 during the three months ended May 31, 2020.

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, 2019 (dollars in thousands):

 

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

Balance as of February 28, 2019

   $ 202,846     $ 125,786     $ 2,100     $ 35,328      $ 35,960      $ 402,020  

Payment-in-kind and other adjustments to cost

     157       891       —         1,383        242        2,673  

Net accretion of discount on investments

     166       152       —         —          —          318  

Net change in unrealized appreciation (depreciation) on investments

     (217     476       (42     1,254        2,517        3,988  

Purchases

     25,444       —         —         —          1,925        27,369  

Sales and repayments

     (8,917     (18,000     —         —          —          (26,917

Net realized gain (loss) from investments

     —         —         —         —          —          —    
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Balance as of May 31, 2019

   $ 219,479     $ 109,305     $ 2,058     $ 37,965      $ 40,644      $ 409,451  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

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

   $ (217   $ 468     $ (42   $ 1,254      $ 2,517      $ 3,980  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Transfers and restructurings, if any, are recognized at the beginning of the period in which they occur. There were no transfers or restructures in or out of Levels 1, 2, or 3 during the three months ended May 31, 2019.

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of May 31, 2020 were as follows (dollars in thousands):

 

     Fair Value      Valuation Technique    Unobservable Input   Range    Weighted Average*

First lien term loans

   $ 354,435      Market Comparables    Market Yield (%)     7.5% - 32.1%      11.7%
         EBITDA Multiples (x)   0.0x    0.0x

Second lien term loans

     69,487      Market Comparables    Market Yield (%)   9.2% - 117.3%    15.8%
         EBITDA Multiples (x)   5.0x    5.0x

Unsecured term loans

     5,811      Market Comparables    Market Yield (%)   15.2% - 28.6%    24.3%
         EBITDA Multiples (x)   5.2x    5.2x

Structured finance securities

     27,306      Discounted Cash
Flow
   Discount Rate (%)   12.25% - 24.00%    20.3%
         Recovery Rate (%)   35.0% - 70.0%    70.0%
         Prepayment Rate (%)   10.0%    10.0%

Equity interests

     25,908      Market Comparables    EBITDA Multiples (x)   4.0x - 14.0x    6.3x
         Revenue Multiples (x)   1.0x - 45.1x    8.0x
  

 

 

            

Total

   $ 482,947             
  

 

 

            

 

*

The weighted average in the table above is calculated based on each investment’s fair value weighting, using the applicable unobservable input.

 

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Table of Contents

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of February 29, 2020 were as follows (dollars in thousands):

 

     Fair Value      Valuation Technique      Unobservable Input     Range      Weighted
Average*
 

First lien term loans

   $ 346,233        Market Comparables        Market Yield (%)         7.8% - 12.5%          9.7%  
           EBITDA Multiples (x)       0.0x        0.0x  

Second lien term loans

     73,570        Market Comparables        Market Yield (%)       9.5% - 85.1%        13.0%  
           EBITDA Multiples (x)       5.0x        5.0x  

Unsecured term loans

     4,346        Market Comparables        Market Yield (%)       18.3% - 21.3%        19.8%  
           EBITDA Multiples (x)       5.2x        5.2x  

Structured finance securities

     32,470        Discounted Cash Flow        Discount Rate (%)       9.25% - 16.00%        14.2%  
           Recovery Rate (%)       35.0% - 70.0%        70.0%  
           Prepayment Rate (%)       20.0%        20.0%  

Equity interests

     29,013        Market Comparables        EBITDA Multiples (x)       4.0x - 14.0x        6.5x  
           Revenue Multiples (x)       1.0x - 40.7x        7.3x  
  

 

 

            

Total

   $ 485,632             
  

 

 

            

 

*

The weighted average in the table above is calculated based on each investment’s fair value weighting, using the applicable unobservable input.

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 earnings before interest, tax, depreciation and amortization (“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 and prepayment rate, in isolation, would result in a significantly lower (higher) fair value measurement while a significant increase (decrease) in recovery rate, in isolation, would result in a significantly higher (lower) 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, 2020 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
 

First lien term loans

   $ 370,417        71.9   $ 354,435        73.4

Second lien term loans

     75,978        14.7       69,487        14.4  

Unsecured term loans

     7,261        1.4       5,811        1.2  

Structured finance securities

     32,160        6.2       27,306        5.6  

Equity interests

     29,749        5.8       25,908        5.4  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 515,565        100.0   $ 482,947        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The composition of our investments as of February 29, 2020 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
 

First lien term loans

   $ 343,100        70.5   $ 346,233        71.3

Second lien term loans

     75,478        15.5       73,570        15.1  

Unsecured term loans

     4,761        1.0       4,346        0.9  

Structured finance securities

     33,521        6.9       32,470        6.7  

Equity interests

     29,439        6.1       29,013        6.0  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 486,299        100.0   $ 485,632        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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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.

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 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. 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, 2020. The inputs at May 31, 2020 for the valuation model include:

 

   

Default rate: 2.0%

 

   

Recovery rate: 35-70%

 

   

Discount rate: 24.0%

 

   

Prepayment rate: 10.0%

 

   

Reinvestment rate / price: L+400bps / $95.00

Investment Concentration

Set forth is a brief description of each portfolio company in which the fair value of our investment represents greater than 5% of our total assets as of May 31, 2020.

CLEO Communications Holding, LLC

CLEO Communications Holding, LLC (“Cleo”) is a provider of technology enabled data communication and integration platform for daily business transactions. Cleo’s platform allows for the automation of business-to-business transaction information for customers operating in the retail, manufacturing, logistics and the healthcare verticals. The platform also allows for internal application-to-application communication, allowing customers’ core enterprise software applications to easily share and transfer data.

Destiny Solutions Inc.

Destiny Solutions provides a SaaS-based student lifecycle management (“SLM”) software solution used by higher education institutions to manage their continuing education (“CE”) and non-degree educational programs for “non-traditional” students who fall outside of the “traditional” student profile. Traditional students are full-time students working toward an undergraduate, graduate, or doctorate degree. Destiny’s software acts as the ERP, CRM, e-commerce platform, and student information management system for non-traditional student programs.

Saratoga Investment Corp. CLO 2013-1, Ltd.

The Company has a collateral management agreement with Saratoga CLO, pursuant to which the Company acts as its collateral manager. The Saratoga CLO invests primarily in senior secured first lien term loans. The Company also holds an investment in the subordinated note and Class F-R-2 and G-R-2 notes of the Saratoga CLO. In addition, the Company entered into an unsecured loan agreement with CLO 2013-1 Warehouse 2, a wholly- owned subsidiary of Saratoga CLO, in order to provide capital necessary to support warehouse activities.

 

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Table of Contents

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

On January 22, 2008, the Company entered into a collateral management agreement with Saratoga CLO, pursuant to which the Company acts as its collateral manager. The Saratoga CLO was initially refinanced in October 2013 with its reinvestment period extended to October 2016. On November 15, 2016, the Company completed a second refinancing of the Saratoga CLO with its reinvestment period extended to October 2018.

On December 14, 2018, the Company completed a third refinancing and upsize of the Saratoga CLO (the “2013-1 Reset CLO Notes”). The third Saratoga CLO refinancing, among other things, extended its reinvestment period to January 2021, and extended its legal maturity date to January 2030. A non-call period ending January 2020 was also added. Following this refinancing, the Saratoga CLO portfolio increased from approximately $300.0 million in aggregate principal amount to approximately $500.0 million of predominantly senior secured first lien term loans. In addition to refinancing its liabilities, the Company invested an additional $13.8 million in all of the newly issued subordinated notes of the Saratoga CLO and also purchased $2.5 million in aggregate principal amount of the Class F-R-2 and $7.5 million aggregate principal amount of the Class G-R-2 notes tranches at par, with a coupon of 3M USD LIBOR plus 8.75% and 3M USD LIBOR plus 10.00%, respectively. As part of this refinancing, the Company also redeemed our existing $4.5 million aggregate amount of the Class F notes tranche at par.

On February 11, 2020, the Company entered into an unsecured loan agreement (“CLO 2013-1 Warehouse 2 Loan”) with CLO 2013-1 Warehouse 2, a wholly-owned subsidiary of Saratoga CLO, pursuant to which CLO 2013-1 Warehouse 2 may borrow from time to time up to $20.0 million from the Company in order to provide capital necessary to support warehouse activities. The CLO 2013-1 Warehouse 2 Loan, which expires on August 20, 2021, bears interest at an annual rate of 3M USD LIBOR + 7.5%. As of May 31, 2020, the aggregate principal amount and fair value of the Company’s investment in the CLO 2013-1 Warehouse 2 Loan was $5.0 million and $4.0 million, respectively.

The Saratoga CLO remains 100.0% owned and managed by the Company. We receive a base management fee of 0.10% per annum and a subordinated management fee of 0.40% per annum of the outstanding principal amount of Saratoga CLO’s assets, paid quarterly to the extent of available proceeds. Following the third refinancing and the issuance of the 2013-1 Reset CLO Notes on December 14, 2018, we are no longer 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, 2020 and May 31, 2019, we accrued management fee income of $0.6 million and $0.6 million, respectively, and interest income of $0.6 million and $1.1 million, respectively, from the Saratoga CLO.

As of May 31, 2020, the aggregate principal amounts of the Company’s investments in the subordinated notes, Class F-R-2 Notes and Class G-R-2 Notes of the Saratoga CLO was $69.5 million, $2.5 million and $7.5 million, respectively, which had a corresponding fair value of $18.1 million, $2.3 million and $6.9 million, respectively. 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, 2020, Saratoga CLO had investments with a principal balance of $519.0 million and a weighted average spread over LIBOR of 4.0% and had debt with a principal balance of $488.5 million with a weighted average spread over LIBOR of 2.2%. 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. As of May 31, 2020, the present value of the projected future cash flows of the subordinated notes was approximately $18.3 CLO Valuation Model million, using a 24.0% discount rate. The Company’s total investment in the subordinate notes of Saratoga CLO is $43.8 million, which is comprised of the initial investment of $30.0 million in January 2008 plus the additional investment of $13.8 million in December 2018, and to date the Company has since received distributions of $62.5 million, management fees of $22.1 million and incentive fees of $1.2 million. In conjunction with the third refinancing of the 2013-1 Reset CLO Notes on December 14, 2018, the Company is no longer entitled to receive an incentive management fee from Saratoga CLO.

As of February 29, 2020, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $22.6 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 February 29, 2020, the fair value of its investment in the Class F-R-2 Notes and G-R-2 Notes of Saratoga CLO was $2.5 million and $7.4 million, respectively. As of February 29, 2020, Saratoga CLO had investments with a principal balance of $528.4 million and a weighted average spread over LIBOR of 4.0% and had debt with a principal balance of $475.1 million with a weighted average spread over LIBOR of 2.2%. As of February 29, 2020, the present value of the projected future cash flows of the subordinated notes was approximately $22.9 million, using a 16.0% discount rate.

 

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Table of Contents

Below is certain financial information from the separate financial statements of Saratoga CLO as of May 31, 2020 (unaudited) and February 29, 2020 and for the three months ended May 31, 2020 (unaudited) and May 31, 2019 (unaudited).

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities

 

     May 31, 2020     February 29, 2020  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Loans at fair value (amortized cost of $511,757,973 and $523,438,207, respectively)

   $ 457,744,271     $ 500,999,677  

Equities at fair value (amortized cost of $2,566,752 and $2,566,752, respectively)

     —         257  
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $514,324,725 and $526,004,959, respectively)

     457,744,271       500,999,934  

Cash and cash equivalents

     5,234,135       9,081,041  

Receivable from open trades

     9,372,675       10,419,700  

Interest receivable (net of reserve of $356,472 and $307,705, respectively)

     2,036,503       1,294,523  

Prepaid expenses and other assets

     58,382       84,526  
  

 

 

   

 

 

 

Total assets

   $ 474,445,966     $ 521,879,724  
  

 

 

   

 

 

 

LIABILITIES

    

Interest payable

   $ 1,999,748     $ 2,090,188  

Payable from open trades

     9,355,964       36,673,471  

Accrued base management fee

     55,725       54,441  

Accrued subordinated management fee

     222,898       217,766  

Accounts payable and accrued expenses

     68,349       81,822  

Loan payable, related party

     5,000,000       2,500,000  

Loan payable, third party

     13,528,220       2,600,000  

Saratoga Investment Corp. CLO 2013-1, Ltd. Notes:

    

Class A-1FL-R-2 Senior Secured Floating Rate Notes

     255,000,000       255,000,000  

Class A-1FXD-R-2 Senior Secured Fixed Rate Notes

     25,000,000       25,000,000  

Class-A-2-R-2 Senior Secured Floating Rate Notes

     40,000,000       40,000,000  

Class B-R-2 Senior Secured Floating Rate Notes

     59,500,000       59,500,000  

Class C-R-2 Deferrable Mezzanine Floating Rate Notes

     22,500,000       22,500,000  

Discount on Class C-R-2 Notes

     (516,720     (530,448

Class D-R-2 Deferrable Mezzanine Floating Rate Notes

     31,000,000       31,000,000  

Discount on Class D-R-2 Notes

     (940,279     (965,259

Class E-1-R-2 Deferrable Mezzanine Floating Rate Notes

     27,000,000       27,000,000  

Class E-2-R-2 Deferrable Mezzanine Fixed Rate Notes

     —         —    

Class F-R-2 Deferrable Junior Floating Rate Notes

     2,500,000       2,500,000  

Class G-R-2 Deferrable Junior Floating Rate Notes

     7,500,000       7,500,000  

Deferred debt financing costs

     (2,281,588     (2,340,764

Subordinated Notes

     69,500,000       69,500,000  

Discount on Subordinated Notes

     (22,306,712     (22,899,324
  

 

 

   

 

 

 

Total liabilities

   $ 543,685,605     $ 556,981,893  
  

 

 

   

 

 

 

NET ASSETS

    

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

   $ 250     $ 250  

Total distributable earnings (loss)

     (69,239,889     (35,102,419
  

 

 

   

 

 

 

Total net assets

     (69,239,639     (35,102,169
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 474,445,966     $ 521,879,724  
  

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Operations

(unaudited)

 

     For the three months ended  
     May 31, 2020     May 31, 2019  

INVESTMENT INCOME

    

Total interest from investments

     7,213,489       8,203,707  

Interest from cash and cash equivalents

     3,287       7,363  

Other income

     109,641       140,123  
  

 

 

   

 

 

 

Total investment income

     7,326,417       8,351,193  
  

 

 

   

 

 

 

EXPENSES

    

Interest and debt financing expenses

     7,288,568       6,418,808  

Base management fee

     125,521       125,903  

Subordinated management fee

     502,085       503,613  

Professional fees

     88,490       124,508  

Trustee expenses

     51,858       19,879  

Other expense

     28,052       32,538  
  

 

 

   

 

 

 

Total expenses

     8,084,574       7,225,249  
  

 

 

   

 

 

 

NET INVESTMENT INCOME (LOSS)

     (758,157     1,125,944  
  

 

 

   

 

 

 

REALIZED AND UNREALIZED LOSS ON INVESTMENTS

    

Net realized loss from investments

     (1,803,884     (943,934

Net change in unrealized depreciation on investments

     (31,575,429     (2,205,995
  

 

 

   

 

 

 

Net realized and unrealized loss on investments

     (33,379,313     (3,149,929
  

 

 

   

 

 

 

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ (34,137,470   $ (2,023,985
  

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Schedule of Investments

May 31, 2020

(unaudited)

 

Issuer Name

 

Industry

 

Asset Name

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

Education Management II LLC (b)

  Services: Consumer   Education Management II A-2 Preferred Shares     Equity             0.00     0.00     0.00     —         18,975     $ 1,897,538     $ —    

Education Management II LLC (b)

  Services: Consumer   Education Management II A-1 Preferred Shares     Equity             0.00     0.00     0.00     —         6,692       669,214       —    

1011778 B.C. Unlimited Liability Company

  Beverage Food & Tobacco   Term Loan B4     Loan       1M USD LIBOR+       1.75     0.00     1.93     11/19/2026     $ 1,496,250       1,453,849       1,434,530  

24 Hour Fitness Worldwide Inc.

  Services: Consumer   Term Loan (5/18)     Loan       3M USD LIBOR+       3.50     0.00     3.84     5/30/2025       2,952,437       2,942,983       826,682  

ABB Con-Cise Optical Group LLC

  Consumer goods: Non-durable   Term Loan B     Loan       6M USD LIBOR+       5.00     1.00     6.00     6/15/2023       2,076,547       2,058,435       1,654,323  

ADMI Corp.

  Services: Consumer   Term Loan B     Loan       3M USD LIBOR+       2.75     0.00     3.09     4/30/2025       1,965,276       1,957,855       1,798,719  

Advantage Sales & Marketing Inc.

  Services: Business   First Lien Term Loan     Loan       3M USD LIBOR+       3.25     1.00     4.25     7/23/2021       2,364,874       2,364,078       2,119,850  

Advantage Sales & Marketing Inc.

  Services: Business   Term Loan B Incremental     Loan       3M USD LIBOR+       3.25     1.00     4.25     7/23/2021       488,693       485,128       438,114  

Advisor Group Holdings Inc

  Banking Finance Insurance & Real Estate   Term Loan (7/19)     Loan       1M USD LIBOR+       5.00     0.00     5.18     7/31/2026       498,750       497,545       462,177  

Aegis Toxicology Sciences Corporation

  Healthcare & Pharmaceuticals   Term Loan     Loan       3M USD LIBOR+       5.50     1.00     6.50     5/9/2025       3,940,000       3,911,716       3,299,750  

Agiliti Health Inc.

  Healthcare & Pharmaceuticals   Term Loan (1/19)     Loan       3M USD LIBOR+       3.00     0.00     3.34     1/5/2026       495,000       495,000       480,150  

Agrofresh Inc.

  Beverage Food & Tobacco   Term Loan     Loan       1M USD LIBOR+       4.75     1.00     5.75     7/30/2021       2,881,923       2,879,786       2,633,357  

AI Convoy (Luxembourg) S.a.r.l.

  Aerospace & Defense   AI Convoy (Luxembourg) USD T/L B     Loan       6M USD LIBOR+       3.50     1.00     4.50     1/15/2027       1,500,000       1,492,592       1,428,750  

AI Mistral (Luxembourg) Subco Sarl

  High Tech Industries   Term Loan     Loan       1M USD LIBOR+       3.00     1.00     4.00     3/11/2024       485,000       485,000       366,175  

AIS Holdco LLC

  Services: Business   Term Loan     Loan       3M USD LIBOR+       5.00     0.00     5.34     8/15/2025       2,406,250       2,396,870       1,973,125  

Alchemy US Holdco 1 LLC

  Metals & Mining   Term Loan     Loan       1M USD LIBOR+       5.50     0.00     5.68     10/10/2025       1,937,500       1,914,018       1,724,375  

Alion Science and Technology Corporation

  Aerospace & Defense   Term Loan B (1st Lien)     Loan       1M USD LIBOR+       4.50     1.00     5.50     8/19/2021       3,377,293       3,374,207       3,337,880  

Allen Media LLC

  Media: Advertising Printing & Publishing   Allen Media T/L B (1/20)     Loan       2M USD LIBOR+       5.50     0.00     5.78     2/10/2027       3,000,000       2,986,071       2,827,500  

Altisource S.a r.l.

  Banking Finance Insurance & Real Estate   Term Loan B (03/18)     Loan       3M USD LIBOR+       4.00     1.00     5.00     4/3/2024       1,454,005       1,446,990       1,066,265  

Altra Industrial Motion Corp.

  Capital Equipment   Term Loan     Loan       1M USD LIBOR+       2.00     0.00     2.18     10/1/2025       1,767,163       1,763,700       1,678,805  

American Greetings Corporation

  Media: Advertising Printing & Publishing   Term Loan     Loan       1M USD LIBOR+       4.50     1.00     5.50     4/5/2024       4,780,845       4,777,921       4,398,377  

American Residential Services LLC

  Services: Consumer   Term Loan B     Loan       3M USD LIBOR+       4.00     1.00     5.00     6/30/2022       3,915,488       3,907,173       3,641,404  

Amerilife Holdings LLC

  Banking Finance Insurance & Real Estate   AmeriLife T/L     Loan       1M USD LIBOR+       4.00     0.00     4.18     3/18/2027       886,364       884,237       815,454  

Amerilife Holdings LLC (a)

  Banking Finance Insurance & Real Estate   Unfunded Commitment     Loan       1M USD LIBOR+       4.00     0.00     4.18     3/18/2027       —         —         —    

Amynta Agency Borrower Inc.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       4.50     0.00     4.68     2/28/2025       3,453,572       3,418,544       3,194,554  

Anastasia Parent LLC

  Consumer goods: Non-durable   Term Loan     Loan       3M USD LIBOR+       3.75     0.00     4.09     8/11/2025       985,000       981,157       317,249  

Anchor Glass Container Corporation

  Containers Packaging & Glass   Term Loan (07/17)     Loan       3M USD LIBOR+       2.75     1.00     3.75     12/7/2023       483,819       482,396       360,750  

Api Group DE Inc

  Services: Business   Term Loan B     Loan       1M USD LIBOR+       2.50     0.00     2.68     10/1/2026       997,500       992,795       957,181  

APLP Holdings Limited Partnership

  Utilities   APLP Holdings T/L B (01/20)     Loan       1M USD LIBOR+       2.50     1.00     3.50     4/11/2025       1,894,737       1,894,737       1,834,939  

Aramark Services Inc.

  Services: Consumer   Term Loan     Loan       1M USD LIBOR+       1.75     0.00     1.93     1/15/2027       2,500,000       2,410,516       2,374,224  

Arctic Glacier U.S.A. Inc.

  Beverage Food & Tobacco   Term Loan (3/18)     Loan       3M USD LIBOR+       3.50     1.00     4.50     3/20/2024       3,350,967       3,333,558       2,587,583  

Aretec Group Inc.

  Banking Finance Insurance & Real Estate   Term Loan (10/18)     Loan       1M USD LIBOR+       4.25     0.00     4.43     10/1/2025       1,975,000       1,971,083       1,817,000  

Aristocrat International PTY Ltd

  Hotel Gaming & Leisure   Term Loan (5/20)     Loan       3M USD LIBOR+       3.75     1.00     4.75     10/21/2024       1,000,000       980,043       993,750  

ASG Technologies Group Inc.

  High Tech Industries   Term Loan     Loan       1M USD LIBOR+       3.50     1.00     4.50     7/31/2024       465,137       463,621       406,028  

AssetMark Financial Holdings Inc.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       3M USD LIBOR+       3.00     0.00     3.34     11/14/2025       1,237,500       1,235,709       1,206,563  

Asurion LLC

  Banking Finance Insurance & Real Estate   Term Loan B-4 (Replacement)     Loan       1M USD LIBOR+       3.00     0.00     3.18     8/4/2022       870,960       868,920       852,888  

Asurion LLC

  Banking Finance Insurance & Real Estate   Term Loan B6     Loan       1M USD LIBOR+       3.00     0.00     3.18     11/3/2023       491,477       488,707       478,271  

Athenahealth Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       3M USD LIBOR+       4.50     0.00     4.84     2/11/2026       1,980,000       1,946,688       1,905,750  

Avaya Inc.

  Telecommunications   Term Loan B     Loan       1M USD LIBOR+       4.25     0.00     4.43     12/16/2024       3,169,156       3,140,053       2,944,146  

Avison Young (Canada) Inc.

  Services: Business   Term Loan     Loan       3M USD LIBOR+       5.00     0.00     5.34     1/30/2026       3,467,443       3,412,554       3,097,953  

Avolon TLB Borrower 1 (US) LLC

  Capital Equipment   Term Loan B3     Loan       1M USD LIBOR+       1.75     0.75     2.50     1/15/2025       1,000,000       847,650       942,860  

B&G Foods Inc.

  Beverage Food & Tobacco   Term Loan     Loan       1M USD LIBOR+       2.50     0.00     2.68     10/10/2026       248,750       247,605       245,081  

Ball Metalpack Finco LLC

  Containers Packaging & Glass   Term Loan     Loan       3M USD LIBOR+       4.50     0.00     4.84     7/31/2025       3,934,925       3,919,453       3,478,474  

Berry Global Inc.

  Chemicals Plastics & Rubber   Term Loan Y     Loan       1M USD LIBOR+       2.00     0.00     2.18     7/1/2026       4,974,969       4,969,626       4,850,593  

Blackstone Mortgage Trust Inc.

  Banking Finance Insurance & Real Estate   Term Loan B-2     Loan       1M USD LIBOR+       4.75     1.00     5.75     4/23/2026       500,000       485,055       487,500  

Blount International Inc.

  Forest Products & Paper   Term Loan B (09/18)     Loan       1M USD LIBOR+       3.75     1.00     4.75     4/12/2023       3,445,038       3,442,502       3,279,951  

Blucora Inc.

  Services: Consumer   Term Loan (11/17)     Loan       3M USD LIBOR+       3.00     1.00     4.00     5/22/2024       955,134       953,335       907,377  

Bombardier Recreational Products Inc.

  Consumer goods: Durable   Term Loan (1/20)     Loan       1M USD LIBOR+       2.00     0.00     2.18     5/24/2027       992,513       983,756       917,011  

Bracket Intermediate Holding Corp.

  Healthcare & Pharmaceuticals   Term Loan     Loan       3M USD LIBOR+       4.25     0.00     4.59     9/5/2025       985,000       981,186       896,350  

Broadstreet Partners Inc.

  Banking Finance Insurance & Real Estate   Term Loan B3     Loan       1M USD LIBOR+       3.25     0.00     3.43     1/27/2027       2,024,614       2,022,906       1,940,248  

Brookfield Property REIT Inc.

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       2.50     0.00     2.68     8/27/2025       4,000,000       3,112,644       3,024,280  

Brookfield WEC Holdings Inc.

  Energy: Electricity   Term Loan 1/20     Loan       1M USD LIBOR+       3.00     0.75     3.75     8/1/2025       496,231       495,158       484,292  

Buckeye Partners L.P.

  Utilities: Oil & Gas   Term Loan     Loan       1M USD LIBOR+       2.75     0.00     2.93     11/2/2026       1,000,000       995,596       970,000  

BW Gas & Convenience Holdings LLC

  Beverage Food & Tobacco   Term Loan     Loan       1M USD LIBOR+       6.25     0.00     6.43     11/18/2024       2,962,500       2,853,893       2,784,750  

Calceus Acquisition Inc.

  Consumer goods: Non-durable   Term Loan B     Loan       3M USD LIBOR+       5.50     0.00     5.84     2/12/2025       968,750       958,753       900,938  

Callaway Golf Company

  Retail   Term Loan B     Loan       1M USD LIBOR+       4.50     0.00     4.68     1/2/2026       695,625       683,433       685,191  

CareerBuilder LLC

  Services: Business   Term Loan     Loan       3M USD LIBOR+       6.75     1.00     7.75     7/31/2023       1,393,388       1,373,831       1,247,082  

Casa Systems Inc.

  Telecommunications   Term Loan     Loan       1M USD LIBOR+       4.00     1.00     5.00     12/20/2023       1,451,250       1,443,042       1,310,363  

Castle US Holding Corporation

  Media: Advertising Printing & Publishing   Term Loan B (USD)     Loan       1M USD LIBOR+       3.75     0.00     3.93     1/29/2027       500,000       497,688       462,710  

CCS-CMGC Holdings Inc.

  Healthcare & Pharmaceuticals   Term Loan     Loan       3M USD LIBOR+       5.50     0.00     5.84     10/1/2025       2,468,750       2,448,592       2,147,813  

Cengage Learning Inc.

  Media: Advertising Printing & Publishing   Term Loan     Loan       3M USD LIBOR+       4.25     1.00     5.25     6/7/2023       1,443,708       1,432,362       1,162,907  

CenturyLink Inc.

  Telecommunications   Term Loan B (1/20)     Loan       1M USD LIBOR+       2.25     0.00     2.43     3/15/2027       2,992,500       2,989,209       2,867,653  

Chemours Company The

  Chemicals Plastics & Rubber   Term Loan     Loan       1M USD LIBOR+       1.75     0.00     1.93     4/3/2025       997,455       938,747       930,955  

Citadel Securities LP

  Banking Finance Insurance & Real Estate   Term Loan (2/20)     Loan       1M USD LIBOR+       2.75     0.00     2.93     2/27/2026       990,019       988,954       968,159  

 

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Table of Contents

Issuer Name

 

Industry

 

Asset Name

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

Clarios Global LP

  Automotive   Term Loan B     Loan       1M USD LIBOR+       3.50     0.00     3.68     4/30/2026       1,492,500       1,478,985       1,417,875  

Compass Power Generation L.L.C.

  Utilities: Electric   Term Loan B (08/18)     Loan       1M USD LIBOR+       3.50     1.00     4.50     12/20/2024       1,886,209       1,882,170       1,777,752  

Concordia International Corp.

  Healthcare & Pharmaceuticals   Term Loan     Loan       3M USD LIBOR+       5.50     1.00     6.50     9/6/2024       1,177,580       1,127,951       1,042,900  

Connect U.S. Finco LLC

  Telecommunications   Delayed Draw Term Loan B     Loan       1M USD LIBOR+       4.50     1.00     5.50     12/11/2026       3,000,000       2,837,460       2,790,000  

Consolidated Communications Inc.

  Telecommunications   Term Loan B     Loan       1M USD LIBOR+       3.00     1.00     4.00     10/5/2023       1,471,612       1,461,859       1,406,316  

Coral-US Co-Borrower LLC

  Telecommunications   Term Loan B-5     Loan       1M USD LIBOR+       2.25     0.00     2.43     1/31/2028       2,000,000       2,000,000       1,895,620  

Covia Holdings Corporation

  Metals & Mining   Term Loan     Loan       3M USD LIBOR+       4.00     1.00     5.00     6/2/2025       982,500       982,500       591,347  

CPI Acquisition Inc

  Banking Finance Insurance & Real Estate   Term Loan B (1st Lien)     Loan       6M USD LIBOR+       4.50     1.00     5.50     8/17/2022       1,436,782       1,428,726       1,050,647  

Crown Subsea Communications Holding Inc.

  Construction & Building   Term Loan     Loan       1M USD LIBOR+       6.00     0.00     6.18     11/3/2025       949,545       941,012       906,815  

CSC Holdings LLC

  Media: Broadcasting & Subscription   Term Loan B (03/17)     Loan       1M USD LIBOR+       2.25     0.00     2.43     7/17/2025       1,969,543       1,948,342       1,892,239  

CSC Holdings LLC

  Media: Broadcasting & Subscription   Term Loan B     Loan       1M USD LIBOR+       2.25     0.00     2.43     1/15/2026       493,750       492,789       474,770  

CSC Holdings LLC

  Media: Broadcasting & Subscription   Term Loan B-5     Loan       1M USD LIBOR+       2.50     0.00     2.68     4/15/2027       498,750       498,750       480,361  

Cushman & Wakefield U.S. Borrower LLC

  Construction & Building   Term Loan     Loan       1M USD LIBOR+       2.75     0.00     2.93     8/21/2025       3,945,050       3,929,466       3,678,759  

Daseke Companies Inc.

  Transportation: Cargo   Replacement Term Loan     Loan       1M USD LIBOR+       5.00     1.00     6.00     2/27/2024       1,950,705       1,942,527       1,576,014  

Dealer Tire LLC

  Automotive   Dealer Tire T/L B-1     Loan       1M USD LIBOR+       4.25     0.00     4.43     12/12/2025       2,992,500       2,985,290       2,768,063  

Delek US Holdings Inc.

  Utilities: Oil & Gas   Term Loan B     Loan       1M USD LIBOR+       2.25     0.00     2.43     3/31/2025       6,429,673       6,365,806       5,530,869  

Dell International L.L.C.

  High Tech Industries   Term Loan B-1     Loan       1M USD LIBOR+       2.00     0.75     2.75     9/19/2025       3,804,870       3,800,748       3,732,425  

Delta 2 (Lux) SARL

  Hotel Gaming & Leisure   Term Loan B     Loan       1M USD LIBOR+       2.50     1.00     3.50     2/1/2024       1,318,289       1,316,053       1,240,840  

Delta Air Lines Inc.

  Transportation: Consumer   Term Loan B (4/20)     Loan       3M USD LIBOR+       4.75     1.00     5.75     4/27/2023       250,000       242,646       246,458  

DHX Media Ltd.

  Media: Broadcasting & Subscription   Term Loan     Loan       1M USD LIBOR+       4.25     1.00     5.25     12/29/2023       279,282       278,127       252,052  

Diamond Sports Group LLC

  Media: Broadcasting & Subscription   Term Loan     Loan       1M USD LIBOR+       3.25     0.00     3.43     8/24/2026       3,470,000       2,878,355       2,971,188  

Digital Room Holdings Inc.

  Media: Advertising Printing & Publishing   Term Loan     Loan       6M USD LIBOR+       5.00     0.00     5.51     5/21/2026       2,977,500       2,940,328       2,173,575  

Dole Food Company Inc.

  Beverage Food & Tobacco   Term Loan B     Loan       1M USD LIBOR+       2.75     1.00     3.75     4/8/2024       465,625       464,315       454,664  

DRW Holdings LLC

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       4.25     0.00     4.43     11/27/2026       4,987,500       4,940,766       4,788,000  

DynCorp International Inc.

  Aerospace & Defense   Term Loan B     Loan       1M USD LIBOR+       6.00     1.00     7.00     8/18/2025       2,925,000       2,846,164       2,749,500  

Eagletree-Carbide Acquisition Corp.

  Consumer goods: Durable   Term Loan     Loan       3M USD LIBOR+       4.25     1.00     5.25     8/28/2024       4,887,115       4,863,037       4,654,977  

EIG Investors Corp.

  High Tech Industries   Term Loan (06/18)     Loan       3M USD LIBOR+       3.75     1.00     4.75     2/9/2023       2,186,768       2,175,273       2,117,513  

Encapsys LLC

  Chemicals Plastics & Rubber   Term Loan B2     Loan       1M USD LIBOR+       3.25     1.00     4.25     11/7/2024       496,142       491,791       467,614  

Endo Luxembourg Finance Company I S.a.r.l.

  Healthcare & Pharmaceuticals   Term Loan B (4/17)     Loan       1M USD LIBOR+       4.25     0.75     5.00     4/29/2024       3,926,930       3,906,672       3,664,572  

Energy Acquisition LP

  Capital Equipment   Term Loan (6/18)     Loan       1M USD LIBOR+       4.25     0.00     4.43     6/26/2025       1,965,000       1,955,242       1,503,225  

Envision Healthcare Corporation

  Healthcare & Pharmaceuticals   Term Loan B (06/18)     Loan       1M USD LIBOR+       3.75     0.00     3.93     10/10/2025       4,937,500       4,928,369       3,211,597  

EyeCare Partners LLC

  Healthcare & Pharmaceuticals   EyeCare Partners T/L B     Loan       6M USD LIBOR+       3.75     0.00     4.26     2/18/2027       1,621,622       1,619,987       1,475,676  

EyeCare Partners LLC (a)

  Healthcare & Pharmaceuticals   Unfunded Commitment     Loan       6M USD LIBOR+       3.75     0.00     4.26     2/18/2027       —         —         —    

FinCo I LLC

  Banking Finance Insurance & Real Estate   2018 Term Loan B     Loan       1M USD LIBOR+       2.00     0.00     2.18     12/27/2022       359,915       359,378       346,418  

First Eagle Holdings Inc.

  Banking Finance Insurance & Real Estate   Refinancing Term Loan     Loan       3M USD LIBOR+       2.50     0.00     2.84     2/1/2027       5,436,375       5,414,271       5,106,114  

Fitness International LLC

  Services: Consumer   Term Loan B (4/18)     Loan       6M USD LIBOR+       3.25     0.00     3.76     4/18/2025       1,330,058       1,323,314       743,795  

Franklin Square Holdings L.P.

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       2.25     0.00     2.43     8/1/2025       4,432,497       4,404,023       4,244,116  

Froneri US Inc.

  Beverage Food & Tobacco   Term Loan B-2     Loan       1M USD LIBOR+       2.25     0.00     2.43     1/29/2027       2,000,000       1,995,302       1,905,000  

Fusion Connect Inc.

  Telecommunications   Take Back 2nd Out Term Loan     Loan       3M USD LIBOR+       1.00     2.00     3.00     7/14/2025       771,131       751,777       501,235  

GBT US LLC

  Hotel Gaming & Leisure   Term Loan 2/20     Loan       3M USD LIBOR+       4.00     0.00     4.34     2/26/2027       2,993,363       2,933,497       2,544,358  

GBT US LLC (a)

  Hotel Gaming & Leisure   Delayed Term Loan (2/20)     Loan       3M USD LIBOR+       4.00     0.00     4.34     2/26/2027       —         —         —    

General Nutrition Centers Inc.

  Retail   FILO Term Loan     Loan       1M USD LIBOR+       7.00     0.00     7.18     1/3/2023       585,849       584,910       512,618  

General Nutrition Centers Inc. (b)

  Retail   Term Loan B2     Loan       2M USD LIBOR+       8.75     0.75     9.50     3/4/2021       852,377       852,151       584,825  

Genesee & Wyoming Inc.

  Transportation: Cargo   Term Loan (11/19)     Loan       3M USD LIBOR+       2.00     0.00     2.34     12/30/2026       1,500,000       1,492,967       1,465,980  

GEO Group Inc. The

  Banking Finance Insurance & Real Estate   Term Loan Refinance     Loan       1M USD LIBOR+       2.00     0.75     2.75     3/25/2024       3,994,859       3,630,078       3,516,115  

GI Chill Acquisition LLC

  Services: Business   Term Loan     Loan       3M USD LIBOR+       4.00     0.00     4.34     8/6/2025       2,462,500       2,452,780       2,216,250  

GI Revelation Acquisition LLC

  Services: Business   Term Loan     Loan       1M USD LIBOR+       5.00     0.00     5.18     4/16/2025       1,228,741       1,223,952       1,054,665  

Gigamon Inc.

  Services: Business   Term Loan B     Loan       6M USD LIBOR+       4.25     1.00     5.25     12/27/2024       2,952,600       2,931,537       2,804,970  

Global Tel*Link Corporation

  Telecommunications   Term Loan B     Loan       3M USD LIBOR+       4.25     0.00     4.59     11/28/2025       3,022,463       3,022,463       2,516,201  

Go Wireless Inc.

  Telecommunications   Term Loan     Loan       3M USD LIBOR+       6.50     1.00     7.50     12/22/2024       3,158,117       3,119,216       2,316,289  

Goodyear Tire & Rubber Company The

  Chemicals Plastics & Rubber   Second Lien Term Loan     Loan       3M USD LIBOR+       2.00     0.00     2.34     3/7/2025       3,000,000       2,922,576       2,805,000  

Greenhill & Co. Inc.

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       3.25     0.00     3.43     4/12/2024       3,661,538       3,626,752       3,423,538  

Grosvenor Capital Management Holdings LLLP

  Banking Finance Insurance & Real Estate   Term Loan B     Loan       1M USD LIBOR+       2.75     1.00     3.75     3/28/2025       660,340       657,827       637,228  

Guidehouse LLP

  Aerospace & Defense   Term Loan     Loan       1M USD LIBOR+       4.50     0.00     4.68     5/1/2025       3,954,873       3,933,151       3,816,453  

Harland Clarke Holdings Corp.

  Media: Advertising Printing & Publishing   Term Loan     Loan       3M USD LIBOR+       4.75     1.00     5.75     11/3/2023       1,695,528       1,689,040       1,041,784  

HD Supply Waterworks Ltd.

  Construction & Building   Term Loan     Loan       3M USD LIBOR+       2.75     1.00     3.75     8/1/2024       487,500       486,692       466,172  

Helix Acquisition Holdings Inc.

  Capital Equipment   Term Loan (2019 Incremental)     Loan       3M USD LIBOR+       3.75     0.00     4.09     9/30/2024       2,970,000       2,920,543       2,494,800  

Helix Gen Funding LLC

  Energy: Electricity   Term Loan B (02/17)     Loan       1M USD LIBOR+       3.75     1.00     4.75     6/3/2024       264,030       263,720       254,541  

HLF Financing SaRL LLC

  Consumer goods: Non-durable   Term Loan B (08/18)     Loan       1M USD LIBOR+       2.75     0.00     2.93     8/18/2025       3,940,000       3,925,846       3,848,080  

Holley Purchaser Inc.

  Automotive   Term Loan B     Loan       3M USD LIBOR+       5.00     0.00     5.34     10/24/2025       2,468,750       2,448,967       1,975,000  

Hudson River Trading LLC

  Banking Finance Insurance & Real Estate   Term Loan B (01/20)     Loan       1M USD LIBOR+       3.00     0.00     3.18     2/18/2027       5,985,000       5,961,921       5,775,525  

Hyperion Refinance S.a.r.l.

  Banking Finance Insurance & Real Estate   Tem Loan (12/17)     Loan       1M USD LIBOR+       3.50     1.00     4.50     12/20/2024       1,705,420       1,697,964       1,639,693  

ICH US Intermediate Holdings II Inc.

  Healthcare & Pharmaceuticals   Term Loan B     Loan       6M USD LIBOR+       5.75     1.00     6.75     12/24/2026       4,937,500       4,748,836       4,674,183  

Idera Inc.

  High Tech Industries   Term Loan B     Loan       1M USD LIBOR+       4.00     1.00     5.00     6/28/2024       3,927,080       3,913,747       3,698,014  

Inmar Inc.

  Services: Business   Term Loan B     Loan       6M USD LIBOR+       4.00     1.00     5.00     5/1/2024       3,448,179       3,373,498       2,982,675  

Innophos Holdings Inc.

  Chemicals Plastics & Rubber   Term Loan B     Loan       1M USD LIBOR+       3.75     0.00     3.93     2/5/2027       500,000       497,607       479,585  

Intrado Corporation

  Telecommunications   Term Loan B     Loan       3M USD LIBOR+       3.50     1.00     4.50     10/10/2024       2,953,656       2,885,855       2,377,693  

ION Media Networks Inc.

  Media: Broadcasting & Subscription   Term Loan B     Loan       3M USD LIBOR+       3.00     0.00     3.34     12/18/2024       995,000       990,604       948,046  

Isagenix International LLC

  Beverage Food & Tobacco   Term Loan     Loan       3M USD LIBOR+       5.75     1.00     6.75     6/16/2025       2,758,021       2,714,401       999,783  

Jane Street Group LLC

  Banking Finance Insurance & Real Estate   Term Loan B (1/20)     Loan       1M USD LIBOR+       3.00     0.00     3.18     1/31/2025       1,000,000       977,897       975,000  

Jefferies Finance LLC / JFIN Co-Issuer Corp

  Banking Finance Insurance & Real Estate   Term Loan     Loan       1M USD LIBOR+       3.00     0.00     3.18     6/3/2026       3,221,225       3,204,009       2,954,475  

 

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Table of Contents

Issuer Name

 

Industry

 

Asset Name

  Asset
Type
    Reference Rate/
Spread
    x     LIBOR
Floor
    Current
Rate
(All In)
    <