UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the Quarterly Period
Ended
Commission File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices)
(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 | ||
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:
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 ☐
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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of outstanding
common shares of the registrant as of October 4, 2022 was
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Saratoga Investment Corp.
Consolidated Statements of Assets and Liabilities
(unaudited)
August 31, 2022 | February 28, 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Investments at fair value | ||||||||
| Non-control/Non-affiliate investments (amortized cost of $ | $ | $ | ||||||
| Affiliate investments (amortized cost of $ | ||||||||
| Control investments (amortized cost of $ | ||||||||
| Total investments at fair value (amortized cost of $ | ||||||||
| Cash and cash equivalents | ||||||||
| Cash and cash equivalents, reserve accounts | ||||||||
| Interest receivable (net of reserve of $ | ||||||||
| Due from affiliate (See Note 7) | ||||||||
| Management fee receivable | ||||||||
| Other assets | ||||||||
| Current Tax Receivable | - | |||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Revolving credit facility | $ | $ | ||||||
| Deferred debt financing costs, revolving credit facility | ( | ) | ( | ) | ||||
| SBA debentures payable | ||||||||
| Deferred debt financing costs, SBA debentures payable | ( | ) | ( | ) | ||||
| 7.25% Notes Payable 2025 | - | |||||||
| Deferred debt financing costs, | - | ( | ) | |||||
| 7.75% Notes Payable 2025 | ||||||||
| Deferred debt financing costs, | ( | ) | ( | ) | ||||
| 4.375% Notes Payable 2026 | ||||||||
| Premium on | ||||||||
| Deferred debt financing costs, | ( | ) | ( | ) | ||||
| 4.35% Notes Payable 2027 | ||||||||
| Discount on | ( | ) | ( | ) | ||||
| Deferred debt financing costs, | ( | ) | ( | ) | ||||
| 6.25% Notes Payable 2027 | ||||||||
| Deferred debt financing costs, | ( | ) | ( | ) | ||||
| 6.00% Notes Payable 2027 | - | |||||||
| Discount on 6.00% notes payable 2027 | ( | ) | - | |||||
| Deferred debt financing costs, | ( | ) | - | |||||
| Base management and incentive fees payable | ||||||||
| Deferred tax liability | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Current income tax payable | - | |||||||
| Interest and debt fees payable | ||||||||
| Directors fees payable | ||||||||
| Due to manager | ||||||||
| Excise tax payable | - | |||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note 9) | ||||||||
| NET ASSETS | ||||||||
| Common stock, par value $ | ||||||||
| Capital in excess of par value | ||||||||
| Total distributable earnings (deficit) | ||||||||
| Total net assets | ||||||||
| Total liabilities and net assets | $ | $ | ||||||
| NET ASSET VALUE PER SHARE | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
1
Saratoga Investment Corp.
Consolidated Statements of Operations
(unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | |||||||||||||
| INVESTMENT INCOME | ||||||||||||||||
| Interest from investments | ||||||||||||||||
| Interest income: | ||||||||||||||||
| Non-control/Non-affiliate investments | $ | $ | $ | $ | ||||||||||||
| Affiliate investments | ||||||||||||||||
| Control investments | ||||||||||||||||
| Payment-in-kind interest income: | ||||||||||||||||
| Non-control/Non-affiliate investments | ||||||||||||||||
| Affiliate investments | ||||||||||||||||
| Control investments | ||||||||||||||||
| Total interest from investments | ||||||||||||||||
| Interest from cash and cash equivalents | ||||||||||||||||
| Management fee income | ||||||||||||||||
| Dividend Income* | ||||||||||||||||
| Structuring and advisory fee income | ||||||||||||||||
| Other income* | ||||||||||||||||
| Total investment income | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Interest and debt financing expenses | ||||||||||||||||
| Base management fees | ||||||||||||||||
| Incentive management fees expense (benefit) | ( | ) | ||||||||||||||
| Professional fees | ||||||||||||||||
| Administrator expenses | ||||||||||||||||
| Insurance | ||||||||||||||||
| Directors fees and expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ||||||||||||
| Total operating expenses | ||||||||||||||||
| NET INVESTMENT INCOME | ||||||||||||||||
| REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||||||||||||||
| Net realized gain (loss) from investments: | ||||||||||||||||
| Non-control/Non-affiliate investments | ||||||||||||||||
| Control investments | - | ( | ) | - | ( | ) | ||||||||||
| Net realized gain (loss) from investments | ||||||||||||||||
| Income tax (provision) benefit from realized gain on investments | ( | ) | ( | ) | ||||||||||||
| Net change in unrealized appreciation (depreciation) on investments: | ||||||||||||||||
| Non-control/Non-affiliate investments | ( | ) | ( | ) | ||||||||||||
| Affiliate investments | ||||||||||||||||
| Control investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Net change in unrealized appreciation (depreciation) on investments | ( | ) | ( | ) | ||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net realized and unrealized gain (loss) on investments | ( | ) | ( | ) | ||||||||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | $ | $ | ( | ) | $ | ||||||||||
| $ | $ | $ | ( | ) | $ | |||||||||||
| * |
See accompanying notes to consolidated financial statements.
2
Saratoga Investment Corp.
Consolidated Statements of Changes in Net Assets
(unaudited)
| For the six months ended | ||||||||
| August 31, 2022 | August 31, 2021 | |||||||
| INCREASE (DECREASE) FROM OPERATIONS: | ||||||||
| Net investment income | $ | $ | ||||||
| Net realized gain from investments | ||||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ||||
| Income tax (provision) benefit from realized gain on investments | ( | ) | ||||||
| Net change in unrealized appreciation (depreciation) on investments | ( | ) | ||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | ( | ) | ( | ) | ||||
| Net increase (decrease) in net assets resulting from operations | ( | ) | ||||||
| DECREASE FROM SHAREHOLDER DISTRIBUTIONS: | ||||||||
| Total distributions to shareholders | ( | ) | ( | ) | ||||
| Net decrease in net assets from shareholder distributions | ( | ) | ( | ) | ||||
| CAPITAL SHARE TRANSACTIONS: | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Stock dividend distribution | ||||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Repurchase fees | ( | ) | ( | ) | ||||
| Offering costs | ( | ) | ||||||
| Net increase (decrease) in net assets from capital share transactions | ( | ) | ||||||
| Total increase (decrease) in net assets | ( | ) | ||||||
| Net assets at beginning of period | ||||||||
| Net assets at end of period | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
3
Saratoga Investment Corp.
Consolidated Statements of Cash Flows
(unaudited)
| For the six months ended | ||||||||
| August 31, 2022 | August 31, 2021 | |||||||
| Operating activities | ||||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | ( | ) | $ | ||||
| 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 | ( | ) | ||||||
| Net accretion of discount on investments | ( | ) | ( | ) | ||||
| Amortization of deferred debt financing costs | ||||||||
| Realized losses on extinguishment of debt | ||||||||
| Income tax expense (benefit) | ( | ) | ||||||
| Net realized (gain) loss from investments | ( | ) | ( | ) | ||||
| Net change in unrealized (appreciation) depreciation on investments | ( | ) | ||||||
| Net change in provision for deferred taxes on unrealized appreciation (depreciation) on investments | ||||||||
| Proceeds from sales and repayments of investments | ||||||||
| Purchases of investments | ( | ) | ( | ) | ||||
| (Increase) decrease in operating assets: | ||||||||
| Interest receivable | ( | ) | ||||||
| Due from affiliate | ||||||||
| Management and incentive fee receivable | ( | ) | ( | ) | ||||
| Tax receivable | ||||||||
| Other assets | ( | ) | ( | ) | ||||
| Increase (decrease) in operating liabilities: | ||||||||
| Base management and incentive fees payable | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Current tax payable | ( | ) | ||||||
| Interest and debt fees payable | ( | ) | ||||||
| Directors fees payable | ( | ) | ||||||
| Excise tax payable | ( | ) | ( | ) | ||||
| Due to manager | ( | ) | ||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Borrowings on debt | ||||||||
| Paydowns on debt | ( | ) | ( | ) | ||||
| Issuance of notes | ||||||||
| Repayments of notes | ( | ) | ( | ) | ||||
| Payments of deferred debt financing costs | ( | ) | ( | ) | ||||
| Discount on debt issuance, | ( | ) | ||||||
| Premium on debt issuance, | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Payments of cash dividends | ( | ) | ( | ) | ||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Repurchases fees | ( | ) | ( | ) | ||||
| Payments of offering costs | ( | ) | ||||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND CASH AND CASH EQUIVALENTS, RESERVE ACCOUNTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AND CASH AND CASH EQUIVALENTS, RESERVE ACCOUNTS, BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AND CASH AND CASH EQUIVALENTS, RESERVE ACCOUNTS, END OF PERIOD | $ | $ | ||||||
| Supplemental information: | ||||||||
| Interest paid during the period | $ | $ | ||||||
| Cash paid for taxes | ||||||||
| Supplemental non-cash information: | ||||||||
| Payment-in-kind interest income and other adjustments to cost | ( | ) | ||||||
| Net accretion of discount on investments | ||||||||
| Amortization of deferred debt financing costs | ||||||||
| Stock dividend distribution | ||||||||
See accompanying notes to consolidated financial statements.
4
Saratoga Investment Corp.
Consolidated Schedule of Investments
August 31, 2022
(unaudited)
| Company(1) | Industry | Investment Interest
Rate/ Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair Value (c) | % of Net Assets | |||||||||||||||
| Non-control/Non-affiliate investments - 228.1% (b) | ||||||||||||||||||||||
| Altvia MidCo, LLC. | Alternative Investment Management Software | First Lien Term Loan (3M USD TERM SOFR+ | $ | $ | $ | % | ||||||||||||||||
| Altvia MidCo, LLC. (h) | Alternative Investment Management Software | Series A-1 Preferred Shares | % | |||||||||||||||||||
| Total Alternative Investment Management Software | % | |||||||||||||||||||||
| Targus Holdings, Inc. (h) | Consumer Products | Common Stock | % | |||||||||||||||||||
| Total Consumer Products | % | |||||||||||||||||||||
| Schoox, Inc. (h), (i) | Corporate Education Software | Series 1 Membership Interest | % | |||||||||||||||||||
| Total Corporate Education Software | % | |||||||||||||||||||||
| GreyHeller LLC (h) | Cyber Security | Common Stock | % | |||||||||||||||||||
| Total Cyber Security | % | |||||||||||||||||||||
| New England Dental Partners | Dental Practice Management | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| New England Dental Partners (j) | Dental Practice Management | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Dental Practice Management | % | |||||||||||||||||||||
| Exigo, LLC | Direct Selling Software | First Lien Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Exigo, LLC (j) | Direct Selling Software | Delayed Draw Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Exigo, LLC (j) | Direct Selling Software | Revolving Credit Facility (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Exigo, LLC (h), (i) | Direct Selling Software | Common Units | % | |||||||||||||||||||
| Total Direct Selling Software | % | |||||||||||||||||||||
| C2 Educational Systems | Education Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| C2 Education Systems, Inc. (h) | Education Services | Series A-1 Preferred Stock | % | |||||||||||||||||||
| Zollege PBC | Education Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Zollege PBC (j) | Education Services | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Zollege PBC (h) | Education Services | Class A Units | % | |||||||||||||||||||
| Total Education Services | % | |||||||||||||||||||||
| Destiny Solutions Inc. (h), (i) | Education Software | Limited Partner Interests | % | |||||||||||||||||||
| GoReact | Education Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
5
| Company(1) | Industry | Investment Interest
Rate/ Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair Value (c) | % of Net Assets | |||||||||||||||
| GoReact (j) | Education Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Identity Automation Systems (d) | Education Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Identity Automation Systems (h) | Education Software | Common Stock Class A-2 Units | % | |||||||||||||||||||
| Identity Automation Systems (h) | Education Software | Common Stock Class A-1 Units | % | |||||||||||||||||||
| Ready Education | Education Software | First Lien Term Loan (3M USD TERM SOFR+ | $ | % | ||||||||||||||||||
| Total Education Software | % | |||||||||||||||||||||
| TG Pressure Washing Holdings, LLC (h) | Facilities Maintenance | Preferred Equity | % | |||||||||||||||||||
| Total Facilities Maintenance | % | |||||||||||||||||||||
| Davisware, LLC | Field Service Management | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Davisware, LLC (j) | Field Service Management | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Field Service Management | % | |||||||||||||||||||||
| GDS Software Holdings, LLC | Financial Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| GDS Software Holdings, LLC (j) | Financial Services | Delayed Draw Term loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| GDS Software Holdings, LLC (h) | Financial Services | Common Stock Class A Units | % | |||||||||||||||||||
| Total Financial Services | % | |||||||||||||||||||||
| Ascend Software, LLC | Financial Services Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Ascend Software, LLC (j) | Financial Services Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Financial Services Software | % | |||||||||||||||||||||
| Ohio Medical, LLC (h) | Healthcare Products Manufacturing | Common Stock | % | |||||||||||||||||||
| Total Healthcare Products Manufacturing | % | |||||||||||||||||||||
| Axiom Parent Holdings, LLC (h) | Healthcare Services | Common Stock Class A Units | $ | % | ||||||||||||||||||
| ComForCare Health Care (d) | Healthcare Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Healthcare Services | % | |||||||||||||||||||||
| TRC HemaTerra, LLC (h) | Healthcare Software | Class D Membership Interests | % | |||||||||||||||||||
| HemaTerra Holding Company, LLC (d) | Healthcare Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| HemaTerra Holding Company, LLC (d) | Healthcare Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
6
| Company(1) | Industry | Investment Interest
Rate/ Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair Value (c) | % of Net Assets | |||||||||||||||
| Procurement Partners, LLC | Healthcare Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Procurement Partners, LLC | Healthcare Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Procurement Partners Holdings LLC (h) | Healthcare Software | Class A Units | % | |||||||||||||||||||
| Total Healthcare Software | % | |||||||||||||||||||||
| Roscoe Medical, Inc. (h) | Healthcare Supply | Common Stock | % | |||||||||||||||||||
| Total Healthcare Supply | % | |||||||||||||||||||||
| Book4Time, Inc. (a), (d) | Hospitality/Hotel | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Book4Time, Inc. (a) | Hospitality/Hotel | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Book4Time, Inc. (a), (h), (i) | Hospitality/Hotel | Class A Preferred Shares | % | |||||||||||||||||||
| Knowland Group, LLC (h), (k) | Hospitality/Hotel | Second Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Sceptre Hospitality Resources, LLC | Hospitality/Hotel | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Sceptre Hospitality Resources, LLC (j) | Hospitality/Hotel | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Hospitality/Hotel | % | |||||||||||||||||||||
| Granite Comfort, LP (d) | HVAC Services and Sales | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Granite Comfort, LP (d), (j) | HVAC Services and Sales | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total HVAC Services and Sales | % | |||||||||||||||||||||
| Vector Controls Holding Co., LLC (d) | Industrial Products | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Vector Controls Holding Co., LLC (h) | Industrial Products | Warrants to Purchase Limited Liability Company Interests, Expires | % | |||||||||||||||||||
| Total Industrial Products | % | |||||||||||||||||||||
| AgencyBloc, LLC | Insurance Software | First Lien Term Loan (3M USD BSBY+ | $ | % | ||||||||||||||||||
| Panther ParentCo LLC (h) | Insurance Software | Class A Units | % | |||||||||||||||||||
| Total Insurance Software | % | |||||||||||||||||||||
| LogicMonitor, Inc. (d) | IT Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total IT Services | % | |||||||||||||||||||||
| ActiveProspect, Inc. (j) | Lead Management Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| ActiveProspect, Inc. | Lead Management Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Lead Management Software | % | |||||||||||||||||||||
7
| Company(1) | Industry | Investment Interest
Rate/ Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair Value (c) | % of Net Assets | |||||||||||||||
| Centerbase, LLC | Legal Software | First Lien Term Loan (1M USD TERM SOFR+ | $ | % | ||||||||||||||||||
| Total Legal Software | % | |||||||||||||||||||||
| Madison Logic, Inc. (d) | Marketing Orchestration Software | First Lien Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Madison Logic, Inc. (j) | Marketing Orchestration Software | Revolving Credit Facility (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Marketing Orchestration Software | % | |||||||||||||||||||||
| inMotionNow, Inc. | Marketing Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| inMotionNow, Inc. (d) | Marketing Services | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Marketing Services | % | |||||||||||||||||||||
| ARC Health OpCo LLC (d) | Mental Healthcare Services | First Lien Term Loan (3M USD TERM SOFR+ | $ | % | ||||||||||||||||||
| ARC Health OpCo LLC (d), (j) | Mental Healthcare Services | Delayed Draw Term Loan (3M USD TERM SOFR+ | $ | % | ||||||||||||||||||
| ARC Health OpCo LLC (h) | Mental Healthcare Services | Class A Preferred Shares | % | |||||||||||||||||||
| Total Mental Healthcare Services | % | |||||||||||||||||||||
| Chronus LLC | Mentoring Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Chronus LLC | Mentoring Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Chronus LLC (h) | Mentoring Software | Series A Preferred Stock | % | |||||||||||||||||||
| Total Mentoring Software | % | |||||||||||||||||||||
| Omatic Software, LLC | Non-profit Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Non-profit Services | % | |||||||||||||||||||||
| Emily Street Enterprises, L.L.C. | Office Supplies | Senior Secured Note (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Emily Street Enterprises, L.L.C. (h) | Office Supplies | Warrant Membership Interests Expires | % | |||||||||||||||||||
| Total Office Supplies | % | |||||||||||||||||||||
| Apex Holdings Software Technologies, LLC | Payroll Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Payroll Services | % | |||||||||||||||||||||
| Buildout, Inc. | Real Estate Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Buildout, Inc. | Real Estate Services | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Buildout, Inc. (h), (i) | Real Estate Services | Limited Partner Interests | % | |||||||||||||||||||
| Total Real Estate Services | % | |||||||||||||||||||||
8
| Company(1) | Industry | Investment Interest
Rate/ Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair Value (c) | % of Net Assets | |||||||||||||||
| Archimeds Parent LLC (h) | Research Software | Class A Common Units | % | |||||||||||||||||||
| Wellspring Worldwide Inc. | Research Software | First Lien Term Loan (3M USD BSBY+ | $ | % | ||||||||||||||||||
| Total Research Software | ||||||||||||||||||||||
| LFR Chicken LLC | Restaurant | First Lien Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| LFR Chicken LLC (j) | Restaurant | Delayed Draw Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| LFR Chicken LLC (h) | Restaurant | Series B Preferred Units | % | |||||||||||||||||||
| TMAC Acquisition Co., LLC | Restaurant | Unsecured Term Loan | $ | % | ||||||||||||||||||
| Total Restaurant | % | |||||||||||||||||||||
| Pepper Palace, Inc. (d) | Specialty Food Retailer | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Pepper Palace, Inc. (j) | Specialty Food Retailer | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Pepper Palace, Inc. (j) | Specialty Food Retailer | Revolving Credit Facility (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Pepper Palace, Inc. (h) | Specialty Food Retailer | Membership Interest | % | |||||||||||||||||||
| Total Specialty Food Retailer | % | |||||||||||||||||||||
| ArbiterSports, LLC (d) | Sports Management | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| ArbiterSports, LLC (d) | Sports Management | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Sports Management | % | |||||||||||||||||||||
| Avionte Holdings, LLC (h) | Staffing Services | Class A Units | % | |||||||||||||||||||
| Total Staffing Services | % | |||||||||||||||||||||
| JDXpert | Talent Acquisition Software | First Lien Term Loan (3M USD LIBOR+ | $ | |||||||||||||||||||
| JDXpert (j) | Talent Acquisition Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | |||||||||||||||||||
| Jobvite, Inc. (d) | Talent Acquisition Software | First Lien Term Loan (3M USD TERM SOFR+ | $ | % | ||||||||||||||||||
| Total Talent Acquisition Software | % | |||||||||||||||||||||
| National Waste Partners (d) | Waste Services | Second Lien Term Loan | $ | % | ||||||||||||||||||
| Total Waste Services | % | |||||||||||||||||||||
| Sub Total Non-control/Non-affiliate investments | % | |||||||||||||||||||||
9
| Company(1) | Industry | Investment Interest
Rate/ Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair Value (c) | % of Net Assets | |||||||||||||||
| Affiliate investments - 20.9% (b) | ||||||||||||||||||||||
| Artemis Wax Corp. (d), (f) | Consumer Services | Delayed Draw Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Artemis Wax Corp. (f), (j) | Consumer Services | Delayed Draw Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Artemis Wax Corp. (f), (h) | Consumer Services | Series B-1 Preferred Stock | % | |||||||||||||||||||
| Artemis Wax Corp. (f), (h) | Consumer Services | Series C Preferred Stock | % | |||||||||||||||||||
| Total Consumer Services | % | |||||||||||||||||||||
| ETU Holdings, Inc. (f) | Corporate Education Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| ETU Holdings, Inc. (f) | Corporate Education Software | Second Lien Term Loan | $ | % | ||||||||||||||||||
| ETU Holdings, Inc. (f),(h) | Corporate Education Software | Series A-1 Preferred Stock | % | |||||||||||||||||||
| Total Corporate Education Software | % | |||||||||||||||||||||
| Axero Holdings, LLC (f) | Employee Collaboration Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Axero Holdings, LLC (f) | Employee Collaboration Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Axero Holdings, LLC (f), (j) | Employee Collaboration Software | Revolving Credit Facility (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Axero Holdings, LLC (f), (h) | Employee Collaboration Software | Series A Preferred Units | % | |||||||||||||||||||
| Axero Holdings, LLC (f), (h) | Employee Collaboration Software | Series B Preferred Units | % | |||||||||||||||||||
| Total Employee Collaboration Software | % | |||||||||||||||||||||
| Sub Total Affiliate investments | % | |||||||||||||||||||||
| Control investments - 27.7% (b) | ||||||||||||||||||||||
| Netreo Holdings, LLC (g) | IT Services | First Lien Term Loan (3M USD LIBOR + | $ | % | ||||||||||||||||||
| Netreo Holdings, LLC (d), (g) | IT Services | Delayed Draw Term Loan (3M USD LIBOR + | $ | % | ||||||||||||||||||
| Netreo Holdings, LLC (g), (h) | IT Services | Common Stock Class A Unit | % | |||||||||||||||||||
| Total IT Services | % | |||||||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. (a), (e), (g) | Structured Finance Securities | Other/Structured Finance Securities | $ | % | ||||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-2-R-3 Note (a), (g) | Structured Finance Securities | Other/Structured Finance Securities (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Structured Finance Securities | % | |||||||||||||||||||||
| Saratoga Senior Loan Fund I JV, LLC (a), (g), (j) | Investment Fund | Unsecured Loan | $ | % | ||||||||||||||||||
| Saratoga Senior Loan Fund I JV, LLC (a), (g) | Investment Fund | Membership Interest | % | |||||||||||||||||||
| Total Investment Fund | % | |||||||||||||||||||||
| Sub Total Control investments | % | |||||||||||||||||||||
| TOTAL INVESTMENTS - 276.7% (b) | $ | $ | % | |||||||||||||||||||
10
| Number of Shares | Cost | Fair Value | % of Net Assets | |||||||||||||
| Cash and cash equivalents and cash and cash equivalents, reserve accounts - 3.8% (b) | ||||||||||||||||
| U.S. Bank Money Market (l) | $ | $ | % | |||||||||||||
| Total cash and cash equivalents and cash and cash equivalents, reserve accounts | $ | $ | % | |||||||||||||
| (1) | Securities are exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and are restricted securities. |
| (a) | Represents an investment that is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, as amended (the 1940 Act”). As of August 31, 2022, non-qualifying assets represent 7.4% of the Company’s portfolio at fair value. As a BDC, the Company generally has to invest at least 70% of its total assets in qualifying assets. |
| (b) | Percentages are based on net assets of $337,213,275 as of August 31, 2022. |
| (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 8 to the consolidated financial statements). |
| (e) | This investment does not have a stated interest rate that is payable thereon. As a result, the 5.50% 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 1940 Act, this portfolio company is an “affiliate” as we own between 5.0% and 25.0% of the outstanding voting securities. Transactions during the six months ended August 31, 2022 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) | ||||||||||||||||||
| Artemis Wax Corp. | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Axero Holdings, LLC | ||||||||||||||||||||||||
| ETU Holdins, Inc. | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
11
| (g) | As defined in the 1940 Act, we “control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the six months ended August 31, 2022 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 | $ | $ | $ | $ | $ | $ | ( | ) | ||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. | ( | ) | ||||||||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-2-R-3 Note | ( | ) | ||||||||||||||||||||||
| Saratoga Senior Loan Fund I JV, LLC | ||||||||||||||||||||||||
| Saratoga Senior Loan Fund I JV, LLC | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ( | ) | ||||||||||||||||
| (h) | Non-income producing at August 31, 2022. |
| (i) | Includes securities issued by an affiliate of the company. |
| (j) | All or a portion of this investment has an unfunded commitment as of August 31, 2022. (See Note 9 to the consolidated financial statements). |
| (k) | As of August 31, 2022, the investment was on non-accrual status. The fair value of these investments was approximately $9.7 million, which represented 1.0% 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 August 31, 2022. |
BSBY - Bloomberg Short-Term Bank Yield
LIBOR - London Interbank Offered Rate
SOFR - Secured Overnight Financing Rate
3M USD BSBY - The 3 month USD BSBY rate as of August 31, 2022 was 2.97%.
1M USD LIBOR - The 1 month USD LIBOR rate as of August 31, 2022 was 2.56%.
3M USD LIBOR - The 3 month USD LIBOR rate as of August 31, 2022 was 3.08%.
1M USD TERM SOFR - The 1 month USD SOFR rate as of August 31, 2022 was 2.28%
3M USD TERM SOFR - The 3 month USD SOFR rate as of August 31, 2022 was 1.68%
PIK - Payment-in-Kind (see Note 2 to the consolidated financial statements).
See accompanying notes to consolidated financial statements.
12
Saratoga Investment Corp.
Consolidated Schedule of Investments
February 28, 2022
| Company(1) | Industry | Investment Interest Rate/Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair
Value (c) | %
of Net Assets | |||||||||||||||
| Non-control/Non-affiliate investments - 187.4% (b) | ||||||||||||||||||||||
| Targus Holdings, Inc. (h) | Consumer Products | Common Stock | $ | $ | % | |||||||||||||||||
| Total Consumer Products | % | |||||||||||||||||||||
| Schoox, Inc. (h), (i) | Corporate Education Software | Series 1 Membership Interest | % | |||||||||||||||||||
| Total Corporate Education Software | % | |||||||||||||||||||||
| GreyHeller LLC (h) | Cyber Security | Common Stock | % | |||||||||||||||||||
| Total Cyber Security | % | |||||||||||||||||||||
| New England Dental Partners | Dental Practice Management | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| New England Dental Partners (j) | Dental Practice Management | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Dental Practice Management | % | |||||||||||||||||||||
| PDDS Buyer, LLC (d) | Dental Practice Management Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| PDDS Buyer, LLC (h) | Dental Practice Management Software | Series A-1 Preferred Shares | % | |||||||||||||||||||
| Total Dental Practice Management Software | % | |||||||||||||||||||||
| C2 Educational Systems | Education Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| C2 Education Systems, Inc. (h) | Education Services | Series A-1 Preferred Stock | % | |||||||||||||||||||
| Zollege PBC | Education Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Zollege PBC (j) | Education Services | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Zollege PBC (h) | Education Services | Class A Units | % | |||||||||||||||||||
| Total Education Services | % | |||||||||||||||||||||
| Destiny Solutions Inc. (h), (i) | Education Software | Limited Partner Interests | % | |||||||||||||||||||
| Identity Automation Systems (d) | Education Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Identity Automation Systems (h) | Education Software | Common Stock Class A-2 Units | % | |||||||||||||||||||
| Identity Automation Systems (h) | Education Software | Common Stock Class A-1 Units | % | |||||||||||||||||||
| GoReact | Education Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| GoReact (j) | Education Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Education Software | % | |||||||||||||||||||||
| TG Pressure Washing Holdings, LLC (h) | Facilities Maintenance | Preferred Equity | % | |||||||||||||||||||
| Total Facilities Maintenance | % | |||||||||||||||||||||
| Davisware, LLC | Field Service Management | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Davisware, LLC (j) | Field Service Management | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Field Service Management | % | |||||||||||||||||||||
| GDS Software Holdings, LLC | Financial Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| GDS Software Holdings, LLC (j) | Financial Services | Delayed Draw Term loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| GDS Software Holdings, LLC (h) | Financial Services | Common Stock Class A Units | % | |||||||||||||||||||
| Total Financial Services | % | |||||||||||||||||||||
13
| Company(1) | Industry | Investment Interest Rate/Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair
Value (c) | %
of Net Assets | |||||||||||||||
| Ascend Software, LLC | Financial Services Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Ascend Software, LLC (j) | Financial Services Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Financial Services Software | % | |||||||||||||||||||||
| Ohio Medical, LLC (h) | Healthcare Products Manufacturing | Common Stock | % | |||||||||||||||||||
| Total Healthcare Products Manufacturing | % | |||||||||||||||||||||
| Axiom Parent Holdings, LLC (h) | Healthcare Services | Common Stock Class A Units | % | |||||||||||||||||||
| Axiom Purchaser, Inc. (d) | Healthcare Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Axiom Purchaser, Inc. (d) | Healthcare Services | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| ComForCare Health Care (d) | Healthcare Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Healthcare Services | % | |||||||||||||||||||||
| TRC HemaTerra, LLC (h) | Healthcare Software | Class D Membership Interests | % | |||||||||||||||||||
| HemaTerra Holding Company, LLC (d) | Healthcare Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| HemaTerra Holding Company, LLC (d) | Healthcare Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Procurement Partners, LLC | Healthcare Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Procurement Partners, LLC (j) | Healthcare Software | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Procurement Partners Holdings LLC (h) | Healthcare Software | Class A Units | % | |||||||||||||||||||
| Total Healthcare Software | % | |||||||||||||||||||||
| Roscoe Medical, Inc. (h) | Healthcare Supply | Common Stock | % | |||||||||||||||||||
| Roscoe Medical, Inc. | Healthcare Supply | Second Lien Term Loan | $ | % | ||||||||||||||||||
| Total Healthcare Supply | % | |||||||||||||||||||||
| Book4Time, Inc. (a), (d) | Hospitality/Hotel | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Book4Time, Inc. (a), (j) | Hospitality/Hotel | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Book4Time, Inc. (a), (h), (i) | Hospitality/Hotel | Class A Preferred Shares | $ | % | ||||||||||||||||||
| Knowland Group, LLC | Hospitality/Hotel | Second Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Sceptre Hospitality Resources, LLC | Hospitality/Hotel | First Lien Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Sceptre Hospitality Resources, LLC (j) | Hospitality/Hotel | Delayed Draw Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Hospitality/Hotel | % | |||||||||||||||||||||
| Granite Comfort, LP | HVAC Services and Sales | First Lien Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Granite Comfort, LP(j) | HVAC Services and Sales | Delayed Draw Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total HVAC Services and Sales | % | |||||||||||||||||||||
| AgencyBloc, LLC | Insurance Software | First Lien Term Loan (3M USD BSBY+ | $ | % | ||||||||||||||||||
| Panther ParentCo LLC (h) | Insurance Software | Class A Units | % | |||||||||||||||||||
| Total Insurance Software | % | |||||||||||||||||||||
14
| Company(1) | Industry | Investment Interest Rate/Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair
Value (c) | %
of Net Assets | |||||||||||||||
| Vector Controls Holding Co., LLC (d) | Industrial Products | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Vector Controls Holding Co., LLC (h) | Industrial Products | Warrants to Purchase Limited Liability Company Interests, Expires | % | |||||||||||||||||||
| Total Industrial Products | % | |||||||||||||||||||||
| LogicMonitor, Inc. (d) | IT Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total IT Services | % | |||||||||||||||||||||
| Centerbase, LLC | Legal Software | First Lien Term Loan (Daialy USD SOFR+ | $ | % | ||||||||||||||||||
| Total Legal Software | % | |||||||||||||||||||||
| Madison Logic, Inc. | Marketing Orchestration Software | First Lien Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Madison Logic, Inc. (j) | Marketing Orchestration Software | Revolving Credit Facility (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Marketing Orchestration Software | % | |||||||||||||||||||||
| inMotionNow, Inc. | Marketing Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| inMotionNow, Inc. (d) | Marketing Services | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Marketing Services | % | |||||||||||||||||||||
| Chronus LLC | Mentoring Software | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Chronus LLC (h) | Mentoring Software | Series A Preferred Stock | % | |||||||||||||||||||
| Total Mentoring Software | % | |||||||||||||||||||||
| Omatic Software, LLC | Non-profit Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Non-profit Services | % | |||||||||||||||||||||
| Emily Street Enterprises, L.L.C. | Office Supplies | Senior Secured Note (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Emily Street Enterprises, L.L.C. (h) | Office Supplies | Warrant Membership Interests
Expires | % | |||||||||||||||||||
| Total Office Supplies | % | |||||||||||||||||||||
| Apex Holdings Software Technologies, LLC | Payroll Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Total Payroll Services | % | |||||||||||||||||||||
| Buildout, Inc. | Real Estate Services | First Lien Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Buildout, Inc. | Real Estate Services | Delayed Draw Term Loan (3M USD LIBOR+ | $ | % | ||||||||||||||||||
| Buildout, Inc. (h), (i) | Real Estate Services | Limited Partner Interests | % | |||||||||||||||||||
| Total Real Estate Services | % | |||||||||||||||||||||
| LFR Chicken LLC | Restaurant | First Lien Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| LFR Chicken LLC (j) | Restaurant | Delayed Draw Term Loan (1M USD LIBOR+ | $ | % | ||||||||||||||||||
| LFR Chicken LLC (h) | Restaurant | Series B Preferred Units | % | |||||||||||||||||||
| TMAC Acquisition Co., LLC | Restaurant | Unsecured Term Loan | $ | % | ||||||||||||||||||
| Total Restaurant | % | |||||||||||||||||||||
15
| Company(1) | Industry | Investment Interest Rate/Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair
Value (c) | %
of Net Assets | |||||||||||||||
| Pepper Palace, Inc. (d) | Specialty Food Retailer | First Lien Term Loan (3M USD LIBOR+ | 6/30/2021 | $ | % | |||||||||||||||||
| Pepper Palace, Inc. (j) | Specialty Food Retailer | Delayed Draw Term Loan (3M USD LIBOR+ | 6/30/2021 | $ | ( | ) | % | |||||||||||||||
| Pepper Palace, Inc. (j) | Specialty Food Retailer | Revolving Credit Facility (3M USD LIBOR+ | 6/30/2021 | $ | ( | ) | % | |||||||||||||||
| Pepper Palace, Inc. (h) | Specialty Food Retailer | Membership Interest | 6/30/2021 | % | ||||||||||||||||||
| Total Specialty Food Retailer | % | |||||||||||||||||||||
| ArbiterSports, LLC (d) | Sports Management | First Lien Term Loan (3M USD LIBOR+ | 2/21/2020 | $ | % | |||||||||||||||||
| ArbiterSports, LLC (d) | Sports Management | Delayed Draw Term Loan (3M USD LIBOR+ | 2/21/2020 | $ | % | |||||||||||||||||
| Total Sports Management | % | |||||||||||||||||||||
| Avionte Holdings, LLC (h) | Staffing Services | Class A Units | 1/8/2014 | % | ||||||||||||||||||
| Total Staffing Services | % | |||||||||||||||||||||
| Jobvite, Inc. (d) | Talent Acquisition Software | Second Lien Term Loan (3M USD LIBOR+ | 7/6/2021 | $ | % | |||||||||||||||||
| Total Talent Acquisition Software | % | |||||||||||||||||||||
| National Waste Partners (d) | Waste Services | Second Lien Term Loan | 2/13/2017 | $ | % | |||||||||||||||||
| Total Waste Services | % | |||||||||||||||||||||
| Sub Total Non-control/Non-affiliate investments | % | |||||||||||||||||||||
| Affiliate investments - 13.5% (b) | ||||||||||||||||||||||
| Artemis Wax Corp. (f), (j) | Consumer Services | Delayed Draw Term Loan (1M USD LIBOR+ | 5/20/2021 | $ | % | |||||||||||||||||
| Artemis Wax Corp. (f), (h) | Consumer Services | Series B-1 Preferred Stock | 5/20/2021 | % | ||||||||||||||||||
| Artemis Wax Corp. (f), (h) | Consumer Services | Series C Preferred Stock | 5/20/2021 | % | ||||||||||||||||||
| Total Consumer Services | % | |||||||||||||||||||||
| Axero Holdings, LLC (f) | Employee Collaboration Software | First Lien Term Loan (3M USD LIBOR+ | 6/30/2021 | $ | % | |||||||||||||||||
| Axero Holdings, LLC (f), (j) | Employee Collaboration Software | Delayed Draw Term Loan (3M USD LIBOR+ | 6/30/2021 | $ | % | |||||||||||||||||
| Axero Holdigns, LLC (f), (j) | Employee Collaboration Software | Revolving Credit Facility (3M USD LIBOR+ | 2/3/2022 | $ | % | |||||||||||||||||
| Axero Holdings, LLC (f), (h) | Employee Collaboration Software | Series A Preferred Units | 6/30/2021 | % | ||||||||||||||||||
| Axero Holdings, LLC (f), (h) | Employee Collaboration Software | Series B Preferred Units | 6/30/2021 | % | ||||||||||||||||||
| Total Employee Collaboration Software | % | |||||||||||||||||||||
| Sub Total Affiliate investments | % | |||||||||||||||||||||
16
| Company(1) | Industry | Investment Interest Rate/Maturity | Original Acquisition Date | Principal/ Number of Shares | Cost | Fair
Value (c) | %
of Net Assets | |||||||||||||||
| Control investments - 28.3% (b) | ||||||||||||||||||||||
| Netreo Holdings, LLC (g) | IT Services | First Lien Term Loan (3M USD LIBOR + | 7/3/2018 | $ | % | |||||||||||||||||
| Netreo Holdings, LLC (d), (g), (j) | IT Services | Delayed Draw Term Loan (3M USD LIBOR + | 5/26/2020 | $ | % | |||||||||||||||||
| Netreo Holdings, LLC (g), (h) | IT Services | Common Stock Class A Unit | 7/3/2018 | % | ||||||||||||||||||
| Total IT Services | % | |||||||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. (a), (e), (g) | Structured Finance Securities | Other/Structured Finance Securities | 1/22/2008 | $ | % | |||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-2-R-3 Note (a), (g) | Structured Finance Securities | Other/Structured Finance Securities (3M USD LIBOR+ | 8/9/2021 | $ | % | |||||||||||||||||
| Total Structured Finance Securities | % | |||||||||||||||||||||
| Saratoga Senior Loan Fund I JV, LLC (a), (g), (j) | Investment Fund | Unsecured Loan | 2/17/2022 | $ | % | |||||||||||||||||
| Saratoga Senior Loan Fund I JV, LLC (a), (g), (j) | Investment Fund | Membership Interest | 2/17/2022 | % | ||||||||||||||||||
| Total Investment Fund | % | |||||||||||||||||||||
| Sub Total Control investments | % | |||||||||||||||||||||
| TOTAL INVESTMENTS - 229.2% (b) | $ | $ | % | |||||||||||||||||||
| Number of Shares | Cost | Fair Value | % of Net Assets | |||||||||||||
| Cash and cash equivalents and cash and cash equivalents, reserve accounts - 14.9% (b) | ||||||||||||||||
| U.S. Bank Money Market (k) | $ | $ | % | |||||||||||||
| Total cash and cash equivalents and cash and cash equivalents, reserve accounts | $ | $ | % | |||||||||||||
| (1) |
| (a) | Represents an investment that is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, as amended (the 1940 Act”). As of February 28, 2022, non-qualifying assets represent 6.7% of the Company’s portfolio at fair value. As a BDC, the Company generally has to invest at least 70% of its total assets in qualifying assets. |
| (b) | Percentages are based on net assets of $355,780,523 as of February 28, 2022. |
| (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 8 to the consolidated financial statements). |
| (e) | This investment does not have a stated interest rate that is payable thereon. As a result, the 9.27% 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. |
17
| (f) | As defined in the 1940 Act, this portfolio company is an “affiliate” as we own between 5.0% and 25.0% of the outstanding voting securities. GreyHeller, LLC is no longer an affiliate as of February 28, 2022. Transactions during the year ended February 28, 2022 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) | ||||||||||||||||||
| Artemis Wax Corp. | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Axero Holdings, LLC | ||||||||||||||||||||||||
| GreyHeller, LLC | ( | ) | ( | ) | ||||||||||||||||||||
| Top Gun | ||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||
| (g) | As defined in the 1940 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 28, 2022 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. | ( | ) | ||||||||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-R-3 Note | ( | ) | ( | ) | ||||||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-1-R-3 Note | ( | ) | ( | ) | ||||||||||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-2-R-3 Note | ||||||||||||||||||||||||
| Saratoga Senior Loan Fund I JV, LLC | ||||||||||||||||||||||||
| Saratoga Senior Loan Fund I JV, LLC | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| (h) | Non-income producing at February 28, 2022. |
| (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 28, 2022. (See Note 9 to the consolidated financial statements). |
| (k) | Included within cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s consolidated statements of assets and liabilities as of February 28, 2022. |
BSBY - Bloomberg Short-Term Bank Yield
LIBOR - London Interbank Offered Rate
SOFR - Secured Overnight Financing Rate
3M USD BSBY - The 3 month USD BSBY rate as of February 28, 2022 was 0.50%.
1M USD LIBOR - The 1 month USD LIBOR rate as of February 28, 2022 was 0.24%.
3M USD LIBOR - The 3 month USD LIBOR rate as of February 28, 2022 was 0.50%.
Daily USD SOFR - The daily USD SOFR rate as of February 28, 2022 was 0.05%
PIK - Payment-in-Kind (see Note 2 to the consolidated financial statements).
See accompanying notes to consolidated financial statements.
18
SARATOGA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2022
(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 the initial public offering (“IPO”) on March 28, 2007. The Company has elected, and intends to qualify annually, to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). 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-ARC, Inc., SIA-Avionte, Inc., SIA-AX, Inc., SIA-GH, Inc., SIA-MAC, Inc., SIA-PP 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). In February 2022, SIA-GH, Inc., SIA-TT Inc. and SIA-VR, Inc. received an approved plan of liquidation following the sale of equity held by each of the portfolio companies. 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
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. SBIC II LP’s
SBIC license provides up to $
The
Company has formed a wholly owned special purpose entity, Saratoga Investment Funding II LLC, a Delaware limited liability company (“SIF
II”), for the purpose of entering into a $
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On October 26, 2021, the Company and TJHA JV I LLC (“TJHA”) entered into a Limited Liability Company Agreement (the “LLC Agreement”) to co-manage Saratoga Senior Loan Fund I JV LLC (“SLF JV”). SLF JV is under joint control and is not consolidated. SLF JV is invested in Saratoga Investment Corp Senior Loan Fund 2021-1 Ltd. (“SLF 2021”), which is a wholly owned subsidiary of SLF JV. SLF 2021 was formed for the purpose of making investments in a diversified portfolio of broadly syndicated first lien and second lien term loans or bonds in the primary and secondary markets.
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 wholly owned special purpose financing subsidiaries, Saratoga Investment Funding, LLC (previously known as GSC Investment Funding LLC), SIF II, SBIC LP, SBIC II LP, SIA-ARC, Inc., SIA-Avionte, Inc., SIA-AX, Inc., SIA-GH, Inc., SIA-MAC, Inc., SIA-PP, Inc., SIA-TG, Inc., SIA-TT Inc. and SIA-Vector, Inc. All intercompany accounts and transactions have been eliminated in consolidation. All references made to the “Company,” “we,” and “us” herein include Saratoga Investment Corp. and its consolidated subsidiaries, except as stated otherwise.
The Company, 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 six months ended August 31, 2022.
Principles of Consolidation
Under the investment company rules and regulations pursuant to ASC Topic 946, the Company is precluded from consolidating any entity other than another investment company.
The
Company has determined that SLF JV is an investment company under ASC 946; however, in accordance with such guidance the Company will
generally not consolidate its investment in a company other than a wholly-owned investment company subsidiary. SLF JV is not a wholly-owned
investment company subsidiary as the Company and TJHA each have an equal
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 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 |
| ● | we
were to hold securities in the investment company having an aggregate value in excess of |
| ● | we
were to hold securities in investment companies having an aggregate value in excess of |
As of August 31, 2022, the Company did not exceed any of these limitations.
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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 revolving credit facilities. 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 revolving credit facilities.
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:
| August 31, 2022 | August 31, 2021 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Cash and cash equivalents, reserve accounts | ||||||||
| Total cash and cash equivalents and cash and cash equivalents, reserve accounts | $ | $ | ||||||
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
Investment Valuation
The Company accounts for its investments at fair value in accordance with the FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that its investments are to be sold or its liabilities are to be transferred at the measurement 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.
21
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. We use a third-party independent valuation firm to value our investment in the subordinated notes of Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”) and the Class F-2-R-3 Notes tranche of the Saratoga CLO every quarter. |
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. |
We use multiple techniques for determining fair value based on the nature of the investment and experience with those types of investments and specific portfolio companies. The selections of the valuation techniques and the inputs and assumptions used within those techniques often require subjective judgements and estimates. These techniques include market comparables, discounted cash flows and enterprise value waterfalls. Fair value is best expressed as a range of values from which the Company determines a single best estimate. The types of inputs and assumptions that may be considered in determining the range of values of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis and volatility in future interest rates, call and put features, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flows and other relevant factors.
The Company’s investment in Saratoga CLO is carried at fair value, which is based on a discounted cash flow valuation technique that utilizes prepayment, re-investment and loss inputs 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 flows, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The cash flows use a set of inputs including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated valuations. The inputs 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.
The Company’s equity investment in SLF JV is measured using the proportionate share of the net asset value, or equivalent, of SLF JV as a practical expedient for fair value, provided by ASC 820.
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.
22
In December 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted a new rule providing a framework for fund valuation practices. New Rule 2a-5 under the 1940 Act (“Rule 2a-5”) establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 will permit boards of directors, subject to board oversight and certain other conditions, to designate certain parties to perform fair value determinations. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must determine the fair value of a security. The SEC also adopted new Rule 31a-4 under the 1940 Act (“Rule 31a-4”), which provides the recordkeeping requirements associated with fair value determinations. Finally, the SEC is rescinding previously issued guidance on related issues, including the role of the board in determining fair value and the accounting and auditing of fund investments. Rule 2a-5 and Rule 31a-4 became effective on March 8, 2021, and have a compliance date of September 8, 2022. While our board of directors has not elected to designate Saratoga Investment Advisors as the valuation designee, the Company has adopted certain revisions to its valuation policies and procedures in order comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.
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 August 31,
2022, our investment in one portfolio company was on non-accrual status with a fair value of approximately $
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.
Dividend Income
Dividend income is recorded in the consolidated statements of operations when earned.
23
Structuring and Advisory Fee Income
Structuring and advisory fee income represents various fee income earned and received for performing certain investment structuring and advisory activities during the closing of new investments.
Other Income
Other income includes prepayment income fees, and monitoring, administration and amendment 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 the SBA debentures of SBIC LP and SBIC II LP are deferred and amortized using the straight-line method over the life of the debentures. Any discount or premium on the issuance of any debt is amortized using the effective interest method over the life of the respective debt security.
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.
Realized Loss on Extinguishment of Debt
Upon the repayment of debt obligations that are deemed to be extinguishments, the difference between the principal amount due at maturity adjusted for any unamortized debt issuance costs is recognized as a loss (i.e., the unamortized debt issuance costs are recognized as a loss upon extinguishment of the underlying debt obligation).
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 reasonably believes that the likelihood of such an event is remote. Therefore, the Company has not accrued any liabilities in connection with such indemnifications.
In the ordinary course of business, the Company may directly or indirectly be a defendant or plaintiff in legal actions with respect to bankruptcy, insolvency or other types of proceedings. Such lawsuits may involve claims that could adversely affect the value of certain financial instruments owned by the Company.
Income Taxes
The Company has elected, and intends to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. By meeting these requirements, the Company will not be subject to corporate federal income taxes on ordinary income or capital gains timely distributed to stockholders. Therefore, no provision has been recorded for federal income taxes, except as related to the Taxable Blockers and long-term capital gains, when applicable.
In
order to qualify as a RIC, among other requirements, the Company is required to timely distribute to its stockholders at least
Depending on the level of investment company taxable
income earned in a tax year and the amount of net capital gains recognized in such tax year, the Company may choose to carry forward investment
company taxable income and net capital gains in excess of current year dividend distributions into the next tax year and pay the
24
In
accordance with U.S. Treasury regulations and published guidance issued by the Internal Revenue Service (“IRS”), a publicly
offered RIC may treat a distribution of its own stock as counting toward its RIC distribution requirements if each stockholder elects
to receive his, her, or its entire distribution in either cash or stock of the RIC. This published guidance indicates that the rule will
apply where the aggregate amount of cash to be distributed to all stockholders is not at least
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 28, 2022, the Company did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. The 2019, 2020, 2021 and 2022 federal tax years for the Company remain subject to examination by the IRS. As of August 31, 2022 and February 28, 2022, 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 some or all of our net capital gains for reinvestment.
We have adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of our dividend distributions on behalf of our stockholders unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of the DRIP by the dividend record date will have their cash dividends automatically reinvested into additional shares of our common stock, rather than receiving the cash dividends. We have the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator.
Capital Gains Incentive Fee
The Company records an expense accrual on the consolidated statements of operations relating to the capital gains incentive fee payable by the Company to the Manager on the consolidated statements of assets and liabilities when the net realized and unrealized gain on its investments exceed all net realized and unrealized capital losses on its investments because 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 Manager related to capital gains will be determined and payable in arrears at the end of each fiscal year and only reflected those net realized capital gains net of realized and unrealized losses for the period.
25
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and under the Encina Credit Facility. Many of these agreements (including the credit agreements relating to the Encina Credit Facility) include an alternative successor rate or language for choosing an alternative successor rate when LIBOR reference is no longer considered to be appropriate. With respect to other agreements, the Company intends to work with its portfolio companies to modify agreements to choose an alternative successor rate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The standard is effective as of March 12, 2020 through December 31, 2022. Management does not believe this optional guidance has a material impact on the Company’s consolidated financial statements and disclosures.
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. 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 independent market participants at the measurement date.
ASC 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:
| ● | Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. |
| ● | Level 2— 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 that 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. 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 technique. We use multiple techniques for determining fair value based on the nature of the investment and experience with those types of investments and specific portfolio companies. The selections of the valuation techniques and the inputs and assumptions used within those techniques often require subjective judgements and estimates. These techniques include market comparables, discounted cash flows and enterprise value waterfalls. Fair value is best expressed as a range of values from which the Company determines a single best estimate. The types of inputs and assumptions that may be considered in determining the range of values of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis and volatility in future interest rates, call and put features, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flows and other relevant factors. |
26
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 August 31, 2022 (dollars in thousands), according to the fair value hierarchy:
| Fair Value Measurements | Valued Using Net | |||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Asset Value* | Total | ||||||||||||||||
| First lien term loans | $ | $ | $ | $ | ||||||||||||||||
| Second lien term loans | ||||||||||||||||||||
| Unsecured term loans | ||||||||||||||||||||
| Structured finance securities | ||||||||||||||||||||
| Equity interests | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| * |
The following table presents fair value measurements of investments, by major class, as of February 28, 2022 (dollars in thousands), according to the fair value hierarchy:
| Fair Value Measurements | Valued Using Net | |||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Asset Value* | Total | ||||||||||||||||
| First lien term loans | $ | $ | $ | $ | $ | |||||||||||||||
| Second lien term loans | ||||||||||||||||||||
| Unsecured loans | ||||||||||||||||||||
| Structured finance securities | ||||||||||||||||||||
| Equity interests | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| * |
27
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended August 31, 2022 (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, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Payment-in-kind and other adjustments to cost | ( | ) | ( | ) | ||||||||||||||||||||
| Net accretion of discount on investments | ( | ) | ||||||||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Purchases | ||||||||||||||||||||||||
| Sales and repayments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net realized gain (loss) from investments | ||||||||||||||||||||||||
| Balance as of August 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||
Purchases, PIK 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 restructurings in or out of Levels 1, 2 or 3 during the six months ended August 31, 2022.
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended August 31, 2021 (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, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Payment-in-kind and other adjustments to cost | ||||||||||||||||||||||||
| Net accretion of discount on investments | ||||||||||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | ||||||||||||||||||||||||
| Purchases | ||||||||||||||||||||||||
| Sales and repayments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net realized gain (loss) from investments | ( | ) | ||||||||||||||||||||||
| Balance as of August 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
28
Transfers and restructurings, if any, are recognized at the beginning of the period in which they occur. There were no transfers or restructurings in or out of Levels 1, 2 or 3 during the six months ended August 31, 2021.
The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of August 31, 2022 were as follows (dollars in thousands):
| Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average* | |||||||||||
| First lien term loans | $ | ||||||||||||||
| x | |||||||||||||||
| Second lien term loans | |||||||||||||||
| Unsecured term loans | |||||||||||||||
| Structured finance securities | |||||||||||||||
| Equity interests | x | ||||||||||||||
| x | |||||||||||||||
| Total | $ | ||||||||||||||
| * |
The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of February 28, 2022 were as follows (dollars in thousands):
| Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average* | |||||||||||
| First lien term loans | $ | ||||||||||||||
| x | |||||||||||||||
| Second lien term loans | |||||||||||||||
| x | |||||||||||||||
| Unsecured term loans | |||||||||||||||
| Structured finance securities | |||||||||||||||
| Equity interests | x | ||||||||||||||
| x | |||||||||||||||
| Total | $ | ||||||||||||||
| * |
29
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 third-party bid or market quote in deriving a value, a significant increase (decrease) in the third-party bid or market quote, in isolation, would result in a significantly higher (lower) fair value measurement.
The composition of our investments as of August 31, 2022 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 | $ | % | $ | % | ||||||||||||
| Second lien term loans | ||||||||||||||||
| Unsecured term loans | ||||||||||||||||
| Structured finance securities | ||||||||||||||||
| Equity interests | ||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
The composition of our investments as of February 28, 2022 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 | $ | % | $ | % | ||||||||||||
| Second lien term loans | ||||||||||||||||
| Unsecured term loans | ||||||||||||||||
| Structured finance securities | ||||||||||||||||
| Equity interests | ||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
30
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 inputs that a hypothetical market participant would use to value the security in a current hypothetical sale using a market comparables valuation technique. In applying the market comparables valuation technique, we determine the fair value based on such factors as market participant inputs 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 comparables technique is not sufficient or appropriate, we may use additional techniques such as an asset liquidation or expected recovery model.
For equity securities of portfolio companies and partnership interests, we determine the fair value using an enterprise value waterfall valuation technique. Under the enterprise value waterfall valuation technique, 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 techniques and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The techniques 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 valuation technique that utilizes prepayment, re-investment and loss inputs 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 flows, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The cash flows use a set of inputs including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated valuations. The inputs are based on available market data and projections provided by third parties as well as management estimates. We ran Intex models based on inputs 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 August 31, 2022. The inputs at August 31, 2022 for the valuation model include:
| ● | Recovery rate: 35% -70% |
| ● | Discount rate: 13% – 18% |
| ● | Prepayment rate: 20% |
| ● | Reinvestment rate / price: $97.00 for twelve months; then L+365bps / $99.00 |
Investment Concentration
Set
forth is a brief description of each portfolio company in which the fair value of our investment represents greater than
Hematerra Holdings Company, LLC
HemaTerra Holding Company, LLC provides SaaS-based software solutions addressing complex supply chain issues across a variety of medical environments, including blood, plasma, tissue, implants and DNA sample management, to customers in blood centers, hospitals, pharmaceuticals, and law enforcement settings.
31
Buildout, Inc.
Buildout, Inc. provides SaaS-based real estate marketing and customer relationship management (“CRM”) software to commercial real estate (“CRE”) brokerages. Buildout provides a suite of software solutions brokers use to manage relationships, efficiently create and distribute marketing materials over a wide variety of channels, including direct mail, multiple listing websites, brokerage website, property specific websites and manage back office functions like commission calculations and broker productivity.
Artemis Wax Corp.
Artemis Wax Corporation is a U.S. based retail aggregator of European Wax Center (“EWC”) franchise locations with a concentration in the northeast. Founded in 2004, EWC is the largest U.S. body waxing national chain with more than 800 locations across the country.
Granite Comfort, LP
Granite Comfort, LP provides traditional service and replacement of HVAC / plumbing systems, as well as a rental model that is in the early stages of implementation.
Note 4. Investment in 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
On February 11, 2020, the Company entered into an unsecured loan agreement with Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd. (“CLO 2013-1 Warehouse 2”), a wholly owned subsidiary Saratoga CLO.
On
February 26, 2021, the Company completed the fourth refinancing of the Saratoga CLO. This fourth Saratoga CLO refinancing, among other
things, extended the Saratoga CLO reinvestment period to April 2024, and extended its legal maturity to April 2033. The non-call period
was extended to February 2022. In addition, and as part of the refinancing, the Saratoga CLO has also been upsized from $
On
August 9, 2021, the Company exchanged its existing $
32
The
Saratoga CLO remains
For
the three months ended August 31, 2022 and August 31, 2021, we accrued management fee income of $
For
the six months ended August 31, 2022 and August 31, 2021, we accrued management fee income of $
As of August 31, 2022, the aggregate principal amounts of the Company’s
investments in the subordinated notes and Class F-2-R-3 Notes of the Saratoga CLO was $
As
of February 28, 2022, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $
Below is certain financial information from the separate financial statements of Saratoga CLO as of August 31, 2022 (unaudited) and February 28, 2022 and for the three and six months ended August 31, 2022 (unaudited) and August 31, 2021 (unaudited).
33
Saratoga Investment Corp. CLO 2013-1, Ltd.
Statements of Assets and Liabilities
| August 31, 2022 | February 28, 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Investments at fair value | ||||||||
| Loans at fair value (amortized cost of $ | $ | $ | ||||||
| Equities at fair value (amortized cost of $ | ||||||||
| Total investments at fair value (amortized cost of $ | ||||||||
| Cash and cash equivalents | ||||||||
| Receivable from open trades | ||||||||
| Interest receivable (net of reserve of $ | ||||||||
| Due from affiliate (See Note 7) | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Interest payable | $ | $ | ||||||
| Payable from open trades | ||||||||
| Accrued base management fee | ||||||||
| Accrued subordinated management fee | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. Notes: | ||||||||
| Class A-1-R-3 Senior Secured Floating Rate Notes | ||||||||
| Class A-2-R-3 Senior Secured Floating Rate Notes | ||||||||
| Class B-FL-R-3 Senior Secured Floating Rate Notes | ||||||||
| Class B-FXD-R-3 Senior Secured Fixed Rate Notes | ||||||||
| Class C-FL-R-3 Deferrable Mezzanine Floating Rate Notes | ||||||||
| Class C-FXD-R-3 Deferrable Mezzanine Fixed Rate Notes | ||||||||
| Class D-R-3 Deferrable Mezzanine Floating Rate Notes | ||||||||
| Discount on Class D-R-3 Notes | ( | ) | ( | ) | ||||
| Class E-R-3 Deferrable Mezzanine Floating Rate Notes | ||||||||
| Discount on Class E-R-3 Notes | ( | ) | ( | ) | ||||
| Class F-1-R-3 Notes Deferrable Junior Floating Rate Notes | ||||||||
| Class F-2-R-3 Notes Deferrable Junior Floating Rate Notes | ||||||||
| Deferred debt financing costs | ( | ) | ( | ) | ||||
| Subordinated Notes | ||||||||
| Discount on Subordinated Notes | ( | ) | ( | ) | ||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies | ||||||||
| NET ASSETS | ||||||||
| Ordinary equity, par value $ | $ | $ | ||||||
| Total distributable earnings (loss) | ( | ) | ( | ) | ||||
| Total net assets | ( | ) | ( | ) | ||||
| Total liabilities and net assets | $ | $ | ||||||
See accompanying notes to financial statements
34
Saratoga Investment Corp. CLO 2013-1, Ltd.
Statements of Operations
(unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | |||||||||||||
| INVESTMENT INCOME | ||||||||||||||||
| Total interest from investments | $ | $ | $ | $ | ||||||||||||
| Interest from cash and cash equivalents | ||||||||||||||||
| Other income | ||||||||||||||||
| Total investment income | ||||||||||||||||
| EXPENSES | ||||||||||||||||
| Interest and debt financing expenses | ||||||||||||||||
| Base management fee | ||||||||||||||||
| Subordinated management fee | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Trustee expenses | ||||||||||||||||
| Other expense | ||||||||||||||||
| Total expenses | ||||||||||||||||
| NET INVESTMENT INCOME (LOSS) | ( | ) | ( | ) | ||||||||||||
| REALIZED AND UNREALIZED LOSS ON INVESTMENTS | ||||||||||||||||
| Net realized gain (loss) from investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Net change in unrealized appreciation (depreciation) on investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net realized and unrealized gain (loss) on investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
See accompanying notes to financial statements
35
Saratoga Investment Corp. CLO 2013-1, Ltd.
Schedule of Investments
August 31, 2022
(unaudited)
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| 19TH HOLDINGS GOLF, LLC | % | % | % | $ | $ | $ | ||||||||||||||||||||||||||||
| 888 Acquisitions Limited | % | % | % | |||||||||||||||||||||||||||||||
| ADMI Corp. | % | % | % | |||||||||||||||||||||||||||||||
| Adtalem Global Education Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Aegis Sciences Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Agiliti Health Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Agiliti Health Inc. | % | % | % | |||||||||||||||||||||||||||||||
| AHEAD DB Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| AI Convoy (Luxembourg) S.a.r.l. | % | % | % | |||||||||||||||||||||||||||||||
| Air Canada | % | % | % | |||||||||||||||||||||||||||||||
| AIS HoldCo, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Alchemy Copyrights, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Alchemy US Holdco 1, LLC | % | % | % | |||||||||||||||||||||||||||||||
| AlixPartners, LLP | % | % | % | |||||||||||||||||||||||||||||||
| Alkermes, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Allen Media, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Alliant Holdings Intermediate, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Allied Universal Holdco LLC | % | % | % | |||||||||||||||||||||||||||||||
| Altisource Solutions S.a r.l. | % | % | % | |||||||||||||||||||||||||||||||
| Altium Packaging LLC | % | % | % | |||||||||||||||||||||||||||||||
| American Greetings Corporation | % | % | % | |||||||||||||||||||||||||||||||
| American Trailer World Corp | % | % | % | |||||||||||||||||||||||||||||||
| AmWINS Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Anastasia Parent LLC | % | % | % | |||||||||||||||||||||||||||||||
| Anchor Glass Container Corporation | % | % | % | |||||||||||||||||||||||||||||||
| ANI Pharmaceuticals, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| AP Core Holdings II LLC | % | % | % | |||||||||||||||||||||||||||||||
| AP Core Holdings II LLC | % | % | % | |||||||||||||||||||||||||||||||
| APEX GROUP TREASURY LIMITED | % | % | % | |||||||||||||||||||||||||||||||
| APi Group DE, Inc. (J2 Acquisition) | % | % | % | |||||||||||||||||||||||||||||||
| APLP Holdings Limited Partnership | % | % | % | |||||||||||||||||||||||||||||||
| Apollo Commercial Real Estate Finance, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Apollo Commercial Real Estate Finance, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| AppLovin Corporation | % | % | % | |||||||||||||||||||||||||||||||
36
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| AppLovin Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Aramark Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Aramark Corporation | % | % | % | |||||||||||||||||||||||||||||||
| ARC FALCON I INC. (a) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| ARC FALCON I INC. | % | % | % | |||||||||||||||||||||||||||||||
| Arches Buyer Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Arctic Glacier U.S.A., Inc. | % | % | % | - | - | |||||||||||||||||||||||||||||
| Aretec Group, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| ASP BLADE HOLDINGS, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Asplundh Tree Expert, LLC | % | % | % | |||||||||||||||||||||||||||||||
| AssuredPartners Capital, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Assuredpartners Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Assuredpartners Inc. | % | % | % | |||||||||||||||||||||||||||||||
| ASTRO ONE ACQUISITION CORPORATION | % | % | % | |||||||||||||||||||||||||||||||
| Asurion, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Asurion, LLC | % | % | % | |||||||||||||||||||||||||||||||
| ATHENAHEALTH GROUP INC. (a) | - | - | ( | ) | ||||||||||||||||||||||||||||||
| ATHENAHEALTH GROUP INC. | % | % | % | |||||||||||||||||||||||||||||||
| Avast Software S.R.O. (Sybil Finance) | % | % | % | |||||||||||||||||||||||||||||||
| Avaya, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Avaya, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Avison Young (Canada) Inc | % | % | % | |||||||||||||||||||||||||||||||
| Avison Young (Canada) Inc | % | % | % | |||||||||||||||||||||||||||||||
| Avolon TLB Borrower 1 (US) LLC | % | % | % | |||||||||||||||||||||||||||||||
| Avolon TLB Borrower 1 (US) LLC | % | % | % | |||||||||||||||||||||||||||||||
| AZURITY PHARMACEUTICALS, INC. | % | % | % | |||||||||||||||||||||||||||||||
| B&G Foods, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| B.C. Unlimited Liability Co (Burger King) | % | % | % | |||||||||||||||||||||||||||||||
| BAKELITE UK INTERMEDIATE LTD. | % | % | % | |||||||||||||||||||||||||||||||
| Baldwin Risk Partners, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Bausch Health Companies Inc. | % | % | % | |||||||||||||||||||||||||||||||
| BCPE Empire Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Belfor Holdings Inc. | % | % | % | |||||||||||||||||||||||||||||||
37
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Belfor Holdings Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Belron Finance US LLC | % | % | % | |||||||||||||||||||||||||||||||
| Bengal Debt Merger Sub LLC | % | % | % | |||||||||||||||||||||||||||||||
| Blackstone Mortgage Trust, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Blackstone Mortgage Trust, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Blucora, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Blue Tree Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Bombardier Recreational Products, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Boxer Parent Company, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Bracket Intermediate Holding Corp | % | % | % | |||||||||||||||||||||||||||||||
| BrightSpring Health Services (Phoenix Guarantor) | % | % | % | |||||||||||||||||||||||||||||||
| BroadStreet Partners, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Brookfield WEC Holdings Inc. | % | % | % | |||||||||||||||||||||||||||||||
| BROWN GROUP HOLDING, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Buckeye Partners, L.P. | % | % | % | |||||||||||||||||||||||||||||||
| BW Gas & Convenience Holdings LLC | % | % | % | |||||||||||||||||||||||||||||||
| Callaway Golf Company | % | % | % | |||||||||||||||||||||||||||||||
| Camping World, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CareerBuilder, LLC | % | % | % | |||||||||||||||||||||||||||||||
| CareStream Health, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Casa Systems, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Castle US Holding Corporation | % | % | % | |||||||||||||||||||||||||||||||
| CBI BUYER, INC. | % | % | % | |||||||||||||||||||||||||||||||
| CCC Intelligent Solutions Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CCI Buyer, Inc | % | % | % | |||||||||||||||||||||||||||||||
| CCRR Parent, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CCS-CMGC Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CDK GLOBAL, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Cengage Learning, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CENTURI GROUP, INC. | % | % | % | |||||||||||||||||||||||||||||||
| CenturyLink, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Charlotte Buyer, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Chemours Company, (The) | % | % | % | |||||||||||||||||||||||||||||||
| Churchill Downs Incorporated | % | % | % | |||||||||||||||||||||||||||||||
| CIMPRESS PUBLIC LIMITED COMPANY | % | % | % | |||||||||||||||||||||||||||||||
| CITADEL SECURITIES LP | % | % | % | |||||||||||||||||||||||||||||||
38
| Issuer Name | Industry | Asset Name | Asset
Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Clarios Global LP | % | % | % | |||||||||||||||||||||||||||||||
| Claros Mortgage Trust, Inc | % | % | % | |||||||||||||||||||||||||||||||
| CLYDESDALE ACQUISITION HOLDINGS, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Cole Haan | % | % | % | |||||||||||||||||||||||||||||||
| Columbus McKinnon Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Conduent, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Connect Finco SARL | % | % | % | |||||||||||||||||||||||||||||||
| Consolidated Communications, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CORAL-US CO-BORROWER LLC | % | % | % | |||||||||||||||||||||||||||||||
| Corelogic, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Cortes NP Acquisition Corp (Vertiv) | % | % | % | |||||||||||||||||||||||||||||||
| COWEN INC. | % | % | % | |||||||||||||||||||||||||||||||
| Creative Artists Agency, LLC | % | % | % | |||||||||||||||||||||||||||||||
| CROCS INC | % | % | % | |||||||||||||||||||||||||||||||
| Cross Financial Corp | % | % | % | |||||||||||||||||||||||||||||||
| Crown Subsea Communications Holding, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CSC Holdings LLC (Neptune Finco Corp.) | % | % | % | |||||||||||||||||||||||||||||||
| CSC Holdings LLC (Neptune Finco Corp.) | % | % | % | |||||||||||||||||||||||||||||||
| CSC Holdings LLC (Neptune Finco Corp.) | % | % | % | |||||||||||||||||||||||||||||||
| CTS Midco, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Daseke Inc | % | % | % | |||||||||||||||||||||||||||||||
| Dave & Buster’s Inc. | % | % | % | |||||||||||||||||||||||||||||||
| DCert Buyer, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Dealer Tire, LLC | - | - | ||||||||||||||||||||||||||||||||
| Delek US Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| DexKo Global, Inc. (Dragon Merger) | % | % | % | |||||||||||||||||||||||||||||||
| Diamond Sports Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Diamond Sports Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| DIRECTV FINANCING, LLC | % | % | % | |||||||||||||||||||||||||||||||
| DISCOVERY PURCHASER CORPORATION | % | % | % | |||||||||||||||||||||||||||||||
| Dispatch Acquisition Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| DOMTAR CORPORATION | % | % | % | |||||||||||||||||||||||||||||||
39
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| DRI HOLDING INC. | % | % | % | |||||||||||||||||||||||||||||||
| DRW Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| DTZ U.S. Borrower, LLC | % | % | % | |||||||||||||||||||||||||||||||
| EAB Global, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Echo Global Logistics, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Edelman Financial Group Inc., The | % | % | % | |||||||||||||||||||||||||||||||
| Electrical Components Inter., Inc. | % | % | % | |||||||||||||||||||||||||||||||
| ELECTRON BIDCO INC. | % | % | % | |||||||||||||||||||||||||||||||
| ELO Touch Solutions, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Embecta Corp | % | % | % | |||||||||||||||||||||||||||||||
| Endo Luxembourg Finance Company I S.a.r.l. | % | % | % | |||||||||||||||||||||||||||||||
| Endure Digital, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Envision Healthcare Corporation | % | % | % | |||||||||||||||||||||||||||||||
| EOS U.S. FINCO LLC | % | % | % | |||||||||||||||||||||||||||||||
| Equiniti Group PLC | % | % | % | |||||||||||||||||||||||||||||||
| EyeCare Partners, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Finco I LLC | % | % | % | |||||||||||||||||||||||||||||||
| First Brands Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| First Eagle Investment Management | % | % | % | |||||||||||||||||||||||||||||||
| First Student Bidco Inc. | % | % | % | |||||||||||||||||||||||||||||||
| First Student Bidco Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Fitness International, LLC (LA Fitness) | % | % | % | |||||||||||||||||||||||||||||||
| FOCUS FINANCIAL PARTNERS, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Franchise Group, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Franklin Square Holdings, L.P. | % | % | % | |||||||||||||||||||||||||||||||
| Froneri International (R&R Ice Cream) | % | % | % | |||||||||||||||||||||||||||||||
| Garrett LX III S.a r.l. | % | % | % | |||||||||||||||||||||||||||||||
| Gemini HDPE LLC | % | % | % | |||||||||||||||||||||||||||||||
| General Nutrition Centers, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Genesee & Wyoming, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| GGP Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Global Tel*Link Corporation | % | % | % | |||||||||||||||||||||||||||||||
40
| Issuer Name | Industry | Asset Name | Asset
Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Go Daddy Operating Company, LLC | % | % | % | |||||||||||||||||||||||||||||||
| GOLDEN WEST PACKAGING GROUP LLC | % | % | % | |||||||||||||||||||||||||||||||
| Graham Packaging Co Inc | % | % | % | |||||||||||||||||||||||||||||||
| Great Outdoors Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Greenhill & Co., Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Griffon Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Grosvenor Capital Management Holdings, LLLP | % | % | % | |||||||||||||||||||||||||||||||
| Harbor Freight Tools USA, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Harland Clarke Holdings Corp. | % | % | % | |||||||||||||||||||||||||||||||
| Helix Gen Funding, LLc | % | % | % | |||||||||||||||||||||||||||||||
| Hillman Group Inc. (The) (New) (a) | % | % | % | |||||||||||||||||||||||||||||||
| Hillman Group Inc. (The) (New) | % | % | % | |||||||||||||||||||||||||||||||
| HLF Financing SARL (Herbalife) | % | % | % | |||||||||||||||||||||||||||||||
| Holley Purchaser, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Howden Group Holdings | % | % | % | |||||||||||||||||||||||||||||||
| Hudson River Trading LLC | % | % | % | |||||||||||||||||||||||||||||||
| Idera, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| IMA Financial Group, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| INDY US BIDCO, LLC | % | % | % | |||||||||||||||||||||||||||||||
| INEOS US PETROCHEM LLC | % | % | % | |||||||||||||||||||||||||||||||
| Informatica Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Ingram Micro Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Inmar Acquisition Sub, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Innophos, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| INSTANT BRANDS HOLDINGS INC. | % | % | % | |||||||||||||||||||||||||||||||
| INSTRUCTURE HOLDINGS, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Isagenix International, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Ivory Merger Sub, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| J Jill Group, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Jane Street Group | % | % | % | |||||||||||||||||||||||||||||||
| Journey Personal Care Corp. | % | % | % | |||||||||||||||||||||||||||||||
41
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| JP Intermediate B, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Klockner-Pentaplast of America, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Kodiak BP, LLC | % | % | % | |||||||||||||||||||||||||||||||
| KREF Holdings X LLC | % | % | % | |||||||||||||||||||||||||||||||
| Lakeland Tours, LLC (d) | % | % | % | |||||||||||||||||||||||||||||||
| Lakeland Tours, LLC (d) | % | % | % | |||||||||||||||||||||||||||||||
| Lealand Finance Company B.V. (d) | % | % | % | |||||||||||||||||||||||||||||||
| Learfield Communications, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Lifetime Brands, Inc | % | % | % | |||||||||||||||||||||||||||||||
| LIGHTSTONE HOLDCO LLC | % | % | % | |||||||||||||||||||||||||||||||
| LIGHTSTONE HOLDCO LLC | % | % | % | |||||||||||||||||||||||||||||||
| Liquid Tech Solutions Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| LogMeIn, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| LOYALTY VENTURES INC. | % | % | % | |||||||||||||||||||||||||||||||
| LPL Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| LSF11 A5 HOLDCO LLC | % | % | % | |||||||||||||||||||||||||||||||
| LSF9 Atlantis Holdings, LLC (A Wireless) | % | % | % | |||||||||||||||||||||||||||||||
| MA FinanceCo LLC | % | % | % | |||||||||||||||||||||||||||||||
| MAGNITE, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Marriott Ownership Resorts, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Match Group, Inc, The | % | % | % | |||||||||||||||||||||||||||||||
| Mayfield Agency Borrower Inc. (FeeCo) | % | % | % | |||||||||||||||||||||||||||||||
| McGraw-Hill Education, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| MedAssets Software Inter Hldg, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Mermaid Bidco Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Messer Industries, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Michaels Companies Inc | % | % | % | |||||||||||||||||||||||||||||||
| Milk Specialties Company | % | % | % | |||||||||||||||||||||||||||||||
| MJH Healthcare Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| MRC Global Inc. | % | % | % | |||||||||||||||||||||||||||||||
| MW Industries, Inc. (Helix Acquisition Holdings) | % | % | % | |||||||||||||||||||||||||||||||
| NAB Holdings, LLC (North American Bancard) | % | % | % | |||||||||||||||||||||||||||||||
| Natgasoline LLC | % | % | % | |||||||||||||||||||||||||||||||
42
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| National Mentor Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| National Mentor Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| NEW ERA CAP, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Nexstar Broadcasting, Inc. (Mission Broadcasting) | % | % | % | |||||||||||||||||||||||||||||||
| Next Level Apparel, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| NM Z Parent Inc (Zep Inc) | % | % | % | |||||||||||||||||||||||||||||||
| NorthPole Newco S.a.r.l (b) | | % | % | % | ||||||||||||||||||||||||||||||
| NortonLifeLock Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Novae LLC | % | % | % | |||||||||||||||||||||||||||||||
| Novae LLC | % | % | % | |||||||||||||||||||||||||||||||
| Nuvei Technologies Corp. | % | % | % | |||||||||||||||||||||||||||||||
| Olaplex, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Organon & Co. | % | % | % | |||||||||||||||||||||||||||||||
| Pacific Gas & Electric | % | % | % | |||||||||||||||||||||||||||||||
| PACTIV EVERGREEN GROUP HOLDINGS INC. | % | % | % | |||||||||||||||||||||||||||||||
| Padagis LLC | % | % | % | |||||||||||||||||||||||||||||||
| Panther Guarantor II, L.P. (Forcepoint) | % | % | % | |||||||||||||||||||||||||||||||
| PATAGONIA HOLDCO LLC | % | % | % | |||||||||||||||||||||||||||||||
| Pathway Partners Vet Management Company LLC | % | % | % | |||||||||||||||||||||||||||||||
| PCI Gaming Authority | % | % | % | |||||||||||||||||||||||||||||||
| PEARLS (Netherlands) Bidco B.V. | % | % | % | |||||||||||||||||||||||||||||||
| PECF USS INTERMEDIATE HOLDING III CORPORATION | % | % | % | |||||||||||||||||||||||||||||||
| PEDIATRIC ASSOCIATES HOLDING COMPANY, LLC (a) | % | % | % | |||||||||||||||||||||||||||||||
| PEDIATRIC ASSOCIATES HOLDING COMPANY, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Penn National Gaming, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Peraton Corp. | % | % | % | |||||||||||||||||||||||||||||||
| PHYSICIAN PARTNERS, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Pike Corporation | % | % | % | |||||||||||||||||||||||||||||||
43
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Ping Identity Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Pitney Bowes Inc | % | % | % | |||||||||||||||||||||||||||||||
| Plastipak Holdings Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Playtika Holding Corp. | % | % | % | |||||||||||||||||||||||||||||||
| PMHC II, INC. | % | % | % | |||||||||||||||||||||||||||||||
| PointClickCare Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Polymer Process Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Pre-Paid Legal Services, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Presidio, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Prime Security Services Borrower, LLC (ADT) | % | % | % | |||||||||||||||||||||||||||||||
| PRIORITY HOLDINGS, LLC | % | % | % | |||||||||||||||||||||||||||||||
| PriSo Acquisition Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Project Leopard Holdings, Inc. (NEW) | % | % | % | |||||||||||||||||||||||||||||||
| Prometric Inc. (Sarbacane Bidco) | % | % | % | |||||||||||||||||||||||||||||||
| PUG LLC | % | % | % | |||||||||||||||||||||||||||||||
| QUEST BORROWER LIMITED | % | % | % | |||||||||||||||||||||||||||||||
| Rackspace Technology Global, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| RealPage, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Renaissance Learning, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Rent-A-Center, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Research Now Group, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Resideo Funding Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Resolute Investment Managers (American Beacon), Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Restoration Hardware, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Reynolds Consumer Products LLC | % | % | % | |||||||||||||||||||||||||||||||
| Reynolds Group Holdings Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Robertshaw US Holding Corp. | % | % | % | |||||||||||||||||||||||||||||||
| Rocket Software, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Russell Investments US Inst’l Holdco, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| RV Retailer LLC | % | % | % | |||||||||||||||||||||||||||||||
| Ryan Specialty Group LLC | % | % | % | |||||||||||||||||||||||||||||||
| S&S HOLDINGS LLC | % | % | % | |||||||||||||||||||||||||||||||
| Sally Holdings LLC | % | % | % | |||||||||||||||||||||||||||||||
| Samsonite International S.A. | % | % | % | |||||||||||||||||||||||||||||||
44
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Schweitzer-Mauduit International, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Scientific Games Holdings LP | % | % | % | |||||||||||||||||||||||||||||||
| SETANTA AIRCRAFT LEASING DAC | % | % | % | |||||||||||||||||||||||||||||||
| Signify Health, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Sitel Worldwide Corporation | % | % | % | |||||||||||||||||||||||||||||||
| SiteOne Landscape Supply, LLC | % | % | % | |||||||||||||||||||||||||||||||
| SMG US Midco 2, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Sotheby’s | % | % | % | |||||||||||||||||||||||||||||||
| Sparta U.S. HoldCo LLC | % | % | % | |||||||||||||||||||||||||||||||
| Specialty Pharma III Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Spectrum Brands, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Spin Holdco, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| SRAM, LLC | % | % | % | |||||||||||||||||||||||||||||||
| SS&C Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| SS&C Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| SS&C Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Staples, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Stars Group Inc. (The) | % | % | % | |||||||||||||||||||||||||||||||
| Storable, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Superannuation & Investments US LLC | % | % | % | |||||||||||||||||||||||||||||||
| Sylvamo Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Syncsort Incorporated | % | % | % | |||||||||||||||||||||||||||||||
| Ta TT Buyer LLC | % | % | % | |||||||||||||||||||||||||||||||
| Tenable Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Teneo Holdings LLC | % | % | % | |||||||||||||||||||||||||||||||
| Tenneco Inc | % | % | % | |||||||||||||||||||||||||||||||
| Ten-X, LLC | % | % | % | |||||||||||||||||||||||||||||||
| The Dun & Bradstreet Corporation | % | % | % | |||||||||||||||||||||||||||||||
| The Dun & Bradstreet Corporation | % | % | % | |||||||||||||||||||||||||||||||
| THE KNOT WORLDWIDE INC. | % | % | % | |||||||||||||||||||||||||||||||
| Thor Industries, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| TORY BURCH LLC | % | % | % | |||||||||||||||||||||||||||||||
| Tosca Services, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Trans Union LLC | % | % | % | |||||||||||||||||||||||||||||||
| Transdigm, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| TRITON WATER HOLDINGS, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Tronox Finance LLC | % | % | % | |||||||||||||||||||||||||||||||
45
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| TruGreen Limited Partnership | % | % | % | |||||||||||||||||||||||||||||||
| Uber Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Ultra Clean Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Unimin Corporation | % | % | % | |||||||||||||||||||||||||||||||
| United Natural Foods, Inc | % | % | % | |||||||||||||||||||||||||||||||
| United Road Services Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Univision Communications Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Univision Communications Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Utz Quality Foods, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Vaco Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Verifone Systems, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Vertex Aerospace Services Corp | % | % | % | |||||||||||||||||||||||||||||||
| VFH Parent LLC | % | % | % | |||||||||||||||||||||||||||||||
| Virtus Investment Partners, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Vistra Energy Corp | % | % | % | |||||||||||||||||||||||||||||||
| Vizient, Inc | % | % | % | |||||||||||||||||||||||||||||||
| VM Consolidated, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Vouvray US Finance LLC | % | % | % | |||||||||||||||||||||||||||||||
| Warner Music Group Corp. (WMG Acquisition Corp.) | % | % | % | |||||||||||||||||||||||||||||||
| Wastequip, LLC (HPCC Merger/Patriot Container) | % | % | % | |||||||||||||||||||||||||||||||
| Watlow Electric Manufacturing Company | % | % | % | |||||||||||||||||||||||||||||||
| West Corporation | % | % | % | |||||||||||||||||||||||||||||||
| West Corporation | % | % | % | |||||||||||||||||||||||||||||||
| WEX Inc. | % | % | % | |||||||||||||||||||||||||||||||
| WildBrain Ltd. | % | % | % | |||||||||||||||||||||||||||||||
| WP CITYMD BIDCO LLC | % | % | % | |||||||||||||||||||||||||||||||
| Xperi Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Zayo Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| ZEBRA BUYER (Allspring) LLC | % | % | % | |||||||||||||||||||||||||||||||
| Zekelman Industries, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Zodiac Pool Solutions | % | % | % | |||||||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||||||
46
| Number of Shares | Cost | Fair Value | ||||||||||
| Cash and cash equivalents | ||||||||||||
| U.S. Bank Money Market (c) | $ | $ | ||||||||||
| Total cash and cash equivalents | $ | $ | ||||||||||
| (a) | All or a portion of this investment has an unfunded commitment as of August 31, 2022 |
| (b) | As of August 31, 2022, the investment was in default and on non-accrual status. |
| (c) | Included within cash and cash equivalents in Saratoga CLO’s Statements of Assets and Liabilities as of August 31, 2022. |
| (d) | Investments include Payment-in-Kind Interest. |
LIBOR—London Interbank Offered Rate
SOFR - Secured Overnight Financing Rate
WIBOR - Warsaw Interbank Offered Rate
1M USD LIBOR—The 1 month USD LIBOR rate as of August 31, 2022 was 2.56%.
3M USD LIBOR—The 3 month USD LIBOR rate as of August 31, 2022 was 3.08%.
6M USD LIBOR—The 6 month USD LIBOR rate as of August 31, 2022 was 3.60%.
12M USD LIBOR - The 12 month USD LIBOR rate as of August 31, 2022 was 4.16%.
3 PL WIBOR - The 3 month PL WIBOR rate as of August 31, 2022 was 7.11%.
Daily SOFR- The daily SOFR rate as of August 31, 2022 was 2.29%.
1M SOFR - The 1 month SOFR rate as of August 31, 2022 was 2.28%.
3M SOFR - The 3 month SOFR rate as of August 31, 2022 was 1.68%.
Prime—The Prime Rate as of August 31, 2022 was 5.50%.
See accompanying notes to consolidated financial statements.
47
Saratoga Investment Corp. CLO 2013-1, Ltd.
Schedule of Investments
February 28, 2022
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Fusion Connect Warrant | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| J Jill Common Stock | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| 19TH HOLDINGS GOLF, LLC | % | % | % | |||||||||||||||||||||||||||||||
| ADMI Corp. | % | % | % | |||||||||||||||||||||||||||||||
| Adtalem Global Education Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Aegis Sciences Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Agiliti Health Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Agiliti Health Inc. | % | % | % | |||||||||||||||||||||||||||||||
| AHEAD DB Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| AI Convoy (Luxembourg) S.a.r.l. | % | % | % | |||||||||||||||||||||||||||||||
| AIS HoldCo, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Alchemy Copyrights, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Alchemy US Holdco 1, LLC | % | % | % | |||||||||||||||||||||||||||||||
| AlixPartners, LLP | % | % | % | |||||||||||||||||||||||||||||||
| Alkermes, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Allen Media, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Alliant Holdings I, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Allied Universal Holdco LLC | % | % | % | |||||||||||||||||||||||||||||||
| Altisource Solutions S.a r.l. | % | % | % | |||||||||||||||||||||||||||||||
| Altium Packaging LLC | % | % | % | |||||||||||||||||||||||||||||||
| American Greetings Corporation | % | % | % | |||||||||||||||||||||||||||||||
| American Trailer World Corp | % | % | % | |||||||||||||||||||||||||||||||
| AmeriLife Holdings LLC | % | % | % | |||||||||||||||||||||||||||||||
| AmWINS Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Anastasia Parent LLC | % | % | % | |||||||||||||||||||||||||||||||
| Anchor Glass Container Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Anchor Packaging, LLC | % | % | % | |||||||||||||||||||||||||||||||
| ANI Pharmaceuticals, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| AP Core Holdings II LLC | % | % | % | |||||||||||||||||||||||||||||||
| AP Core Holdings II LLC | % | % | % | |||||||||||||||||||||||||||||||
| APi Group DE, Inc. (J2 Acquisition) | % | % | % | |||||||||||||||||||||||||||||||
| APLP Holdings Limited Partnership | % | % | % | |||||||||||||||||||||||||||||||
48
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Apollo Commercial Real Estate Finance, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Apollo Commercial Real Estate Finance, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| AppLovin Corporation | % | % | % | |||||||||||||||||||||||||||||||
| AppLovin Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Aramark Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Aramark Corporation | % | % | % | |||||||||||||||||||||||||||||||
| ARC FALCON I INC. | % | % | % | |||||||||||||||||||||||||||||||
| ARC FALCON I INC. (a) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Arches Buyer Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Arctic Glacier U.S.A., Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Aretec Group, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| ASP BLADE HOLDINGS, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Asplundh Tree Expert, LLC | % | % | % | |||||||||||||||||||||||||||||||
| AssuredPartners Capital, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Assuredpartners Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Assuredpartners Inc. | % | % | % | |||||||||||||||||||||||||||||||
| ASTRO ONE ACQUISITION CORPORATION | % | % | % | |||||||||||||||||||||||||||||||
| Asurion, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Asurion, LLC | % | % | % | |||||||||||||||||||||||||||||||
| ATHENAHEALTH GROUP INC. | % | % | % | |||||||||||||||||||||||||||||||
| ATHENAHEALTH GROUP INC. (a) | - | - | ( | ) | ||||||||||||||||||||||||||||||
| Avast Software S.R.O. (Sybil Finance) | % | % | % | |||||||||||||||||||||||||||||||
| Avaya, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Avaya, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Avison Young (Canada) Inc | % | % | % | |||||||||||||||||||||||||||||||
| Avolon TLB Borrower 1 (US) LLC | % | % | % | |||||||||||||||||||||||||||||||
| Avolon TLB Borrower 1 (US) LLC | % | % | % | |||||||||||||||||||||||||||||||
| AZURITY PHARMACEUTICALS, INC. | % | % | % | |||||||||||||||||||||||||||||||
| B&G Foods, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| B.C. Unlimited Liability Co (Burger King) | % | % | % | |||||||||||||||||||||||||||||||
| BAKELITE UK INTERMEDIATE LTD. | % | % | % | |||||||||||||||||||||||||||||||
| Baldwin Risk Partners, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Belfor Holdings Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Belron Finance US LLC | % | % | % | |||||||||||||||||||||||||||||||
49
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Bengal Debt Merger Sub LLC | % | % | % | |||||||||||||||||||||||||||||||
| Bengal Debt Merger Sub LLC | % | % | % | |||||||||||||||||||||||||||||||
| Blackstone Mortgage Trust, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Blackstone Mortgage Trust, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Blucora, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Blue Tree Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Bombardier Recreational Products, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Boxer Parent Company, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Bracket Intermediate Holding Corp | % | % | % | |||||||||||||||||||||||||||||||
| BrightSpring Health Services (Phoenix Guarantor) | % | % | % | |||||||||||||||||||||||||||||||
| BroadStreet Partners, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Brookfield WEC Holdings Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Buckeye Partners, L.P. | % | % | % | |||||||||||||||||||||||||||||||
| BW Gas & Convenience Holdings LLC | % | % | % | |||||||||||||||||||||||||||||||
| Callaway Golf Company | % | % | % | |||||||||||||||||||||||||||||||
| CareerBuilder, LLC | % | % | % | |||||||||||||||||||||||||||||||
| CareStream Health, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Casa Systems, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Castle US Holding Corporation | % | % | % | |||||||||||||||||||||||||||||||
| CBI BUYER, INC. | % | % | % | |||||||||||||||||||||||||||||||
| CCC Intelligent Solutions Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CCI Buyer, Inc | % | % | % | |||||||||||||||||||||||||||||||
| CCRR Parent, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CCS-CMGC Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Cengage Learning, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CENTURI GROUP, INC. | % | % | % | |||||||||||||||||||||||||||||||
| CenturyLink, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Chemours Company, (The) | % | % | % | |||||||||||||||||||||||||||||||
| Churchill Downs Incorporated | % | % | % | |||||||||||||||||||||||||||||||
| CIMPRESS PUBLIC LIMITED COMPANY | % | % | % | |||||||||||||||||||||||||||||||
| CITADEL SECURITIES LP | % | % | % | |||||||||||||||||||||||||||||||
| Clarios Global LP | % | % | % | |||||||||||||||||||||||||||||||
50
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Claros Mortgage Trust, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Cole Haan | % | % | % | |||||||||||||||||||||||||||||||
| Columbus McKinnon Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Compass Power Generation, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Conduent, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Connect Finco SARL | % | % | % | |||||||||||||||||||||||||||||||
| Consolidated Communications, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CORAL-US CO-BORROWER LLC | % | % | % | |||||||||||||||||||||||||||||||
| CoreCivic, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Corelogic, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Cortes NP Acquisition Corp (Vertiv) | % | % | % | |||||||||||||||||||||||||||||||
| COWEN INC. | % | % | % | |||||||||||||||||||||||||||||||
| CROCS INC | % | % | % | |||||||||||||||||||||||||||||||
| Cross Financial Corp | % | % | % | |||||||||||||||||||||||||||||||
| Crown Subsea Communications Holding, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| CSC Holdings LLC (Neptune Finco Corp.) | % | % | % | |||||||||||||||||||||||||||||||
| CSC Holdings LLC (Neptune Finco Corp.) | % | % | % | |||||||||||||||||||||||||||||||
| CSC Holdings LLC (Neptune Finco Corp.) | % | % | % | |||||||||||||||||||||||||||||||
| CTS Midco, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Daseke Inc | % | % | % | |||||||||||||||||||||||||||||||
| DCert Buyer, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Dealer Tire, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Delek US Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| DexKo Global, Inc. (Dragon Merger) | % | % | % | |||||||||||||||||||||||||||||||
| DexKo Global, Inc. (Dragon Merger) (a) | % | % | % | |||||||||||||||||||||||||||||||
| Diamond Sports Group, LLC (b) | % | % | % | |||||||||||||||||||||||||||||||
| DIRECTV FINANCING, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Dispatch Acquisition Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| DOMTAR CORPORATION | % | % | % | |||||||||||||||||||||||||||||||
| DRI HOLDING INC. | % | % | % | |||||||||||||||||||||||||||||||
51
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| DRW Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| DTZ U.S. Borrower, LLC | % | % | % | |||||||||||||||||||||||||||||||
| EAB Global, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Echo Global Logistics, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Edelman Financial Group Inc., The | % | % | % | |||||||||||||||||||||||||||||||
| Electrical Components Inter., Inc. | % | % | % | |||||||||||||||||||||||||||||||
| ELECTRON BIDCO INC. | % | % | % | |||||||||||||||||||||||||||||||
| ELO Touch Solutions, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Embecta Corp | % | % | % | |||||||||||||||||||||||||||||||
| Endo Luxembourg Finance Company I S.a.r.l. | % | % | % | |||||||||||||||||||||||||||||||
| Endure Digital, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Enterprise Merger Sub Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Equiniti Group PLC | % | % | % | |||||||||||||||||||||||||||||||
| EyeCare Partners, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Finco I LLC | % | % | % | |||||||||||||||||||||||||||||||
| First Brands Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| First Eagle Investment Management | % | % | % | |||||||||||||||||||||||||||||||
| First Student Bidco Inc. | % | % | % | |||||||||||||||||||||||||||||||
| First Student Bidco Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Fitness International, LLC (LA Fitness) | % | % | % | |||||||||||||||||||||||||||||||
| FOCUS FINANCIAL PARTNERS, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Franchise Group, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Franklin Square Holdings, L.P. | % | % | % | |||||||||||||||||||||||||||||||
| Froneri International (R&R Ice Cream) | % | % | % | |||||||||||||||||||||||||||||||
| Garrett LX III S.a r.l. | % | % | % | |||||||||||||||||||||||||||||||
| Gemini HDPE LLC | % | % | % | |||||||||||||||||||||||||||||||
| General Nutrition Centers, Inc. (d) | % | % | % | |||||||||||||||||||||||||||||||
| Genesee & Wyoming, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| GEO Group, Inc., The | % | % | % | |||||||||||||||||||||||||||||||
| GGP Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Gigamon Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Global Business Travel (GBT) III Inc. | % | % | % | |||||||||||||||||||||||||||||||
52
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Global Tel*Link Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Go Daddy Operating Company, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Go Wireless Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| GOLDEN WEST PACKAGING GROUP LLC | % | % | % | |||||||||||||||||||||||||||||||
| Graham Packaging Co Inc | % | % | % | |||||||||||||||||||||||||||||||
| Great Outdoors Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Greenhill & Co., Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Griffon Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Grosvenor Capital Management Holdings, LLLP | % | % | % | |||||||||||||||||||||||||||||||
| Harbor Freight Tools USA, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Harland Clarke Holdings Corp. | % | % | % | |||||||||||||||||||||||||||||||
| Helix Gen Funding, LLc | % | % | % | |||||||||||||||||||||||||||||||
| Hillman Group Inc. (The) (New) | % | % | % | |||||||||||||||||||||||||||||||
| Hillman Group Inc. (The) (New) (a) | % | % | % | |||||||||||||||||||||||||||||||
| HLF Financing SARL (Herbalife) | % | % | % | |||||||||||||||||||||||||||||||
| Holley Purchaser, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Holley Purchaser, Inc (a) | % | % | % | |||||||||||||||||||||||||||||||
| Howden Group Holdings | % | % | % | |||||||||||||||||||||||||||||||
| Hudson River Trading LLC | % | % | % | |||||||||||||||||||||||||||||||
| Idera, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| IMA Financial Group, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| INDY US BIDCO, LLC | % | % | % | |||||||||||||||||||||||||||||||
| INEOS US PETROCHEM LLC | % | % | % | |||||||||||||||||||||||||||||||
| Informatica Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Ingram Micro Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Inmar Acquisition Sub, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Innophos, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| INSTANT BRANDS HOLDINGS INC. | % | % | % | |||||||||||||||||||||||||||||||
| INSTRUCTURE HOLDINGS, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Isagenix International, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Ivory Merger Sub, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| J Jill Group, Inc | % | % | % | |||||||||||||||||||||||||||||||
53
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Jane Street Group | % | % | % | |||||||||||||||||||||||||||||||
| Journey Personal Care Corp. | % | % | % | |||||||||||||||||||||||||||||||
| JP Intermediate B, LLC | % | % | % | |||||||||||||||||||||||||||||||
| KAR Auction Services, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Klockner-Pentaplast of America, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Kodiak BP, LLC | % | % | % | |||||||||||||||||||||||||||||||
| KREF Holdings X LLC | % | % | % | |||||||||||||||||||||||||||||||
| Lakeland Tours, LLC (d) | % | % | % | |||||||||||||||||||||||||||||||
| Lakeland Tours, LLC (d) | % | % | % | |||||||||||||||||||||||||||||||
| Lakeland Tours, LLC (d) | % | % | % | |||||||||||||||||||||||||||||||
| Lakeland Tours, LLC (d) | % | % | % | |||||||||||||||||||||||||||||||
| Lealand Finance Company B.V. (d) | % | % | % | |||||||||||||||||||||||||||||||
| Learfield Communications, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Lifetime Brands, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Lightstone Generation LLC | % | % | % | |||||||||||||||||||||||||||||||
| Lightstone Generation LLC | % | % | % | |||||||||||||||||||||||||||||||
| Liquid Tech Solutions Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| LogMeIn, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| LOYALTY VENTURES INC. | % | % | % | |||||||||||||||||||||||||||||||
| LPL Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| LSF11 A5 HOLDCO LLC | % | % | % | |||||||||||||||||||||||||||||||
| MA FinanceCo LLC | % | % | % | |||||||||||||||||||||||||||||||
| MAGNITE, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Marriott Ownership Resorts, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Match Group, Inc, The | % | % | % | |||||||||||||||||||||||||||||||
| Mayfield Agency Borrower Inc. (FeeCo) | % | % | % | |||||||||||||||||||||||||||||||
| McAfee, LLC | % | % | % | |||||||||||||||||||||||||||||||
| McGraw-Hill Education, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| MedAssets Software Inter Hldg, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Mermaid Bidco Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Messer Industries, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Michaels Companies Inc | % | % | % | |||||||||||||||||||||||||||||||
| Milk Specialties Company | % | % | % | |||||||||||||||||||||||||||||||
| MJH Healthcare Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
54
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| MKS Instruments, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| MRC Global Inc. | % | % | % | |||||||||||||||||||||||||||||||
| MW Industries, Inc. (Helix Acquisition Holdings) | % | % | % | |||||||||||||||||||||||||||||||
| NAB Holdings, LLC (North American Bancard) | % | % | % | |||||||||||||||||||||||||||||||
| Natgasoline LLC | % | % | % | |||||||||||||||||||||||||||||||
| National Mentor Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| National Mentor Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| National Mentor Holdings, Inc. (a) | - | - | ( | ) | ||||||||||||||||||||||||||||||
| Neenah, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| NEW ERA CAP, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Nexstar Broadcasting, Inc. (Mission Broadcasting) | % | % | % | |||||||||||||||||||||||||||||||
| Next Level Apparel, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| NM Z Parent Inc (Zep Inc) | % | % | % | |||||||||||||||||||||||||||||||
| NorthPole Newco S.a.r.l (b), (d) | % | % | % | |||||||||||||||||||||||||||||||
| NortonLifeLock Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Novae LLC | % | % | % | |||||||||||||||||||||||||||||||
| Novae LLC (a) | - | - | ( | ) | ||||||||||||||||||||||||||||||
| Novolex Holdings, Inc (Flex Acquisition) | % | % | % | |||||||||||||||||||||||||||||||
| Nuvei Technologies Corp. | % | % | % | |||||||||||||||||||||||||||||||
| Olaplex, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Organon & Co. | % | % | % | |||||||||||||||||||||||||||||||
| Pacific Gas and Electric Company | % | % | % | |||||||||||||||||||||||||||||||
| PACTIV EVERGREEN GROUP HOLDINGS INC. | % | % | % | |||||||||||||||||||||||||||||||
| Padagis LLC | % | % | % | |||||||||||||||||||||||||||||||
| Panther Guarantor II, L.P. (Forcepoint) | % | % | % | |||||||||||||||||||||||||||||||
| Pathway Partners Vet Management Company LLC | % | % | % | |||||||||||||||||||||||||||||||
| PCI Gaming Authority | % | % | % | |||||||||||||||||||||||||||||||
| PEARLS (Netherlands) Bidco B.V. | % | % | % | |||||||||||||||||||||||||||||||
| PECF USS INTERMEDIATE HOLDING III CORPORATION | % | % | % | |||||||||||||||||||||||||||||||
| PEDIATRIC ASSOCIATES HOLDING COMPANY, LLC | % | % | % | |||||||||||||||||||||||||||||||
55
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| PEDIATRIC ASSOCIATES HOLDING COMPANY, LLC (a) | - | - | ( | ) | ||||||||||||||||||||||||||||||
| Penn National Gaming | % | % | % | |||||||||||||||||||||||||||||||
| Peraton Corp. | % | % | % | |||||||||||||||||||||||||||||||
| PHYSICIAN PARTNERS, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Ping Identity Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Pitney Bowes Inc | % | % | % | |||||||||||||||||||||||||||||||
| Pixelle Specialty Solutions LLC | % | % | % | |||||||||||||||||||||||||||||||
| Plastipak Holdings Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Playtika Holding Corp. | % | % | % | |||||||||||||||||||||||||||||||
| PMHC II, INC. | % | % | % | |||||||||||||||||||||||||||||||
| PointClickCare Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Polymer Process Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Pre-Paid Legal Services, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Presidio, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Prime Security Services Borrower, LLC (ADT) | % | % | % | |||||||||||||||||||||||||||||||
| PRIORITY HOLDINGS, LLC | % | % | % | |||||||||||||||||||||||||||||||
| PriSo Acquisition Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Project Leopard Holdings Inc | % | % | % | |||||||||||||||||||||||||||||||
| Prometric Inc. (Sarbacane Bidco) | % | % | % | |||||||||||||||||||||||||||||||
| PUG LLC | % | % | % | |||||||||||||||||||||||||||||||
| QUEST BORROWER LIMITED | % | % | % | |||||||||||||||||||||||||||||||
| Rackspace Technology Global, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| RealPage, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Renaissance Learning, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Rent-A-Center, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Research Now Group, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Resideo Funding Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Resolute Investment Managers (American Beacon), Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Restoration Hardware, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Reynolds Consumer Products LLC | % | % | % | |||||||||||||||||||||||||||||||
| Reynolds Group Holdings Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Robertshaw US Holding Corp. | % | % | % | |||||||||||||||||||||||||||||||
56
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| Rocket Software, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Russell Investments US Inst’l Holdco, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| RV Retailer LLC | % | % | % | |||||||||||||||||||||||||||||||
| Ryan Specialty Group LLC | % | % | % | |||||||||||||||||||||||||||||||
| S&S HOLDINGS LLC | % | % | % | |||||||||||||||||||||||||||||||
| Sally Holdings LLC | % | % | % | |||||||||||||||||||||||||||||||
| Samsonite International S.A. | % | % | % | |||||||||||||||||||||||||||||||
| Schweitzer-Mauduit International, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Scientific Games Holdings LP | % | % | % | |||||||||||||||||||||||||||||||
| SETANTA AIRCRAFT LEASING DAC | % | % | % | |||||||||||||||||||||||||||||||
| Signify Health, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Sitel Worldwide Corporation | % | % | % | |||||||||||||||||||||||||||||||
| SiteOne Landscape Supply, LLC | % | % | % | |||||||||||||||||||||||||||||||
| SMG US Midco 2, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Sotheby’s | % | % | % | |||||||||||||||||||||||||||||||
| Sparta U.S. HoldCo LLC | % | % | % | |||||||||||||||||||||||||||||||
| Specialty Pharma III Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Spectrum Brands, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Spin Holdco, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| SRAM, LLC | % | % | % | |||||||||||||||||||||||||||||||
| SS&C Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| SS&C Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| SS&C Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| STANDARD INDUSTRIES INC. | % | % | % | |||||||||||||||||||||||||||||||
| Staples, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Stars Group Inc. (The) | % | % | % | |||||||||||||||||||||||||||||||
| Storable, Inc | % | % | % | |||||||||||||||||||||||||||||||
| Superannuation & Investments US LLC | % | % | % | |||||||||||||||||||||||||||||||
| Sylvamo Corporation | % | % | % | |||||||||||||||||||||||||||||||
| Syncsort Incorporated | % | % | % | |||||||||||||||||||||||||||||||
| Syniverse Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Tenable Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Teneo Holdings LLC | % | % | % | |||||||||||||||||||||||||||||||
| Tenneco Inc | % | % | % | |||||||||||||||||||||||||||||||
| Ten-X, LLC | % | % | % | |||||||||||||||||||||||||||||||
| The Dun & Bradstreet Corporation | % | % | % | |||||||||||||||||||||||||||||||
57
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| The Dun & Bradstreet Corporation | % | % | % | |||||||||||||||||||||||||||||||
| THE KNOT WORLDWIDE INC. | % | % | % | |||||||||||||||||||||||||||||||
| The Octave Music Group, Inc (Touchtunes) | % | % | % | |||||||||||||||||||||||||||||||
| Thor Industries, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Tosca Services, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Trans Union LLC | % | % | % | |||||||||||||||||||||||||||||||
| Transdigm, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Travel Leaders Group, LLC | % | % | % | |||||||||||||||||||||||||||||||
| TRITON WATER HOLDINGS, INC. | % | % | % | |||||||||||||||||||||||||||||||
| Tronox Pigments (Netherlands) B.V. | % | % | % | |||||||||||||||||||||||||||||||
| TruGreen Limited Partnership | % | % | % | |||||||||||||||||||||||||||||||
| Uber Technologies, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Ultra Clean Holdings, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Unimin Corporation | % | % | % | |||||||||||||||||||||||||||||||
| United Natural Foods, Inc | % | % | % | |||||||||||||||||||||||||||||||
| United Road Services Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Univar Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Univision Communications Inc. | % | % | % | |||||||||||||||||||||||||||||||
| US Ecology, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Utz Quality Foods, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Vaco Holdings, LLC | % | % | % | |||||||||||||||||||||||||||||||
| Verifone Systems, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Vertex Aerospace Services Corp | % | % | % | |||||||||||||||||||||||||||||||
| VFH Parent LLC | % | % | % | |||||||||||||||||||||||||||||||
| Virtus Investment Partners, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Vistra Energy Corp | % | % | % | |||||||||||||||||||||||||||||||
| Vizient, Inc | % | % | % | |||||||||||||||||||||||||||||||
| VM Consolidated, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Vouvray US Finance LLC | % | % | % | |||||||||||||||||||||||||||||||
| Warner Music Group Corp. (WMG Acquisition Corp.) | % | % | % | |||||||||||||||||||||||||||||||
| Wastequip, LLC (HPCC Merger/Patriot Container) | % | % | % | |||||||||||||||||||||||||||||||
| Watlow Electric Manufacturing Company | % | % | % | |||||||||||||||||||||||||||||||
58
| Issuer Name | Industry | Asset Name | Asset Type | Reference Rate/Spread | LIBOR
Floor | Current Rate (All In) | Maturity Date | Principal/ Number of Shares | Cost | Fair Value | ||||||||||||||||||||||||
| West Corporation | % | % | % | |||||||||||||||||||||||||||||||
| West Corporation | % | % | % | |||||||||||||||||||||||||||||||
| WEX Inc. | % | % | % | |||||||||||||||||||||||||||||||
| WildBrain Ltd. | % | % | % | |||||||||||||||||||||||||||||||
| WP CITYMD BIDCO LLC | % | % | % | |||||||||||||||||||||||||||||||
| Xperi Corporation | % | % | % | |||||||||||||||||||||||||||||||
| ZEBRA BUYER LLC | % | % | % | |||||||||||||||||||||||||||||||
| Zekelman Industries, Inc. | % | % | % | |||||||||||||||||||||||||||||||
| Zodiac Pool Solutions | % | % | % | |||||||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||||||
| Number of Shares | Cost | Fair Value | ||||||||||
| Cash and cash equivalents | ||||||||||||
| U.S. Bank Money Market (c) | $ | $ | ||||||||||
| Total cash and cash equivalents | $ | $ | ||||||||||
| (a) | All or a portion of this investment has an unfunded commitment as of February 28, 2022 |
| (b) | As of February 28, 2022, the investment was in default and on non-accrual status. |
| (c) | Included within cash and cash equivalents in Saratoga CLO’s Statements of Assets and Liabilities as of February 28, 2022. |
| (d) | Investments include Payment-in-Kind Interest. |
LIBOR—London Interbank Offered Rate
SOFR - Secured Overnight Financing Rate
WIBOR - Warsaw Interbank Offered Rate
1M USD LIBOR—The 1 month USD LIBOR rate as of February 28, 2022 was 0.23%.
2M USD LIBOR—The 2 month USD LIBOR rate as of February 28, 2022 was 0.50%.
3M USD LIBOR—The 3 month USD LIBOR rate as of February 28, 2022 was 0.51%.
6M USD LIBOR—The 6 month USD LIBOR rate as of February 28, 2022 was 0.80%.
12M USD LIBOR - The 12 month USD LIBOR rate as of February 28, 2022 was 1.28%.
3 PL WIBOR - The 3 month PL WIBOR rate as of February 28, 2022 was 3.65%.
Daily SOFR- The daily SOFR rate as of February 28, 2022 was 0.05%.
1M SOFR - The 1 month SOFR rate as of February 28, 2022 was 0.05%.
3M SOFR - The 3 month SOFR rate as of February 28, 2022 was 0.04%.
Prime—The Prime Rate as of February 28, 2022 was 3.25%.
See accompanying notes to consolidated financial statements.
59
Note 5. Investment in SLF JV
On October 26, 2021, the Company and TJHA entered into the LLC Agreement to co-manage SLF JV. SLF JV is invested in SLF 2021, which is a wholly owned subsidiary of SLF JV. SLF 2021 was formed for the purpose of making investments in a diversified portfolio of broadly syndicated first lien and second lien term loans or bonds in the primary and secondary markets.
The Company and TJHA have equal voting interest on all material decisions with respect to SLF JV, including those involving its investment portfolio, and equal control of corporate governance. No management fee is charged to SLF JV as control and management of SLF JV is shared equally.
The Company and TJHA have committed to provide
up to a combined $
As of August 31, 2022, the Company earned $
SLF JV’s investment in SLF 2021 is in the
form of an unsecured loan. The unsecured note will pay a floating rate of LIBOR plus
The Company has determined that SLF JV is
an investment company under ASC 946; however, in accordance with such guidance the Company will generally not consolidate its investment
in a company other than a wholly-owned investment company subsidiary. SLF JV is not a wholly-owned investment company subsidiary as the
Company and TJHA each have an equal
Note 6. Income Taxes
SIA-ARC, Inc., SIA-Avionte, Inc., SIA-AX, Inc.,
SIA-GH, Inc., SIA-MAC, Inc., SIA-PP Inc., SIA-TG, Inc., SIA-TT Inc., SIA-Vector, Inc., and SIA-VR, Inc. each
The Company may distribute a portion of its realized
net long term capital gains in excess of realized net short term capital losses to its stockholders, but may also decide to retain a portion,
or all, of its net capital gains and elect to pay the
Deferred tax assets and liabilities, and related valuation allowance as of August 31, 2022 and February 28, 2022 were as follows:
60
| August 31, 2022 | February 28, 2022 | |||||||
| Total deferred tax assets | $ | $ | ||||||
| Total deferred tax liabilities | ( | ) | ( | ) | ||||
| Valuation allowance on net deferred tax assets | ( | ) | ( | ) | ||||
| Net deferred tax liability | $ | ( | ) | $ | ( | ) | ||
As of August 31, 2022, the valuation allowance
on deferred tax assets was $
Net income tax expense for the three months ended
August 31, 2022 includes $
Net income tax expense for the six months ended
August 31, 2022 includes $
Deferred tax temporary differences may include differences for state taxes and joint venture interests.
Federal and state income tax (provisions) benefit on investments for three and six months ended August 31, 2022 and August 31, 2021:
| For the three months ended | For the six months ended | |||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | |||||||||||||
| Current | ||||||||||||||||
| Federal | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| State | ( | ) | ||||||||||||||
| Net current expense | ( | ) | ( | ) | ||||||||||||
| Deferred | ||||||||||||||||
| Federal | ||||||||||||||||
| State | ||||||||||||||||
| Net deferred expense | ||||||||||||||||
| Net tax provision | $ | $ | $ | $ | ||||||||||||
Note 7. Agreements and Related Party Transactions
Investment Advisory and Management Agreement
On July 30, 2010, the Company entered into the Management Agreement with our Manager. The initial term of the Management Agreement was two years from its effective date, with one-year renewals thereafter subject to certain approvals by our board of directors and/or the Company’s stockholders. Most recently, on July 5, 2022, our board of directors approved the renewal of the Management Agreement for an additional one-year term. Pursuant to the Management Agreement, our Manager implements our business strategy on a day-to-day basis and performs certain services for us, subject to oversight by our board of directors. Our Manager is responsible for, among other duties, determining investment criteria, sourcing, analyzing and executing investments transactions, asset sales, financings and performing asset management duties. Under the Management Agreement, we have agreed to pay our Manager a management fee for investment advisory and management services consisting of a base management fee and an incentive management fee.
Base Management Fee and Incentive Management Fee
61
The incentive management fee consists of the following two parts:
The first, payable quarterly in arrears, equals
20.0% of our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately
preceding quarter, that exceeds a 1.875% quarterly hurdle rate measured as of the end of each fiscal quarter, subject to a “catch-up”
provision.
The second part of the incentive fee is determined
and payable in arrears as of the end of each fiscal year (or upon termination of the Management Agreement) and equals
For the three months ended August 31, 2022 and
August 31, 2021, the company incurred $
For the six months ended August 31, 2022 and August
31, 2021, the company incurred $
The accrual is calculated
using both realized and unrealized capital gains for the period. The actual incentive fee related to capital gains will be determined
and payable in arrears at the end of the fiscal year and will include only realized capital gains for the period. As of August 31, 2022,
the base management fees accrual was $
Administration Agreement
On
July 30, 2010, the Company entered into a separate administration agreement (the “Administration Agreement”) with our Manager,
pursuant to which our Manager, as our administrator, has agreed to furnish us with the facilities and administrative services necessary
to conduct our day-to-day operations and provide managerial assistance on our behalf to those portfolio companies to which we are required
to provide such assistance. The initial term of the Administration Agreement was two years from its effective date, with one-year renewals
thereafter subject to certain approvals by our board of directors and/or our stockholders. The amount of expenses payable or reimbursable
thereunder by the Company was capped at $
62
For the three months ended August 31, 2022 and
August 31, 2021, we recognized $
Saratoga CLO
On December 14, 2018, the Company completed the
third refinancing and issuance of the 2013-1 Reset CLO Notes. This refinancing, among other things, extended the Saratoga CLO reinvestment
period to January 2021, and extended its legal maturity to January 2030. A non-call period ending January 2020 was also added. In addition,
and as part of the refinancing, the Saratoga CLO has also been upsized from $
In conjunction with the third refinancing and issuance 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. See Note 4 for additional information.
On February 26, 2021, the Company completed the
fourth refinancing of the Saratoga CLO. This refinancing, among other things, extended the Saratoga CLO reinvestment period to April 2024,
and extended its legal maturity to April 2033. The non-call period was extended to February 2022. In addition, and as part of the refinancing,
the Saratoga CLO has also been upsized from $
On August 9, 2021, the Company exchanged its existing
$
For the three months ended August 31, 2022 and
August 31, 2021, we recognized management fee income of $
For the six months ended August 31, 2022 and August
31, 2021, we recognized management fee income of $
For the six months ended August 31, 2022 and August 31, 2021, the Company neither bought nor sold any investments from the Saratoga CLO.
SLF JV
On October 26, 2021, the Company and TJHA entered into an LLC Agreement to co-manage the SLF JV. SLF JV is a joint venture that is expected to invest in the debt or equity interests of collateralized loan obligations, loan, notes and other debt instruments.
As of August 31, 2022, the Company’s investment
in the SLF JV had a fair value of $
Note 8. Borrowings
Credit Facility
63
On April 11, 2007, we entered into a $
On July 30, 2010, we used the net proceeds from
(i) the stock purchase transaction and (ii) a portion of the funds available to us under the $
On February 24, 2012, we amended the Madison Credit Facility to, among other things:
| ● | expand the borrowing capacity under the Madison Credit Facility from $40.0 million to $45.0 million; |
| ● | extend the period during which we may make and repay borrowings under the Madison Credit Facility from July 30, 2013 to February 24, 2015 (the “Revolving Period”). The Revolving Period may, upon the occurrence of an event of default, by action of the lenders or automatically, be terminated. All borrowings and other amounts payable under the Madison Credit Facility are due and payable five years after the end of the Revolving Period; and |
| ● | remove the condition that we may not acquire additional loan assets without the prior written consent of Madison Capital Funding LLC. |
On September 17, 2014, we entered into a second amendment to the Madison Credit Facility to, among other things:
| ● | extend the maturity date of the Madison Credit Facility from February 24, 2020 to September 17, 2022 (unless terminated sooner upon certain events); |
| ● | reduce the applicable margin rate on base rate borrowings from 4.50% to 3.75%, and on LIBOR borrowings from 5.50% to 4.75%; and |
| ● | reduce the floor on base rate borrowings from 3.00% to 2.25%, and on LIBOR borrowings from 2.00% to 1.25%. |
On May 18, 2017, we entered into a third amendment to the Madison Credit Facility to, among other things:
| ● | extend the commitment termination date from September 17, 2017 to September 17, 2020; |
| ● | extend the final maturity date of the Madison Credit Facility from September 17, 2022 to September 17, 2025 (unless terminated sooner upon certain events); |
| ● | reduce the floor on base rate borrowings from 2.25% to 2.00%; |
| ● | reduce the floor on LIBOR borrowings from 1.25% to 1.00%; and |
| ● | reduce the commitment fee rate from 0.75% to 0.50% for any period during which the ratio of advances outstanding to aggregate commitments, expressed as a percentage, is greater than or equal to 50%. |
On April 24, 2020, we entered into a fourth amendment to the Madison Credit Facility to, among other things:
| ● | permit certain amendments related to the Paycheck Protection Program (“Permitted PPP Amendment”) to Loan Asset Documents; |
| ● | exclude certain debt and interest amounts allowed by the Permitted PPP Amendments from certain calculations related to Net Leverage Ratio, Interest Coverage Ratio and EBITDA; and |
| ● | exclude such Permitted PPP Amendments from constituting a Material Modification. |
64
On September 14, 2020, we entered into a fifth amendment to the Madison Credit Facility to, among other things:
| ● | extend the commitment termination date of the Madison Credit Facility from September 17, 2020 to September 17, 2021, with no change to the maturity date of September 17, 2025. |
| ● | provide for the transition away from the LIBOR Rate in the market, and |
| ● | expand the definition of “Eligible Loan Asset” to allow investments with certain recurring revenue features to qualify as collateral and be included in the borrowing base. |
On September 13, 2021, we entered into a sixth amendment to the Madison Credit Facility to, among other things:
| ● | Extend the commitment termination date of the Madison Credit Facility from September 17, 2021 to October 1, 2021, with no change to maturity date of September 17, 2025. |
On October 4, 2021, all outstanding amounts on
the Madison Credit Facility were repaid and the Madison Credit Facility was terminated. The repayment and termination of the Madison
Credit Facility resulted in a realized loss on the extinguishment of debt of $
On October 4, 2021, the Company entered into a
$
In addition to any fees or other amounts payable
under the terms of the Encina Credit Facility, an administrative agent fee per annum equal to $
As of August 31, 2022 and February 28, 2022, there
were $
For
the three months ended August 31, 2022 and August 31, 2021, we recorded $
For
the six months ended August 31, 2022 and August 31, 2021, we recorded $
The Encina Credit Facility contains limitations
as to how borrowed funds may be used, such as restrictions on industry concentrations, asset size, weighted average life, currency denomination
and collateral interests. The Encina Credit Facility also includes certain requirements relating to portfolio performance, the violation
of which could result in the limit of further advances and, in some cases, result in an event of default, allowing the lenders to accelerate
repayment of amounts owed thereunder.
65
Our borrowing base under the Encina Credit Facility
was $
SBA Debentures
Our wholly owned SBIC subsidiaries are able to borrow funds from the SBA against regulatory capital (which generally approximates equity capital in respective SBIC) and is subject to customary regulatory requirements, including, but not limited to, a periodic examination by the SBA.
On August 14, 2019, the Company’s wholly
owned subsidiary, SBIC II LP, received an SBIC license from the SBA. SBIC II LP’s SBIC license provides up to $
As of August 31, 2022, we have funded SBIC LP
and SBIC II LP with an aggregate total of equity capital of $
SBICs are designed to stimulate the flow of private
equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the
equity securities of small businesses. Under present SBA regulations, eligible small businesses include businesses that have a tangible
net worth not exceeding $
SBIC LP and SBIC II LP are subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other covenants. Receipt of an SBIC license does not assure that SBIC II LP will receive SBA-guaranteed debenture funding, which is dependent upon SBIC II LP continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to SBIC LP and SBIC II LP assets over our stockholders and debtholders in the event we liquidate SBIC LP and SBIC II LP or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC LP and SBIC II LP upon an event of default.
The Company received exemptive relief from the
SEC to permit it to exclude the senior securities issued by SBIC subsidiaries from the definition of senior securities in the asset coverage
requirement applicable to the Company under the 1940 Act. This allows the Company increased flexibility under the asset coverage requirement
by permitting it to borrow up to $
As noted above, as of August 31, 2022, there was $233.7 million of SBA debentures outstanding and as of February 28, 2022, there was $185.0 million of SBA debentures outstanding. The carrying amount of the amount outstanding of SBA debentures approximates its fair value, which is based on a waterfall analysis showing adequate collateral coverage and would be classified as a Level 3 liability within the fair value hierarchy. Financing costs of $5.0 million and $4.9 million related to the SBA debentures issued by SBIC LP and SBIC II LP, respectively, have been capitalized and are being amortized over the term of the commitment and drawdown.
For the three months ended August 31, 2022 and
August 31, 2021, we recorded $
66
For the six months ended August 31, 2022 and August
31, 2021, we recorded $
In December 2015, the 2016 omnibus spending bill approved by Congress and signed into law by the President increased the amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding from $225.0 million to $350.0 million, subject to SBA approval. SBA regulations previously limited the amount of SBA-guaranteed debentures that an SBIC may issue to $150.0 million when it has at least $75.0 million in regulatory capital but this has increased to $175.0 million for new licenses when it has at least $87.5 million in regulatory capital. Affiliated SBICs are permitted to issue up to a combined maximum amount of $350.0 million in SBA-guaranteed debentures when they have at least $175.0 million in combined regulatory capital.
Notes
In May 10, 2013, the Company issued $
On May 29, 2015, the Company entered into a Debt Distribution Agreement with Ladenburg Thalmann & Co. Inc. through which the Company may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the 2020 Notes through an At-the-Market (“ATM”) offering. Prior to the 2020 Notes being redeemed in full, the Company had sold 539,725 2022 Notes with a principal of $13.5 million at an average price of $25.31 for aggregate net proceeds of $13.4 million (net of transaction costs).
On December 21, 2016, the Company issued $
On December 21, 2019 and February 7, 2020, the
Company redeemed $
At February 29, 2020, the debt was extinguished.
As such, it was not fair valued with market quotes and is not fair value leveled. The repayment of the 2023 Notes resulted in a realized
loss on the extinguishment of debt of $
On August 28, 2018, the Company issued $40.0 million in aggregate principal amount of our 6.25% fixed-rate notes due 2025 (the “6.25% 2025 Notes”) for net proceeds of $38.7 million after deducting underwriting commissions of approximately $1.3 million. Offering costs incurred were approximately $0.3 million. The issuance included the full exercise of the underwriters’ option to purchase an additional $5.0 million in aggregate principal amount of 6.25% 2025 Notes within 30 days. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.6 million related to the 6.25% 2025 Notes have been capitalized and were amortized over the term of the 6.25% 2025 Notes.
On February 5, 2019, the Company issued an additional $20.0 million in aggregate principal amount of the 6.25% 2025 Notes for net proceeds of $19.2 million after deducting underwriting commissions of approximately $0.6 million and discount of $0.2 million. Offering costs incurred were approximately $0.2 million. The issuance included the full exercise of the underwriters’ option to purchase an additional $2.5 million in aggregate principal amount of 6.25% 2025 Notes within 30 days. The additional 6.25% 2025 Notes were treated as a single series with the existing 6.25% 2025 Notes under the indenture and had the same terms as the existing 6.25% 2025 Notes. The net proceeds from this offering were used for general corporate purposes in accordance with our investment objective and strategies. The financing costs and discount of $1.0 million related to the 6.25% 2025 Notes have been capitalized and were amortized over the term of the 6.25% 2025 Notes.
On August 31, 2021, the Company redeemed $
67
At August 31, 2021, the debt was extinguished.
As such, it was not fair valued with market quotes and is not fair value leveled. The repayment of the
For the three months ended August 31, 2022 and
August 31, 2021, we recorded $
On June 24, 2020, the Company issued $
On July 14,
2022, the Company redeemed $
On July 14, 2022, the debt was extinguished. As
such, it was not fair valued with market quotes and is not fair value leveled. The repayment of the
As of February 28, 2022 the carrying
amount and fair value of the
For the three months ended August 31, 2022 and
August 31, 2021, we recorded $
For the six months ended August 31, 2022 and August
31, 2021, we recorded $
On July 9, 2020,
As of August 31, 2022, the total 7.75% Notes 2025 outstanding was $5.0 million. The 7.75% Notes 2025 are not listed and have a par value of $25.00 per share. As of February 28, 2022, there was $5.0 million outstanding of the 7.75% Notes 2025. The carrying amount of the amount outstanding of 7.75% Notes 2025 approximates its fair value, which is based on a waterfall analysis showing adequate collateral coverage and would be classified as a Level 3 liability within the fair value hierarchy.
For the three months ended August 31, 2022 and
August 31, 2021, we recorded $
On December 29, 2020, the Company issued $
68
On January 28, 2021, the Company issued $
As of August 31, 2022, the total 6.25% Notes 2027
outstanding was $
For the three months ended August 31, 2022 and
August 31, 2021, we recorded $
For the six months ended August 31, 2022 and August
31, 2021, we recorded $
On March 10, 2021, the Company issued $50.0 million in aggregate principal amount of our 4.375% fixed-rate Notes due in 2026 (the “4.375% Notes 2026”) for net proceeds of $49.0 million after deducting underwriting commissions of approximately $1.0 million. Offering costs incurred were approximately $0.2 million. Interest on the 4.375% Notes 2026 is paid semi-annually in arrears on February 28 and August 28, at a rate of 4.375% per year, beginning August 28, 2021. The 4.375% Notes 2026 mature on February 28, 2026 and may be redeemed in whole or in part at any time on or after November 28, 2025 at par plus a “make-whole” premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.2 million related to the 4.375% Notes 2026 have been capitalized and are being amortized over the term of the 4.375% Notes 2026.
On July 15, 2021, the Company issued an additional
$
As of August 31, 2022, the total 4.375% Notes 2026
outstanding was $
For the three months ended August 31, 2022 and
August 31, 2021, we recorded $
For the six months ended August 31, 2022 and August
31, 2021, we recorded $
69
On January 19, 2022, the Company issued $75.0 million in aggregate principal amount of our 4.35% fixed-rate Notes due in 2027 (the “4.35% Notes 2027”) for net proceeds of $73.0 million, based on the public offering price of 99.317% of the aggregate principal amount of the 4.35% Notes 2027, after deducting the underwriting commissions of approximately $1.5 million. Offering costs incurred were approximately $0.2 million. Interest on the 4.35% Notes 2027 is paid semi-annually in arrears on February 28 and August 28, at a rate of 4.35% per year, beginning August 28, 2022. The 4.35% Notes 2027 mature on February 28, 2027 and may be redeemed in whole or in part at the Company’s option at any time prior to November 28, 2026, at par plus a “make-whole” premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.7 million related to the 4.35% Notes 2027 have been capitalized and are being amortized over the term of the 4.35% Notes 2027.
As of August 31, 2022, the total 4.35% Notes 2027
outstanding was $
For the three months ended August 31, 2022 and
August 31, 2021, we recorded $
For the six months ended August 31, 2022 and August
31, 2021, we recorded $
On April 27, 2022, the Company issued $87.5 million in aggregate principal amount of our 6.00% fixed-rate notes due 2027 (the “6.00% 2027 Notes”) for net proceeds of $84.8 million after deducting underwriting commissions of approximately $2.7 million. Offering costs incurred were approximately $0.1 million. On May 10, 2022, the underwriters partially exercised their option to purchase an additional $10.0 million in aggregate principal amount of the 6.00% 2027 Notes. Net proceeds to the Company were $9.7 million after deducting underwriting commissions of approximately $0.3 million. Interest on the 6.00% 2027 Notes is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 6.00% per year, beginning August 31, 2022. The 6.00% 2027 Notes mature on April 30, 2027 and commencing April 27, 2024, may be redeemed in whole or in part at any time or from time to time at our option. Financing costs of $3.3 million related to the 6.00% 2027 Notes have been capitalized and are being amortized over the term of the 6.00% 2027 Notes. The 6.00% 2027 Notes are listed on the NYSE under the trading symbol “SAT” with a par value of $25.00 per share.
On August 15, 2022, the Company
issued $
As of August 31, 2022, the carrying amount and
fair value of the 6.00% 2027 Notes was $
For the three months ended August 31, 2022 and
August 31, 2021, we recorded $
For the six months ended August 31, 2022 and August
31, 2021, we recorded $
70
SENIOR SECURITIES
(dollar amounts in thousands, except per share data)
| Class and Year (1)(2) | Total Amount Outstanding Exclusive of Treasury Securities(3) | Asset Coverage per Unit(4) | Involuntary Liquidating Preference per Share(5) | Average Market Value per Share(6) | ||||||||||||
| (in thousands) | ||||||||||||||||
| Credit Facility with Encina Lender Finance, LLC | ||||||||||||||||
| Fiscal year 2023 (as of August 31, 2022) | $ | $ | ||||||||||||||
| Fiscal year 2022 (as of February 28, 2022) | $ | $ | ||||||||||||||
| Credit Facility with Madison Capital Funding(14) | ||||||||||||||||
| Fiscal year 2021 (as of February 28, 2021) | $ | $ | ||||||||||||||
| Fiscal year 2020 (as of February 29, 2020) | $ | $ | ||||||||||||||
| Fiscal year 2019 (as of February 28, 2019) | $ | $ | ||||||||||||||
| Fiscal year 2018 (as of February 28, 2018) | $ | $ | ||||||||||||||
| Fiscal year 2017 (as of February 28, 2017) | $ | $ | ||||||||||||||
| Fiscal year 2016 (as of February 29, 2016) | $ | $ | ||||||||||||||
| Fiscal year 2015 (as of February 28, 2015) | $ | $ | ||||||||||||||
| Fiscal year 2014 (as of February 28, 2014) | $ | $ | ||||||||||||||
| Fiscal year 2013 (as of February 28, 2013) | $ | $ | ||||||||||||||
| Fiscal year 2012 (as of February 29, 2012) | $ | $ | ||||||||||||||
| Fiscal year 2011 (as of February 28, 2011) | $ | $ | ||||||||||||||
| Fiscal year 2010 (as of February 28, 2010) | $ | $ | ||||||||||||||
| Fiscal year 2009 (as of February 28, 2009) | $ | $ | ||||||||||||||
| Fiscal year 2008 (as of February 29, 2008) | $ | $ | ||||||||||||||
| Fiscal year 2007 (as of February 28, 2007) | $ | $ | ||||||||||||||
| 7.50% Notes due 2020(7) | ||||||||||||||||
| Fiscal year 2017 (as of February 28, 2017) | $ | $ | ||||||||||||||
| Fiscal year 2016 (as of February 29, 2016) | $ | $ | $ | (8) | ||||||||||||
| Fiscal year 2015 (as of February 28, 2015) | $ | $ | $ | (8) | ||||||||||||
| Fiscal year 2014 (as of February 28, 2014) | $ | $ | $ | (8) | ||||||||||||
| Fiscal year 2013 (as of February 28, 2013) | $ | $ | ||||||||||||||
| Fiscal year 2012 (as of February 29, 2012) | $ | $ | ||||||||||||||
| Fiscal year 2011 (as of February 28, 2011) | $ | $ | ||||||||||||||
| Fiscal year 2010 (as of February 28, 2010) | $ | $ | ||||||||||||||
| Fiscal year 2009 (as of February 28, 2009) | $ | $ | ||||||||||||||
| Fiscal year 2008 (as of February 29, 2008) | $ | $ | ||||||||||||||
| Fiscal year 2007 (as of February 28, 2007) | $ | $ | ||||||||||||||
| 6.75% Notes due 2023(9) | ||||||||||||||||
| Fiscal year 2020 (as of February 29, 2020) | $ | $ | ||||||||||||||
| Fiscal year 2019 (as of February 28, 2019) | $ | $ | $ | (10) | ||||||||||||
| Fiscal year 2018 (as of February 28, 2018) | $ | $ | $ | (10) | ||||||||||||
| Fiscal year 2017 (as of February 28, 2017) | $ | $ | $ | (10) | ||||||||||||
| 6.25% Notes due 2025(13) | ||||||||||||||||
| Fiscal year 2022 (as of February 28, 2022) | ||||||||||||||||
| Fiscal year 2021 (as of February 28, 2021) | $ | $ | $ | (11) | ||||||||||||
| Fiscal year 2020 (as of February 29, 2020) | $ | $ | $ | (11) | ||||||||||||
| Fiscal year 2019 (as of February 28, 2019) | $ | $ | $ | (11) | ||||||||||||
| 7.25% Notes due 2025(16) | ||||||||||||||||
| Fiscal year 2023 (as of August 31, 2022) | $ | $ | ||||||||||||||
| Fiscal year 2022 (as of February 28, 2022) | $ | $ | $ | (11) | ||||||||||||
| Fiscal year 2021 (as of February 28, 2021) | $ | $ | $ | (11) | ||||||||||||
| 7.75% Notes due 2025 | ||||||||||||||||
| Fiscal year 2023 (as of August 31, 2022) | $ | $ | $ | (12) | ||||||||||||
| Fiscal year 2022 (as of February 28, 2022) | $ | $ | $ | (12) | ||||||||||||
| Fiscal year 2021 (as of February 28, 2021) | $ | $ | $ | (12) | ||||||||||||
| 4.375% Notes due 2026 | ||||||||||||||||
| Fiscal year 2023 (as of August 31, 2022) | $ | $ | $ | (12) | ||||||||||||
| Fiscal year 2022 (as of February 28, 2022) | $ | $ | $ | (12) | ||||||||||||
| 4.35% Notes due 2027 | ||||||||||||||||
| Fiscal year 2023 (as of August 31, 2022) | $ | $ | $ | (12) | ||||||||||||
| Fiscal year 2022 (as of February 28, 2022) | $ | $ | $ | (12) | ||||||||||||
| 6.25% Notes due 2027 | ||||||||||||||||
| Fiscal year 2023 (as of August 31, 2022) | $ | $ | $ | (12) | ||||||||||||
| Fiscal year 2022 (as of February 28, 2022) | $ | $ | $ | (12) | ||||||||||||
| Fiscal year 2021 (as of February 28, 2021) | $ | $ | $ | (12) | ||||||||||||
| 6.00% Notes due 2027 | ||||||||||||||||
| Fiscal year 2023 (as of August 31, 2022) | $ | $ | $ | (15) | ||||||||||||
71
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
| (7) |
| (8) |
| (9) |
| (10) |
| (11) |
| (12) |
| (13) |
| (14) |
| (15) |
| (16) |
72
Note 9. Commitments and Contingencies
Contractual Obligations
The following table shows our payment obligations for repayment of debt and other contractual obligations at August 31, 2022:
| Payment Due by Period | ||||||||||||||||||||
| Long-Term Debt Obligations | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than | |||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Revolving credit facility | $ | $ | $ | $ | $ | |||||||||||||||
| SBA debentures | ||||||||||||||||||||
| 7.75% 2025 Notes | - | |||||||||||||||||||
| 4.375% 2026 Notes | ||||||||||||||||||||
| 4.35% 2027 Notes | ||||||||||||||||||||
| 6.25% 2027 Notes | ||||||||||||||||||||
| 6.00% 2027 Notes | ||||||||||||||||||||
| Total Long-Term Debt Obligations | $ | $ | $ | $ | $ | |||||||||||||||
Off-Balance Sheet Arrangements
As of August 31, 2022 and February 28, 2022, the
Company’s off-balance sheet arrangements consisted of $
73
A summary of the unfunded commitments outstanding as of August 31, 2022 and February 28, 2022 is shown in the table below (dollars in thousands):
| August 31, 2022 | February 28, 2022 | |||||||
| At Company’s discretion | ||||||||
| ActiveProspect, Inc. | $ | $ | ||||||
| Artemis Wax | ||||||||
| Ascend Software LLC | ||||||||
| Axero Holdings | ||||||||
| Davisware | ||||||||
| Granite Comfort | ||||||||
| JDXpert | ||||||||
| Lee’s Famous Recipe Chicken | ||||||||
| Netreo Holdings, LLC | ||||||||
| Pepper Palace | ||||||||
| Procrement Partners | ||||||||
| Saratoga Senior Loan Fund I JV LLC | ||||||||
| Sceptre Hospitality Resources | ||||||||
| Book4Time, Inc. | ||||||||
| Total | ||||||||
| At portfolio company’s discretion - satisfaction of certain financial and nonfinancial covenants required | ||||||||
| Ascend Software LLC | ||||||||
| ARC Health | - | |||||||
| Axero Holdings | - | |||||||
| Axero Holdings - Revolver | ||||||||
| Davisware, LLC | ||||||||
| Exigo - DDTL | ||||||||
| Exigo - Revolver | ||||||||
| GDS Holdings US, Inc. | ||||||||
| Granite Comfort | ||||||||
| GoReact | ||||||||
| JDXpert | ||||||||
| Madison Logic - Revolver | ||||||||
| New England Dental Partners | ||||||||
| Pepper Palace - DDTL | ||||||||
| Pepper Palace - Revolver | ||||||||
| Zollege | ||||||||
| Lee’s Famous Recipe Chicken | ||||||||
| Total | $ | $ | ||||||
The Company believes its assets will provide adequate
coverage to satisfy these unfunded commitments. As of August 31, 2022, the Company had cash and cash equivalents of $
74
Note 10. Directors Fees
The independent directors each receive an annual
fee of $
Note 11. Stockholders’ Equity
On May 16, 2006, GSC Group, Inc. capitalized the
LLC, by contributing $
On March 20, 2007, the Company issued
On March 28, 2007, the Company completed its IPO
of
On July 30, 2010, our Manager and its affiliates
purchased
On August 12, 2010, we effected a one-for-ten reverse
stock split of our outstanding common stock. As a result of the reverse stock split, every ten shares of our common stock were converted
into one share of our common stock. Any fractional shares received as a result of the reverse stock split were redeemed for cash. The
total cash payment in lieu of shares was $
75
On September 24, 2014, the Company announced the approval of an open market share repurchase plan that allowed it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published consolidated financial statements (the “Share Repurchase Plan”). On October 7, 2015, our board of directors extended the Share Repurchase Plan for another year and increased the number of shares the Company is permitted to repurchase at prices below its NAV, as reported in its then most recently published consolidated financial statements, to 400,000 shares of its common stock. On October 5, 2016, our board of directors extended the Share Repurchase Plan for another year to October 15, 2017 and increased the number of shares the Company is permitted to repurchase at prices below its NAV, as reported in its then most recently published consolidated financial statements, to 600,000 shares of its common stock. On October 10, 2017, January 8, 2019 and January 7, 2020, our board of directors extended the Share Repurchase Plan for another year to October 15, 2018, January 15, 2020 and January 15, 2021, respectively, each time leaving the number of shares unchanged at 600,000 shares of its common stock. On May 4, 2020, our board of directors increased the Share Repurchase Plan to 1.3 million shares of common stock. On January 5, 2021, our board of directors extended the Share Repurchase Plan for another year to January 15, 2022, leaving the number of shares unchanged at 1.3 million shares of common stock. On January 4, 2022, our board of directors extended the Shares Repurchase Plan for another year to January 15, 2023, leaving the number of shares unchanged at 1.3 million shares of common stock. As of August 31, 2022, the Company purchased 803,962 shares of common stock, at the average price of $21.47 for approximately $17.3 million pursuant to the Share Repurchase Plan. During the three months ended August 31, 2022 the Company purchased 153,350 shares of common stock, at the average price of $24.04 for approximately $3.7 million pursuant to the Share Repurchase Plan. During the six months ended August 31, 2022 the Company purchased 295,527 shares of common stock, at the average price of $25.11 for approximately $7.4 million pursuant to the Share Repurchase Plan.
On March 16, 2017, we entered into
an equity distribution agreement with Ladenburg Thalmann & Co. Inc., through which we may offer for sale, from time to time, up to
$
On July 13, 2018, the Company issued
On July 30, 2021, we entered
into an equity distribution agreement with Ladenburg Thalmann & Co. Inc. and Compass Point Research and Trading, LLC (collectively
the “Agents”), through which we may offer for sale, from time to time, up to $
76
The Company adopted Rule 3-04/Rule 8-03(a)(5) under Regulation S-X (Note 2). Pursuant to the regulation, the Company has presented a reconciliation of the changes in each significant caption of stockholders’ equity as shown in the tables below:
| Capital | Total | |||||||||||||||||||
| Common Stock | in Excess | Distributable | ||||||||||||||||||
| Shares | Amount | of Par Value | Earnings (Loss) | Net Assets | ||||||||||||||||
| Balance at February 28, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | |||||||||||||||||||
| Net realized gain (loss) from investments | - | |||||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | |||||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | ( | ) | ( | ) | |||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | ( | ) | ( | ) | |||||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | |||||||||||||||||||
| Stock dividend distribution | ||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Repurchase fees | - | ( | ) | ( | ) | |||||||||||||||
| Offering costs | - | |||||||||||||||||||
| Balance at May 31, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | |||||||||||||||||||
| Net realized gain (loss) from investments | - | |||||||||||||||||||
| Income tax (provision) benefit from realized gain on investments | - | ( | ) | ( | ) | |||||||||||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | |||||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | ( | ) | ( | ) | |||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | ( | ) | ( | ) | |||||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | ||||||||||||||||||||
| Stock dividend distribution | ||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Repurchase fees | - | ( | ) | ( | ) | |||||||||||||||
| Offering costs | - | ( | ) | ( | ) | |||||||||||||||
| Balance at August 31, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | |||||||||||||||||||
| Net realized gain (loss) from investments | - | |||||||||||||||||||
| Income tax (provision) benefit from realized gain on investments | - | ( | ) | ( | ) | |||||||||||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | ( | ) | ( | ) | |||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | |||||||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | ( | ) | ( | ) | |||||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | ||||||||||||||||||||
| Stock dividend distribution | ||||||||||||||||||||
| Repurchases of common stock | - | |||||||||||||||||||
| Repurchase fees | - | |||||||||||||||||||
| Offering costs | - | ( | ) | ( | ) | |||||||||||||||
| Balance at November 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
77
| Capital | Total | |||||||||||||||||||
| Common Stock | in Excess | Distributable | ||||||||||||||||||
| Shares | Amount | of Par Value | Earnings (Loss) | Net Assets | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | |||||||||||||||||||
| Net realized gain (loss) from investments | - | |||||||||||||||||||
| Income tax (provision) benefit from realized gain on investments | - | |||||||||||||||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | |||||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | ( | ) | ( | ) | |||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | ( | ) | ( | ) | |||||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | ||||||||||||||||||||
| Stock dividend distribution | ||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Repurchase fees | ( | ) | ( | ) | ||||||||||||||||
| Offering costs | ( | ) | ( | ) | ||||||||||||||||
| Tax reclassification of stockholders’ equity in accordance with generally accepted accounting principles | - | ( | ) | |||||||||||||||||
| Balance at February 28, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | |||||||||||||||||||
| Net realized gain (loss) from investments | - | |||||||||||||||||||
| Income tax (provision) benefit from realized gain on investments | - | |||||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | ( | ) | ( | ) | |||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | ( | ) | ( | ) | |||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | ( | ) | ( | ) | |||||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | |||||||||||||||||||
| Stock dividend distribution | ||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Repurchase fees | - | ( | ) | ( | ) | |||||||||||||||
| Offering costs | - | |||||||||||||||||||
| Balance at May 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | |||||||||||||||||||
| Net realized gain (loss) from investments | - | |||||||||||||||||||
| Realized losses on extinguishment of debt | - | ( | ) | ( | ) | |||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | ( | ) | ( | ) | |||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | ( | ) | ( | ) | |||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | ( | ) | ( | ) | |||||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Stock dividend distribution | ||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Repurchase fees | - | ( | ) | ( | ) | |||||||||||||||
| Balance at August 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
78
The Company adopted Rule 3-04/Rule 8-03(a)(5) under Regulation S-X (Note 2). Pursuant to the regulation, the Company has presented a reconciliation of the changes in each significant caption of stockholders’ equity as shown in the tables below:
| Capital | Total | |||||||||||||||||||
| Common Stock | in Excess | Distributable | ||||||||||||||||||
| Shares | Amount | of Par Value | Earnings (Loss) | Net Assets | ||||||||||||||||
| Balance at February 29, 2020 | $ | $ | $ | $ | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | |||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | |||||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | - | - | |||||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | - | - | - | - | |||||||||||||||
| Stock dividend distribution | - | - | - | - | - | |||||||||||||||
| Repurchases of common stock | - | - | - | - | - | |||||||||||||||
| Offering costs | - | - | - | - | - | |||||||||||||||
| Balance at May 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | |||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | |||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | - | - | - | - | |||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||
| Repurchase fees | - | - | ( | ) | - | ( | ) | |||||||||||||
| Offering costs | - | - | - | - | - | |||||||||||||||
| Balance at August 31, 2020 | $ | $ | $ | $ | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | |||||||||||||||||
| Income tax (provision) benefit from realized gain on investments | ( | ) | ( | ) | ||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | |||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | - | - | - | - | |||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||
| Repurchase fees | - | - | ( | ) | - | ( | ) | |||||||||||||
| Offering costs | - | - | - | - | - | |||||||||||||||
| Balance at November 30, 2020 | $ | $ | $ | $ | ||||||||||||||||
79
| Capital | Total | |||||||||||||||||||
| Common Stock | in Excess | Distributable | ||||||||||||||||||
| Shares | Amount | of Par Value | Earnings (Loss) | Net Assets | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Income tax (provision) benefit from realized gain on investments | - | - | - | - | - | |||||||||||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | |||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | - | - | - | - | |||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||
| Repurchase fees | - | - | ( | ) | - | ( | ) | |||||||||||||
| Offering costs | - | - | - | - | - | |||||||||||||||
| Tax reclassification of stockholders’ equity in accordance with generally accepted accounting principles | - | - | ( | ) | - | |||||||||||||||
| Balance at February 28, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | |||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | |||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | - | - | - | - | |||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||
| Repurchase fees | - | - | ( | ) | - | ( | ) | |||||||||||||
| Offering costs | - | - | - | - | - | |||||||||||||||
| Balance at May 31, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | |||||||||||||||||
| Income tax (provision) benefit from realized gain on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | |||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | |||||||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||
| Repurchase fees | - | - | ( | ) | - | ( | ) | |||||||||||||
| Offering costs | - | - | ( | ) | - | ( | ) | |||||||||||||
| Balance at August 31, 2021 | $ | $ | $ | $ | ||||||||||||||||
80
| Capital | Total | |||||||||||||||||||
| Common Stock | in Excess | Distributable | ||||||||||||||||||
| Shares | Amount | of Par Value | Earnings (Loss) | Net Assets | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | |||||||||||||||||
| Income tax (provision) benefit from realized gain on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | |||||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | |||||||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | - | - | - | - | - | |||||||||||||||
| Repurchase fees | - | - | - | - | ||||||||||||||||
| Offering costs | - | - | ( | ) | - | ( | ) | |||||||||||||
| Balance at November 30, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | ||||||||||||||||||||
| Net realized gain (loss) from investments | ||||||||||||||||||||
| Income tax (provision) benefit from realized gain on investments | ||||||||||||||||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | ||||||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | ( | ) | ( | ) | ||||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | ( | ) | ( | ) | ||||||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | ||||||||||||||||||||
| Stock dividend distribution | ||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Repurchase fees | ( | ) | ( | ) | ||||||||||||||||
| Offering costs | ( | ) | ( | ) | ||||||||||||||||
| Tax reclassification of stockholders’ equity in accordance with generally accepted accounting principles | ( | ) | ||||||||||||||||||
| Balance at February 28, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Balance at February 28, 2018 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Cumulative effect of the adoption of ASC 606 (Note 2) | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance at March 1, 2018 | ( | ) | ||||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | |||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | |||||||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | - | - | - | - | |||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | - | - | - | - | - | |||||||||||||||
| Offering costs | - | - | - | - | - | |||||||||||||||
| Balance at May 31, 2018 | ( | ) | ||||||||||||||||||
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| For the Year Ended February 28, 2019 | ||||||||||||||||||||
| Capital | Total | |||||||||||||||||||
| Common Stock | in Excess | Distributable | ||||||||||||||||||
| Shares | Amount | of Par Value | Earnings (Loss) | Net Assets | ||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | |||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | |||||||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | |||||||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | - | - | - | - | - | |||||||||||||||
| Offering costs | - | - | ( | ) | - | ( | ) | |||||||||||||
| Balance at August 31, 2018 | ( | ) | ||||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | |||||||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | - | - | - | - | - | |||||||||||||||
| Offering costs | - | - | ( | ) | - | ( | ) | |||||||||||||
| Balance at November 30, 2018 | ( | ) | ||||||||||||||||||
| Increase (Decrease) from Operations: | ||||||||||||||||||||
| Net investment income | - | - | - | |||||||||||||||||
| Net realized gain (loss) from investments | - | - | - | |||||||||||||||||
| Net change in unrealized appreciation (depreciation) on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | - | - | - | ( | ) | ( | ) | |||||||||||||
| Decrease from Shareholder Distributions: | ||||||||||||||||||||
| Distributions of investment income – net | - | - | - | ( | ) | ( | ) | |||||||||||||
| Capital Share Transactions: | ||||||||||||||||||||
| Proceeds from issuance of common stock | - | |||||||||||||||||||
| Stock dividend distribution | - | |||||||||||||||||||
| Repurchases of common stock | - | - | - | - | - | |||||||||||||||
| Offering costs | - | - | ( | ) | - | ( | ) | |||||||||||||
| Tax reclassification of stockholders’ equity in accordance with generally accepted accounting principles | - | - | ( | ) | - | |||||||||||||||
| Balance at February 28, 2019 | $ | $ | $ | ( | ) | $ | ||||||||||||||
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Note 12. Earnings Per Share
In accordance with the provisions of FASB ASC Topic 260, Earnings per Share (“ASC 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.
The following information sets forth the computation of the weighted average basic and diluted net increase (decrease) in net assets resulting from operations per share for the three and six months ended August 31, 2022 and August 31, 2021 (dollars in thousands except share and per share amounts):
| For the three months ended | For the six months ended | |||||||||||||||
| Basic and Diluted | August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | ||||||||||||
| Net increase (decrease) in net assets resulting from operations | $ | $ | $ | ( | ) | $ | ||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Weighted average earnings (loss) per common share | $ | $ | $ | ( | ) | $ | ||||||||||
Note 13. Dividend
On August 29, 2022, the Company declared a dividend
of $
The following table summarizes dividends declared for the six months ended August 31, 2022 (dollars in thousands except per share amounts):
| Date Declared | Record Date | Payment Date | Amount Per Share | Total Amount* | ||||||||
| August 29, 2022 | $ | $ | ||||||||||
| May 26, 2022 | ||||||||||||
| Total dividends declared | $ | $ | ||||||||||
| * | Total amount is calculated based on the number of shares outstanding at the date of record. |
The following table summarizes dividends declared for the six months ended August 31, 2021 (dollars in thousands except per share amounts):
| Date Declared | Record Date | Payment Date | Amount Per Share | Total Amount* | ||||||||
| May 27, 2021 | $ | $ | ||||||||||
| March 22, 2021 | ||||||||||||
| Total dividends declared | $ | $ | ||||||||||
| * | Total amount is calculated based on the number of shares outstanding at the date of record. |
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Note 14. Financial Highlights
The following is a schedule of financial highlights as of and for the six months ended August 31, 2022 and August 31, 2021:
| Per share data | August 31, 2022 | August 31, 2021 | ||||||
| Net asset value at beginning of period | $ | $ | ||||||
| Net investment income(1) | ||||||||
| Net realized and unrealized gain and losses on investments(1) | ( | ) | ||||||
| Realized losses on extinguishment of debt | ( | ) | ( | ) | ||||
| Net increase in net assets resulting from operations | ( | ) | ||||||
| Distributions declared from net investment income | ( | ) | ( | ) | ||||
| Total distributions to stockholders | ( | ) | ( | ) | ||||
| Issuance of common stock above net asset value (2) | ||||||||
| Repurchases of common stock(3) | ||||||||
| Dilution(4) | ( | ) | ( | ) | ||||
| Net asset value at end of period | $ | $ | ||||||
| Net assets at end of period | $ | $ | ||||||
| Shares outstanding at end of period | ||||||||
| Per share market value at end of period | $ | $ | ||||||
| Total return based on market value(5)(6) | ( | )% | % | |||||
| Total return based on net asset value(5)(7) | % | % | ||||||
| Ratio/Supplemental data: | ||||||||
| Ratio of net investment income to average net assets(8) | % | % | ||||||
| Expenses: | ||||||||
| Ratios of Operating Expenses and Income Taxes to average net assets*(9) | % | % | ||||||
| Ratio of incentive management fees to average net assets(5) | ( | )% | % | |||||
| Ratio of interest and debt financing expenses to average net assets(9) | % | % | ||||||
| Ratio of total expenses and income taxes to average net assets*(8) | % | % | ||||||
| Portfolio turnover rate(5)(10) | % | % | ||||||
| Asset coverage ratio per unit(11) | ||||||||
| Average market value per unit | ||||||||
| Revolving Credit Facility(12) | ||||||||
| SBA Debentures Payable(12) | ||||||||
| 6.25% Notes Payable 2025(13) | $ | |||||||
| 7.25% Notes Payable 2025(14) | $ | |||||||
| 7.75% Notes Payable 2025(12) | ||||||||
| 4.375% Notes Payable(12) | ||||||||
| 6.25% Notes Payable 2027(12) | ||||||||
| 6.00% Notes Payable 2027 | $ | |||||||
| * | |
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
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| (7) |
| (8) |
| (9) |
| (10) |
| (11) |
| (12) |
| (13) |
| (14) |
Note 15. Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to the Company’s consolidated financial statements and disclosures in the consolidated financial statements except for the following:
On July 9, 2020, the Company entered into the Notes Purchase Agreement
(the “Notes Purchase Agreement”) governing the issuance of its 7.75% Notes due 2025 in the aggregate principal amount of $
On September 29, 2022, the Company announced that it received notification
from the Small Business Administration (the “SBA”) that the Company’s application for a third Small Business Investment
Company (“SBIC”) license has been approved. The new SBIC license will provide up to $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under “Note about Forward-Looking Statements” and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements.
The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:
| ● | our future operating results and the continued impact of coronavirus (“COVID-19”) pandemic thereon; |
| ● | the introduction, withdrawal, success and timing of business initiatives and strategies; |
| ● | changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets; |
| ● | the impact of geopolitical conditions, including the ongoing conflict between Ukraine and Russia and its impact on financial market volatility, global economic markets, and various sectors, industries and markets for commodities globally, such as oil and natural gas; |
| ● | the relative and absolute investment performance and operations of our Manager; |
| ● | the impact of increased competition; |
| ● | our ability to turn potential investment opportunities into transactions and thereafter into completed and successful investments; |
| ● | the unfavorable resolution of any future legal proceedings; |
| ● | our business prospects and the operational and financial performance of our portfolio companies, including their ability to achieve our respective objectives as a result of the current COVID-19 pandemic and the effects of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business; |
| ● | the impact of investments that we expect to make and future acquisitions and divestitures; |
| ● | our contractual arrangements and relationships with third parties; |
| ● | the dependence of our future success on the general economy and its impact on the industries in which we invest and the impact of the COVID-19 pandemic thereon; |
| ● | the ability of our portfolio companies to achieve their objectives; |
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| ● | our expected financings and investments; |
| ● | our regulatory structure and tax treatment, including our ability to operate as a business development company (“BDC”), or to operate our small business investment company (“SBIC”) subsidiaries, and to continue to qualify to be taxed as a regulated investment company (“RIC”); |
| ● | the adequacy of our cash resources and working capital; |
| ● | the timing of cash flows, if any, from the operations of our portfolio companies and the impact of the COVID-19 pandemic thereon; |
| ● | the impact of interest rate volatility, including the decommissioning of LIBOR and the rising interest rate environment, on our results, particularly because we use leverage as part of our investment strategy; |
| ● | the impact of supply chain constraints and labor difficulties on our portfolio companies and the global economy; |
| ● | the elevated level of inflation, and its impact on our portfolio companies and on the industries in which we invest; |
| ● | the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or our Manager; |
| ● | the impact of changes to tax legislation and, generally, our tax position; |
| ● | our ability to access capital and any future financings by us; |
| ● | the ability of our Manager to attract and retain highly talented professionals; and |
| ● | the ability of our Manager to locate suitable investments for us and to monitor and effectively administer our investments and the impacts of the COVID-19 pandemic thereon. |
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The following statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| ● | changes in laws and regulations, changes in political, economic, geopolitical or industry conditions, and changes in the interest rate environment, including with respect to the decommissioning of LIBOR and interest rate hikes by the U.S. Federal Reserve, or other conditions affecting the financial and capital markets, including with respect to changes resulting from or in response to, or potentially even the absence of changes as a result of, the impact of the COVID-19 pandemic; |
| ● | the length and duration of the COVID-19 pandemic in the United States as well as worldwide, and the magnitude of its impact and time required for economic recovery, including with respect to the impact of travel restrictions, business closures and other restrictions on the ability of the Manager’s investment professionals to conduct in-person diligence on, and otherwise monitor, existing and future investments; |
| ● | an economic downturn and the time period required for robust economic recovery therefrom, including from increasing inflation, a shifting interest rate environment, geopolitical events (including the war in Ukraine), and the ongoing impact of the COVID-19 pandemic, which may have a material impact on our portfolio companies’ results of operations and financial condition, which could lead to the loss of some or all of our investments in certain portfolio companies and have a material adverse effect on our results of operations and financial condition; |
| ● | a contraction of available credit, an inability or unwillingness of our lenders to fund their commitments to us and/or an inability to access capital markets or additional sources of liquidity, including as a result of the impact and duration of the COVID-19 pandemic, could have a material adverse effect on our results of operations and financial condition and impair our lending and investment activities; |
| ● | risks associated with possible disruption in our portfolio companies’ operations due to wars and other forms of conflict, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics; and |
| ● | the risks, uncertainties and other factors we identify in “Risk Factors” in our most recent Annual Report on Form 10-K under Part I, Item 1A, in our quarterly reports on Form 10-Q, including this report, and in our other filings with the SEC that we make from time to time. |
Such forward-looking statements may include statements preceded by, followed by or that otherwise include terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology.
We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this Quarterly Report on Form 10-Q, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q.
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OVERVIEW
We are a Maryland corporation that has elected to be treated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). Our investment objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from our investments. We invest primarily in senior and unitranche leveraged loans and mezzanine debt issued by private U.S. middle market companies, which we define as companies having earnings before interest, tax, depreciation and amortization (“EBITDA”) of between $2 million and $50 million, both through direct lending and through participation in loan syndicates. We may also invest up to 30.0% of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in distressed debt, which may include securities of companies in bankruptcy, foreign debt, private equity, securities of public companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds. Although we have no current intention to do so, to the extent we invest in private equity funds, we will limit our investments in entities that are excluded from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, which includes private equity funds, to no more than 15.0% of its net assets. We have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
Corporate History
We commenced operations, at the time known as GSC Investment Corp., on March 23, 2007 and completed an initial public offering of shares of common stock on March 28, 2007. Prior to July 30, 2010, we were externally managed and advised by GSCP (NJ), L.P., an entity affiliated with GSC Group, Inc. In connection with the consummation of a recapitalization transaction on July 30, 2010, as described below we engaged Saratoga Investment Advisors to replace GSCP (NJ), L.P. as our investment adviser and changed our name to Saratoga Investment Corp.
As a result of the event of default under a revolving securitized credit facility with Deutsche Bank we previously had in place, in December 2008 we engaged the investment banking firm of Stifel, Nicolaus & Company to evaluate strategic transaction opportunities and consider alternatives for us. On April 14, 2010, GSC Investment Corp. entered into a stock purchase agreement with Saratoga Investment Advisors and certain of its affiliates and an assignment, assumption and novation agreement with Saratoga Investment Advisors, pursuant to which GSC Investment Corp. assumed certain rights and obligations of Saratoga Investment Advisors under a debt commitment letter Saratoga Investment Advisors received from Madison Capital Funding LLC, which indicated Madison Capital Funding’s willingness to provide GSC Investment Corp. with a $40.0 million senior secured revolving credit facility, subject to the satisfaction of certain terms and conditions. In addition, GSC Investment Corp. and GSCP (NJ), L.P. entered into a termination and release agreement, to be effective as of the closing of the transaction contemplated by the stock purchase agreement, pursuant to which GSCP (NJ), L.P., among other things, agreed to waive any and all accrued and unpaid deferred incentive management fees up to and as of the closing of the transaction contemplated by the stock purchase agreement but continued to be entitled to receive the base management fees earned through the date of the closing of the transaction contemplated by the stock purchase agreement.
On July 30, 2010, the transactions contemplated by the stock purchase agreement with Saratoga Investment Advisors and certain of its affiliates were completed, the private sale of 986,842 shares of our common stock for $15.0 million in aggregate purchase price to Saratoga Investment Advisors and certain of its affiliates closed, the Company entered into the Madison Credit Facility, and the Company began doing business as Saratoga Investment Corp.
We used the net proceeds from the private sale transaction and a portion of the funds available to us under the Madison Credit Facility to pay the full amount of principal and accrued interest, including default interest, outstanding under our revolving securitized credit facility with Deutsche Bank. The revolving securitized credit facility with Deutsche Bank was terminated in connection with our payment of all amounts outstanding thereunder on July 30, 2010.
On August 12, 2010, we effected a one-for-ten reverse stock split of our outstanding common stock. As a result of the reverse stock split, every ten shares of our common stock were converted into one share of our common stock. Any fractional shares received as a result of the reverse stock split were redeemed for cash. The total cash payment in lieu of shares was $230. Immediately after the reverse stock split, we had 2,680,842 shares of our common stock outstanding.
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In January 2011, we registered for public resale of the 986,842 shares of our common stock issued to Saratoga Investment Advisors and certain of its affiliates.
On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP (“SBIC LP”), received an SBIC license from the Small Business Administration (“SBA”). 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.
In May 2013, we issued $48.3 million in aggregate principal amount of our 7.50% fixed-rate unsecured notes due 2020 (the “2020 Notes”) for net proceeds of $46.1 million after deducting underwriting commissions of $1.9 million and offering costs of $0.3 million. The proceeds included the underwriters’ full exercise of their overallotment option. The 2020 Notes were listed on the New York Stock Exchange (“NYSE”) under the trading symbol “SAQ” with a par value of $25.00 per share. The 2020 Notes were redeemed in full on January 13, 2017 and are no longer listed on the NYSE.
On September 24, 2014, the Company announced the approval of an open market share repurchase plan that allowed it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published consolidated financial statements (the “Share Repurchase Plan”). On October 7, 2015, our board of directors extended the Share Repurchase Plan for another year and increased the number of shares the Company was permitted to repurchase at prices below its NAV, as reported in its then most recently published consolidated financial statements, to 400,000 shares of its common stock. On October 5, 2016, our board of directors extended the Share Repurchase Plan for another year to October 15, 2017 and increased the number of shares the Company was permitted to repurchase at prices below its NAV, as reported in its then most recently published consolidated financial statements, to 600,000 shares of its common stock. On October 10, 2017, January 8, 2019 and January 7, 2020, our board of directors extended the Share Repurchase Plan for another year to October 15, 2018, January 15, 2020 and January 15, 2021, respectively, each time leaving the number of shares the Company was permitted to repurchase unchanged at 600,000 shares of its common stock. On May 4, 2020, our board of directors increased the Share Repurchase Plan to permit the Company to repurchase 1.3 million shares of its common stock. On January 5, 2021, our board of directors extended the Share Repurchase Plan for another year to January 15, 2022, leaving the number of shares the Company was permitted to repurchase unchanged at 1.3 million shares of common stock. On January 4, 2022, our board of directors extended the Shares Repurchase Plan for another year to January 15, 2023, leaving the number of shares the Company is permitted to repurchase unchanged at 1.3 million shares of common stock. As of August 31, 2022, the Company purchased 803,962 shares of common stock, at the average price of $21.47 for approximately $17.3 million pursuant to the Share Repurchase Plan. During the three months ended August 31, 2022 the Company purchased 153,350 shares of common stock, at the average price of $24.04 for approximately $3.7 million pursuant to the Share Repurchase Plan. During the six months ended August 31, 2022 the Company purchased 295,527 shares of common stock, at the average price of $25.11 for approximately $7.4 million pursuant to the Share Repurchase Plan.
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On May 29, 2015, we entered into a Debt Distribution Agreement with Ladenburg Thalmann & Co. Inc. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the 2020 Notes through an At-the-Market (“ATM”) offering. Prior to the 2020 Notes being redeemed in full, the Company had sold 539,725 2022 Notes with a principal of $13.5 million at an average price of $25.31 for aggregate net proceeds of $13.4 million (net of transaction costs).
On December 21, 2016, we issued $74.5 million in aggregate principal amount of our 6.75% fixed-rate notes due 2023 (the “2023 Notes”) for net proceeds of $71.7 million after deducting underwriting commissions of approximately $2.3 million and offering costs of approximately $0.5 million. The issuance included the partial exercise of the underwriters’ option to purchase an additional $9.8 million in aggregate principal amount of 2023 Notes within 30 days. The 2023 Notes were listed on the NYSE under the trading symbol “SAB” with a par value of $25.00 per share. On December 21, 2019 and February 7, 2020, the Company redeemed $50.0 million and $24.5 million, respectively, in aggregate principal amount of the $74.5 million in aggregate principal amount of the issued and outstanding 2023 Notes and are no longer listed on the NYSE.
On March 16, 2017, we entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc., through which we may offer for sale, from time to time, up to $30.0 million of our common stock through an ATM offering. Subsequent to this, BB&T Capital Markets and B. Riley FBR, Inc. were added to the equity ATM program. On July 11, 2019, the amount of the common stock to be offered was increased to $70.0 million, and on October 8, 2019, the amount of the common stock to be offered was increased to $130.0 million. This agreement was terminated as of July 29, 2021, and as of that date, the Company had sold 3,922,018 shares for gross proceeds of $97.1 million at an average price of $24.77 for aggregate net proceeds of $95.9 million (net of transaction costs).
On July 13, 2018, the Company issued 1,150,000 shares of its common stock priced at $25.00 per share (par value $0.001 per share) at an aggregate total of $28.75 million. The net proceeds, after deducting underwriting commissions of $1.15 million and offering costs of approximately $0.2 million, amounted to approximately $27.4 million. The Company also granted the underwriters a 30-day option to purchase up to an additional 172,500 shares of its common stock, which was not exercised.
On August 28, 2018, the Company issued $40.0 million in aggregate principal amount of our 6.25% fixed-rate notes due 2025 (the “6.25% 2025 Notes”) for net proceeds of $38.7 million after deducting underwriting commissions of approximately $1.3 million. Offering costs incurred were approximately $0.3 million. The issuance included the full exercise of the underwriters’ option to purchase an additional $5.0 million in aggregate principal amount of 6.25% 2025 Notes within 30 days. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.6 million related to the 6.25% 2025 Notes have been capitalized and were amortized over the term of the 6.25% 2025 Notes.
On February 5, 2019, the Company issued an additional $20.0 million in aggregate principal amount of the 6.25% 2025 Notes for net proceeds of $19.2 million after deducting underwriting commissions of approximately $0.6 million and discount of $0.2 million. The additional 6.25% 2025 Notes were treated as a single series with the existing 6.25% 2025 Notes under the indenture and had the same terms as the existing 6.25% 2025 Notes. Offering costs incurred were approximately $0.2 million. The issuance included the full exercise of the underwriters’ option to purchase an additional $2.5 million in aggregate principal amount of 6.25% 2025 Notes within 30 days. The net proceeds from this offering were used for general corporate purposes in accordance with our investment objective and strategies. The financing costs and discount of $1.0 million related to the 6.25% 2025 Notes have been capitalized and were amortized over the term of the 6.25% 2025 Notes. On August 31, 2021, the 6.25% 2025 Notes were redeemed and are no longer listed on the NYSE.
On December 14, 2018, the Company completed the third refinancing of the Saratoga CLO (the “2013-1 Reset CLO Notes”). This refinancing, among other things, extended the Saratoga CLO reinvestment period to January 2021, and extended its legal maturity to January 2030. A non-call period of January 2020 was also added. In addition to and as part of the refinancing, the Saratoga CLO was also upsized from $300 million in assets to approximately $500 million. As part of this refinancing and upsizing, the Company invested an additional $13.8 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased $2.5 million in aggregate principal amount of the Class F-R-2 Notes tranche and $7.5 million in aggregate principal amount of the Class G-R-2 Notes tranche at par. Concurrently, the existing $4.5 million of Class F notes were repaid.
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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. SBIC II LP’s SBIC license provides up to $175.0 million in additional long-term capital in the form of SBA debentures.
On June 24, 2020, the Company issued $37.5 million in aggregate principal amount of our 7.25% fixed-rate notes due 2025 (the “7.25% 2025 Notes”) for net proceeds of $36.3 million after deducting underwriting commissions of approximately $1.2 million. Offering costs incurred were approximately $0.3 million. On July 6, 2020, the underwriters exercised their option in full to purchase an additional $5.625 million in aggregate principal amount of its 7.25% unsecured notes due 2025. Net proceeds to the Company were $5.4 million after deducting underwriting commissions of approximately $0.2 million. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.6 million related to the 7.25% 2025 Notes have been capitalized and are being amortized over the term of the 7.25% 2025 Notes. On July 14, 2022, the 7.25% 2025 Notes were redeemed and are no longer listed on the NYSE.
On July 9, 2020, the Company issued $5.0 million in aggregate principal amount of our 7.75% fixed-rate notes due in 2025 (the “7.75% Notes 2025 ”) for net proceeds of $4.8 million after deducting underwriting commissions of approximately $0.2 million. Offering costs incurred were approximately $0.1 million. Interest on the 7.75% Notes 2025 is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 7.75% per year, beginning August 31, 2020. The 7.75% Notes 2025 mature on July 9, 2025 and may be redeemed in whole or in part at any time or from time to time at our option, subject to a fee depending on the date of repayment. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $0.3 million related to the 7.75% Notes 2025 have been capitalized and are being amortized over the term of the 7.75% Notes 2025. As of August 31, 2022, the total 7.25% 2025 Notes outstanding was $5.0 million. The 7.75% Notes 2025 are not listed and has a par value of $25.00 per share.
On December 29, 2020, the Company issued $5.0 million in aggregate principal amount of our 6.25% fixed-rate notes due in 2027 (the “6.25% Notes 2027”). Offering costs incurred were approximately $0.1 million. Interest on the 6.25% Notes 2027 is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 6.25% per year. The 6.25% Notes 2027 mature on December 29, 2027 and may be redeemed in whole or in part at any time or from time to time at our option on or after December 29, 2024. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $0.1 million related to the 6.25% Notes 2027 have been capitalized and are being amortized over the term of the 6.25% Notes 2027. The 6.25% 2027 Notes are not listed and have a par value of $25.00 per share.
On January 28, 2021, the Company issued $10.0 million in aggregate principal amount of our 6.25% fixed rate notes due in 2027 (the “Second 6.25% Notes 2027”) for net proceeds of $9.7 million after deducting underwriting commissions of approximately $0.3 million. Offering costs incurred were approximately $0.0 million. Interest on the Second 6.25% Notes 2027 is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 6.25% per year. The Second 6.25% Notes 2027 mature on January 28, 2027 and commencing January 28, 2023, may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $0.3 million related to the Second 6.25% Notes 2027 have been capitalized and are being amortized over the term of the Second 6.25% Notes. The Second 6.25% 2027 Notes are unlisted and have a par value of $25.00 per share.
On February 26, 2021, the Company completed the fourth refinancing of the Saratoga CLO. This refinancing, among other things, extended the Saratoga CLO reinvestment period to April 2024, and extended its legal maturity to April 2033. A non-call period ending February 2022 was also added. In addition, and as part of the refinancing, the Saratoga CLO has also been upsized from $500 million in assets to approximately $650 million. As part of this refinancing and upsizing, the Company invested an additional $14.0 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased $17.9 million in aggregate principal amount of the Class F-R-3 Notes tranche at par. Concurrently, the existing $2.5 million of Class F-R-2 Notes, $7.5 million of Class G-R-2 Notes and $25.0 million CLO 2013-1 Warehouse 2 Loan were repaid. The Company also paid $2.6 million of transaction costs related to the refinancing and upsizing on behalf of the Saratoga CLO, to be reimbursed from future equity distributions. At August 31, 2021, the outstanding receivable of $2.6 million was paid in full.
On March 10, 2021, the Company issued $50.0 million in aggregate principal amount of our 4.375% fixed-rate Notes due in 2026 (the “4.375% Notes 2026”) for net proceeds of $49.0 million after deducting underwriting commissions of approximately $1.0 million. Offering costs incurred were approximately $0.2 million. Interest on the 4.375% Notes 2026 is paid semi-annually in arrears on February 28 and August 28, at a rate of 4.375% per year, beginning August 28, 2021. The 4.375% Notes 2026 mature on February 28, 2026 and may be redeemed in whole or in part at any time on or after November 28, 2025 at par plus a “make-whole” premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.2 million related to the 4.375% Notes 2026 have been capitalized and are being amortized over the term of the 4.375% Notes 2026.
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On July 15, 2021, the Company issued an additional $125.0 million in aggregate principal amount of the Company’s 4.375% Notes 2026 (the “Additional 4.375% 2026 Notes”) for net proceeds for approximately $123.5 million, based on the public offering price of 101.00% of the aggregate principal amount of the Additional 4.375% 2026 Notes, after deducting the underwriting discount of $2.5 million and the offering expenses payable by the Company . The net proceeds from the offering were used redeem all of the outstanding 6.25% 2025 Notes (as described above), and for general corporate purposes in accordance with our investment objective and strategies. The Additional 4.375% 2026 Notes were treated as a single series with the existing 4.375% 2026 Notes under the indenture and had the same terms as the existing 4.375% 2026 Notes.
On July 30, 2021, we entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc. and Compass Point Research and Trading, LLC (the “Agents”), through which we may offer for sale, from time to time, up to $150.0 million of our common stock through the Agents, or to them, as principal for their account. As of August 31, 2022, the Company sold 4,840,361 shares for gross proceeds of $124.0 million at an average price of $25.61 for aggregate net proceeds of $122.4 million (net of transaction costs). During the three and six months ended August 31, 2022, there were no shares sold pursuant to the equity distribution agreement with the Agents.
On August 9, 2021, the Company exchanged its existing $17.9 million Class F-R-3 Notes for $8.5 million Class F-1-R-3 Notes and $9.4 million Class F-2-R-3 Notes at par. On August 11, 2021, the Company sold its Class F-1-R-3 Notes to third parties, resulting in a realized loss of $0.1 million.
The Company has formed a wholly owned special purpose entity, Saratoga Investment Funding II LLC, a Delaware limited liability company (“SIF II”), for the purpose of entering into a $50.0 million senior secured revolving credit facility with Encina Lender Finance, LLC (the “Lender”), supported by loans held by SIF II and pledged to the Lender under the credit facility (the “Encina Credit Facility). The Encina Credit Facility closed on October 4, 2021. During the first two years following the closing date, SIF II may request an increase in the commitment amount under the Encina Credit Facility to up to $75.0 million. The terms of the Encina Credit Facility require a minimum drawn amount of $12.5 million at all times during the first six months following the closing date, which increases to the greater of $25.0 million or 50% of the commitment amount in effect at any time thereafter. The term of the Encina Credit Facility is three years. Advances under the Encina Credit Facility bear interest at a floating rate per annum equal to LIBOR plus 4.0%, with LIBOR having a floor of 0.75%, with customary provisions related to the selection by the Lender and the Company of a replacement benchmark rate. Concurrently with the closing of the Encina Credit Facility, all remaining amounts outstanding on the Company’s existing revolving credit facility with Madison Capital Funding, LLC were repaid and the facility terminated.
On October 26, 2021, the Company and TJHA JV I LLC (“TJHA”) entered into a Limited Liability Company Agreement (the “LLC Agreement”) to co-manage Saratoga Senior Loan Fund I JV LLC (“SLF JV”). SLF JV is invested in Saratoga Investment Corp Senior Loan Fund 2021-1 Ltd (“SLF 2021”), which is a wholly owned subsidiary of SLF JV. SLF 2021 was formed for the purpose of making investments in a diversified portfolio of broadly syndicated first lien and second lien term loans or bonds in the primary and secondary markets.
The Company and TJHA have equal voting interest on all material decisions with respect to SLF JV, including those involving its investment portfolio, and equal control of corporate governance. No management fee is charged to SLF JV as control and management of SLF JV is shared equally.
The Company and TJHA have committed to provide up to a combined $50.0 million of financing to SLF JV through cash contributions, with the Company providing $43.75 million and TJHA providing $6.25 million, resulting in an 87.5% and 12.5% ownership between the two parties. The financing is issued in the form of an unsecured note and equity. The unsecured note will pay a fixed rate of 10.0% per annum and is due and payable in full on June 15, 2023. As of August 31, 2022, the Company and TJHA’s investment in SLF JV consisted of an unsecured note of $14.1 million and $2.0million, respectively; and membership interest of $14.1 million and $6.7 million, respectively.
As of August 31, 2022, the Company earned $0.7 million of interest income related to SLF JV, which is included in interest income.
SLF JV’s investment in SLF 2021 is in the form of an unsecured loan. The unsecured note will pay a floating rate of LIBOR plus 7.00% per annum and is due and payable in full on June 9, 2023. As of August 31, 2022, SLF JV’s investment in SLF 2021 had an aggregate fair value of approximately $23.7 million.
The Company has determined that SLF JV is an investment company under ASC 946; however, in accordance with such guidance the Company will generally not consolidate its investment in a company other than a wholly-owned investment company subsidiary. SLF JV is not a wholly-owned investment company subsidiary as the Company and TJHA each have an equal 50% voting interest in SLF JV and thus neither party has a controlling financial interest. Furthermore, ASC 810 concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, the Company does not consolidate SLF JV.
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On January 19, 2022, the Company issued $75.0 million in aggregate principal amount of our 4.35% fixed-rate Notes due in 2027 (the “4.35% Notes 2027”) for net proceeds of $73.0 million, based on the public offering price of 99.317% of the aggregate principal amount of the 4.35% Notes 2027, after deducting the underwriting commissions of approximately $1.5 million. Offering costs incurred were approximately $0.2 million. Interest on the 4.35% Notes 2027 is paid semi-annually in arrears on February 28 and August 28, at a rate of 4.35% per year, beginning August 28, 2022. The 4.35% Notes 2027 mature on February 28, 2027 and may be redeemed in whole or in part at the Company’s option at any time prior to November 28, 2026, at par plus a “make-whole” premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.7 million related to the 4.35% Notes 2027 have been capitalized and are being amortized over the term of the 4.35% Notes 2027.
On April 27, 2022, the Company issued $87.5 million in aggregate principal amount of our 6.00% fixed-rate notes due 2027 (the “6.00% 2027 Notes”) for net proceeds of $84.8 million after deducting underwriting commissions of approximately $2.7 million. Offering costs incurred were approximately $0.1 million. On May 10, 2022, the underwriters partially exercised their option to purchase an additional $10.0 million in aggregate principal amount of the 6.00% 2027 Notes. Net proceeds to the Company were $9.7 million after deducting underwriting commissions of approximately $0.3 million. Interest on the 6.00% 2027 Notes is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 6.00% per year, beginning August 31, 2022. The 6.00% 2027 Notes mature on April 30, 2027 and commencing April 27, 2024, may be redeemed in whole or in part at any time or from time to time at our option. Financing costs of $3.3 million related to the 6.00% 2027 Notes have been capitalized and are being amortized over the term of the 6.00% 2027 Notes. The 6.00% 2027 Notes are listed on the NYSE under the trading symbol “SAT” with a par value of $25.00 per share.
On August 15, 2022, the Company issued $8.0 million in aggregate principal amount of the 6.00% 2027 Notes for net proceeds of $7.8 million, based on the public offering price of 97.80% of the aggregate principal amount of the 6.00% Notes 2027. Additional offering costs incurred were approximately $0.03 million. Additional financing costs of $0.03 million related to the 6.00% 2027 Notes have been capitalized and are being amortized over the term of the 6.00% 2027 Notes.
Recent COVID-19 Developments
We have been closely monitoring, and will continue to monitor, the impact of the COVID-19 pandemic (including new variants of COVID-19) and its impact on all aspects of our business, including how it will impact our portfolio companies, employees, due diligence and underwriting processes, and financial markets. Given the continued fluidity of the pandemic, we cannot estimate the long-term impact of COVID-19 on our business, future results of operations, financial position or cash flows at this time. Further, the operational and financial performance of the portfolio companies in which we make investments may be significantly impacted by COVID-19, which may in turn impact the valuation of our investments. We believe our portfolio companies have taken, and continue to take, immediate actions to effectively and efficiently respond to the challenges posed by COVID-19 and related restrictions imposed by state and local governments and other private businesses, including developing liquidity plans supported by internal cash reserves, and shareholder support. The COVID-19 pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, cancellations of events and restrictions on travel, significant reductions in demand for certain goods and services, reductions in business activity and financial transactions, supply chain disruptions, labor difficulties and shortages, commodity inflation and elements of economic and financial market instability in the United States and globally. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter.
Critical Accounting Policies and Use of Estimates
Basis of Presentation
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make certain estimates and assumptions affecting amounts reported in the Company’s consolidated financial statements. We have identified investment valuation, revenue recognition and the recognition of capital gains incentive fee expense as our most critical accounting estimates. We continuously evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies and estimates follows.
Investment Valuation
The Company accounts for its investments at fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that its investments are to be sold or its liabilities are to be transferred at the measurement 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.
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Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third-party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from Saratoga Investment Advisors, the audit committee of our board of directors and a third party independent valuation firm. We use multiple techniques for determining fair value based on the nature of the investment and experience with those types of investments and specific portfolio companies. The selections of the valuation techniques and the inputs and assumptions used within those techniques often require subjective judgements and estimates. These techniques include market comparables, discounted cash flows and enterprise value waterfalls. Fair value is best expressed as a range of values from which the Company determines a single best estimate. The types of inputs and assumptions that may be considered in determining the range of values of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis and volatility in future interest rates, call and put features, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flows and other relevant factors.
We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:
| ● | Each investment is initially valued by the responsible investment professionals of Saratoga Investment Advisors and preliminary valuation conclusions are documented and discussed with our senior management; and |
| ● | 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. We use a third-party independent valuation firm to value our investment in the subordinated notes of Saratoga CLO and the Class F-2-R-3 Notes tranche of the Saratoga CLO every quarter. |
In addition, all our investments are subject to the following valuation process:
| ● | The audit committee of our board of directors reviews and approves each preliminary valuation and Saratoga Investment Advisors and an independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee; and |
| ● | Our board of directors discusses the valuations and approves the fair value of each investment, in good faith, based on the input of Saratoga Investment Advisors, independent valuation firm (to the extent applicable) and the audit committee of our board of directors. |
Our investment in Saratoga CLO is carried at fair value, which is based on a discounted cash flows 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 market comparables for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by Saratoga Investment Advisors and recommended to our board of directors. Specifically, we use Intex cash flows, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The cash flows use a set of inputs including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated valuations. The inputs are based on available market data and projections provided by third parties as well as management estimates. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flow analysis on expected future cash flows to determine the valuation for our investment in Saratoga CLO.
In December 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted a new rule providing a framework for fund valuation practices. New Rule 2a-5 under the 1940 Act (“Rule 2a-5”) establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 will permit boards, subject to board oversight and certain other conditions, to designate certain parties to perform fair value determinations. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must determine the fair value of a security. The SEC also adopted new Rule 31a-4 under the 1940 Act (“Rule 31a-4”), which provides the recordkeeping requirements associated with fair value determinations. Finally, the SEC is rescinding previously issued guidance on related issues, including the role of the board in determining fair value and the accounting and auditing of fund investments. Rule 2a-5 and Rule 31a-4 became effective on March 8, 2021, and have a compliance date of September 8, 2022. While our board of directors has not elected to designate Saratoga Investment Advisors as the valuation designee, the Company has adopted certain revisions to its valuation policies and procedures in order comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.
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Revenue Recognition
Income Recognition
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on its investments when it is determined that interest is no longer collectible. Discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums on investments.
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as a reduction in principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection.
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. We stop accruing PIK interest if we do not expect the issuer to be able to pay all principal and interest when due.
Revenues
We generate revenue in the form of interest income and capital gains on the debt investments that we hold and capital gains, if any, on equity interests that we may acquire. We expect our debt investments, whether in the form of leveraged loans or mezzanine debt, to have terms of up to ten years, and to bear interest at either a fixed or floating rate. Interest on debt will be payable generally either quarterly or semi-annually. In some cases, our debt or preferred equity investments may provide for a portion or all of the interest to be PIK. To the extent interest is PIK, it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation. The principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance or investment management services and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned. We may also invest in preferred equity or common equity securities that pay dividends on a current basis.
On January 22, 2008, we entered into a collateral management agreement with Saratoga CLO, pursuant to which we act as its collateral manager. The Saratoga CLO was initially refinanced in October 2013 with its reinvestment period extended to October 2016. On November 15, 2016, we completed a second refinancing of the Saratoga CLO with its reinvestment period extended to October 2018.
On December 14, 2018, we completed a third refinancing and upsize of the Saratoga CLO. 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 of 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, we 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 in 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, we also redeemed our existing $4.5 million in aggregate amount of the Class F notes tranche at par and the $20.0 million CLO 2013-1 Warehouse Loan was repaid.
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On February 11, 2020, the Company entered into an unsecured loan agreement with Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd. (“CLO 2013-1 Warehouse 2”), a wholly owned subsidiary Saratoga CLO.
On February 26, 2021, the Company completed the fourth refinancing of the Saratoga CLO. This fourth Saratoga CLO refinancing, among other things, extended the Saratoga CLO reinvestment period to April 2024, and extended its legal maturity to April 2033. The non-call period was extended to February 2022. In addition, and as part of the refinancing, the Saratoga CLO has also been upsized from $500 million in assets to approximately $650 million. As part of this refinancing and upsizing, the Company invested an additional $14.0 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased $17.9 million in aggregate principal amount of the Class F-R-3 Notes tranche at par. Concurrently, the existing $2.5 million of Class F-R-2 Notes, $7.5 million of Class G-R-2 Notes and $25.0 million of the CLO 2013-1 Warehouse 2 Loan were repaid. The Company also paid $2.6 million of transaction costs related to the refinancing and upsizing on behalf of the Saratoga CLO, to be reimbursed from future equity distributions. At August 31, 2021, the outstanding receivable of $2.6 million was repaid in full.
On August 9, 2021, the Company exchanged its existing $17.9 million Class F-R-3 Notes for $8.5 million Class F-1-R-3 Notes and $9.4 million Class F-2-R-3 Notes at par. On August 11, 2021, the Company sold its Class F-1-R-3 Notes to third parties, resulting in a realized loss of $0.1 million.
The Saratoga CLO remains effectively 100% owned and managed by Saratoga Investment Corp. 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. Prior to the second refinancing and the issuance of the 2013-1 Amended CLO Notes, we received a base management fee of 0.25% per annum and a subordinated management fee of 0.25% 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%.
Interest income on our investment in Saratoga CLO is recorded using the effective interest method in accordance with the provisions of ASC Topic 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets (“ASC 325-40”), based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.
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Expenses
Our primary operating expenses include the payment of investment advisory and management fees, professional fees, directors and officers insurance, fees paid to directors who are not “interested persons” (as defined in Section 2(a)(19) of the 1940 Act) of the Company (“independent directors”) and administrator expenses, including our allocable portion of our administrator’s overhead. Our investment advisory and management fees compensate our Manager for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions, including those relating to:
| ● | organization; |
| ● | calculating our net asset value (including the cost and expenses of any independent valuation firm); |
| ● | expenses incurred by our Manager payable to third parties, including agents, consultants or other advisers, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies; |
| ● | expenses incurred by our Manager payable for travel and due diligence on our prospective portfolio companies; |
| ● | interest payable on debt, if any, incurred to finance our investments; |
| ● | offerings of our common stock and other securities; |
| ● | investment advisory and management fees; |
| ● | fees payable to third parties, including agents, consultants or other advisers, relating to, or associated with, evaluating and making investments; |
| ● | transfer agent and custodial fees; |
| ● | federal and state registration fees; |
| ● | all costs of registration and listing our common stock on any securities exchange; |
| ● | federal, state and local taxes; |
| ● | independent directors’ fees and expenses; |
| ● | costs of preparing and filing reports or other documents required by governmental bodies (including the SEC and the SBA); |
| ● | costs of any reports, proxy statements or other notices to common stockholders including printing costs; |
| ● | our fidelity bond, directors and officers errors and omissions liability insurance, and any other insurance premiums; |
| ● | direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; and |
| ● | administration fees and all other expenses incurred by us or, if applicable, the administrator in connection with administering our business (including payments under the Administration Agreement based upon our allocable portion of the administrator’s overhead in performing its obligations under an Administration Agreement, including rent and the allocable portion of the cost of our officers and their respective staffs (including travel expenses)). |
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Pursuant to the investment advisory and management agreement that we had with GSCP (NJ), L.P., our former investment adviser and administrator, we had agreed to pay GSCP (NJ), L.P. as investment adviser a quarterly base management fee of 1.75% of the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed fiscal quarters and an incentive fee.
The incentive fee had two parts:
| ● | A fee, payable quarterly in arrears, equal to 20.0% of our pre-incentive fee net investment income, expressed as a rate of return on the value of the net assets at the end of the immediately preceding quarter, that exceeded a 1.875% quarterly hurdle rate measured as of the end of each fiscal quarter. Under this provision, in any fiscal quarter, our investment adviser received no incentive fee unless our pre-incentive fee net investment income exceeded the hurdle rate of 1.875%. Amounts received as a return of capital were not included in calculating this portion of the incentive fee. Since the hurdle rate was based on net assets, a return of less than the hurdle rate on total assets could still have resulted in an incentive fee. |
| ● | A fee, payable at the end of each fiscal year, equal to 20.0% of our net realized capital gains, if any, computed net of all realized capital losses and unrealized capital depreciation, in each case on a cumulative basis on each investment in the Company’s portfolio, less the aggregate amount of capital gains incentive fees paid to the investment adviser through such date. |
We deferred cash payment of any incentive fee otherwise earned by our former investment adviser if, during the then most recent four full fiscal quarters ending on or prior to the date such payment was to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less liabilities) (before taking into account any incentive fees payable during that period) was less than 7.5% of our net assets at the beginning of such period. These calculations were appropriately pro-rated for the first three fiscal quarters of operation and adjusted for any share issuances or repurchases during the applicable period. Such incentive fee would become payable on the next date on which such test had been satisfied for the most recent four full fiscal quarters or upon certain terminations of the investment advisory and management agreement. We commenced deferring cash payment of incentive fees during the quarterly period ended August 31, 2007 and continued to defer such payments through the quarterly period ended May 31, 2010. As of July 30, 2010, the date on which GSCP (NJ), L.P. ceased to be our investment adviser and administrator, we owed GSCP (NJ), L.P. $2.9 million in fees for services previously provided to us; of which $0.3 million has been paid by us. GSCP (NJ), L.P. agreed to waive payment by us of the remaining $2.6 million in connection with the consummation of the stock purchase transaction with Saratoga Investment Advisors and certain of its affiliates described elsewhere in this Quarterly Report.
The terms of the investment advisory and management agreement with Saratoga Investment Advisors, our current investment adviser, are substantially similar to the terms of the investment advisory and management agreement we had entered into with GSCP (NJ), L.P., our former investment adviser, except for the following material distinctions in the fee terms:
| ● | The capital gains portion of the incentive fee was reset with respect to gains and losses from May 31, 2010, and therefore losses and gains incurred prior to such time will not be taken into account when calculating the capital gains fee payable to Saratoga Investment Advisors and, as a result, Saratoga Investment Advisors will be entitled to 20.0% of net gains that arise after May 31, 2010. In addition, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 equal the fair value of such investment as of such date. Under the investment advisory and management agreement with our former investment adviser, GSCP (NJ), L.P., the capital gains fee was calculated from March 21, 2007, and the gains were substantially outweighed by losses. |
| ● | Under the “catch up” provision, 100.0% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income that exceeds 1.875% but is less than or equal to 2.344% in any fiscal quarter is payable to Saratoga Investment Advisors. This will enable Saratoga Investment Advisors to receive 20.0% of all net investment income as such amount approaches 2.344% in any quarter, and Saratoga Investment Advisors will receive 20.0% of any additional net investment income. Under the investment advisory and management agreement with our former investment adviser, GSCP (NJ), L.P. only received 20.0% of the excess net investment income over 1.875%. |
| ● | We will no longer have deferral rights regarding incentive fees in the event that the distributions to stockholders and change in net assets is less than 7.5% for the preceding four fiscal quarters. |
Capital Gains Incentive Fee
The Company records an expense accrual relating to the capital gains incentive fee payable by the Company to its Manager when the unrealized gains on its investments exceed all realized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the 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 will include only realized capital gains for the period.
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Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and under the Encina Credit Facility. Many of these agreements (including the credit agreements relating to the Encina Credit Facility) include an alternative successor rate or language for choosing an alternative successor rate when LIBOR reference is no longer considered to be appropriate. With respect to other agreements, the Company intends to work with its portfolio companies to modify agreements to choose an alternative successor rate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The standard is effective as of March 12, 2020 through December 31, 2022. Management does not believe this optional guidance has a material impact on the Company’s consolidated financial statements and disclosures.
Portfolio and Investment Activity
Investment Portfolio Overview
| August 31, 2022 | February 28, 2022 | |||||||
| ($ in millions) | ||||||||
| Number of investments(1) | 116 | 94 | ||||||
| Number of portfolio companies(2) | 52 | 45 | ||||||
| Average investment per portfolio company(2) | $ | 17.7 | $ | 17.3 | ||||
| Average investment size(1) | $ | 8.0 | $ | 8.4 | ||||
| Weighted average maturity(3) | 2.9 yrs | 2.9 yrs | ||||||
| Number of industries (5) | 44 | 38 | ||||||
| Non-performing or delinquent investments (fair value) | $ | 9.7 | $ | - | ||||
| Fixed rate debt (% of interest earning portfolio)(3) | $ | 16.7(2.0 | )% | $ | 16.9(2.5 | )% | ||
| Fixed rate debt (weighted average current coupon)(3) | 11.4 | % | 10.0 | % | ||||
| Floating rate debt (% of interest earning portfolio)(3) | $ | 811.7(98.0 | )% | $ | 671.2(97.5 | )% | ||
| Floating rate debt (weighted average current spread over LIBOR)(3)(4) | 6.0 | % | 7.1 | % | ||||
| (1) | Excludes our investment in the subordinated notes of Saratoga CLO. |
| (2) | Excludes our investment in the subordinated notes of Saratoga CLO and Class F-R-3 Note tranche, as well as the unsecured notes and equity interests in the SLF JV. |
| (3) | Excludes our investment in the subordinated notes of Saratoga CLO and equity interests, as well as the unsecured notes and equity interests in the SLF JV. |
| (4) | Calculation uses either 1-month or 3-month LIBOR, depending on the contractual terms, and after factoring in any existing LIBOR floors. |
| (5) | Our investment in the subordinated notes of Saratoga CLO and Class F-R-3 Note tranche, as well as the unsecured notes and equity interests in the SLF JV are included in Structured Finance Securities industry. |
During the three months ended August 31, 2022, we invested $140.5 million in new or existing portfolio companies and had $75.1 million in aggregate amount of exits and repayments resulting in net investment of $65.5 million for the period. During the three months ended August 31, 2021, we invested $133.9 million in new or existing portfolio companies and had $152.7 million in aggregate amount of exits and repayments resulting in net repayments of $18.8 million for the period.
During the six months ended August 31, 2022, we invested $237.7 million in new or existing portfolio companies and had $85.1 million in aggregate amount of exits and repayments resulting in net investment of $152.6 million for the period. During the six months ended August 31, 2021, we invested $235.2 million in new or existing portfolio companies and had $149.8 million in aggregate amount of exits and repayments resulting in net investment of $85.4 million for the period.
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Portfolio Composition
Our portfolio composition at August 31, 2022 and February 28, 2022 at fair value was as follows:
| August 31, 2022 | February 28, 2022 | |||||||||||||||
| Percentage of Total Portfolio | Weighted Average Current Yield | Percentage of Total Portfolio | Weighted Average Current Yield | |||||||||||||
| First lien term loans | 83.0 | % | 10.1 | % | 77.3 | % | 8.3 | % | ||||||||
| Second lien term loans | 2.5 | 7.9 | 5.4 | 11.1 | ||||||||||||
| Unsecured term loans | 1.8 | 9.8 | 1.9 | 9.7 | ||||||||||||
| Structured finance securities | 3.4 | 8.9 | 4.7 | 10.5 | ||||||||||||
| Equity interests | 9.3 | - | 10.7 | - | ||||||||||||
| Total | 100.0 | % | 9.0 | % | 100.0 | % | 7.7 | % | ||||||||
At August 31, 2022, our investment in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value of $23.4 million and constituted 2.5% of our portfolio. This investment constitutes a first loss position in a portfolio that, as of August 31, 2022 and February 28, 2022, was composed of $653.4 million and $660.2 million, respectively, in aggregate principal amount of primarily senior secured first lien term loans. In addition, as of August 31, 2022, we also own $9.4 million in aggregate principal of the F-2-R-3 Notes in the Saratoga CLO, which only rank senior to the subordinated notes.
This investment is subject to unique risks. (See Part 1. Item 1A. Risk Factors—“Our investment in Saratoga CLO constitutes a leveraged investment in a portfolio of predominantly senior secured first lien term loans and is subject to additional risks and volatility” in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022).
We do not consolidate the Saratoga CLO portfolio in our consolidated financial statements. Accordingly, the metrics below do not include the underlying Saratoga CLO portfolio investments. However, at August 31, 2022, $591.7 million or 98.0% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow. At February 28, 2022, $630.3 million or 98.7% of the Saratoga CLO portfolio investments in terms of market value had a CMR color rating of green or yellow and four Saratoga CLO portfolio investments were in default with a fair value of $2.8 million. For more information relating to the Saratoga CLO, see the audited financial statements for Saratoga in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022.
Saratoga Investment Advisors normally grades all of our investments using a credit and monitoring rating system (“CMR”). The CMR consists of a single component: a color rating. The color rating is based on several criteria, including financial and operating strength, probability of default, and restructuring risk. The color ratings are characterized as follows: (Green)—performing credit; (Yellow)—underperforming credit; (Red)—in principal payment default and/or expected loss of principal.
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Portfolio CMR distribution
The CMR distribution for our investments at August 31, 2022 and February 28, 2022 was as follows:
Saratoga Investment Corp.
| August 31, 2022 | February 28, 2022 | |||||||||||||||
| Color Score | Investments at Fair Value | Percentage of Total Portfolio | Investments at Fair Value | Percentage | ||||||||||||
| ($ in thousands) | ||||||||||||||||
| Green | $ | 805,740 | 84.4 | % | $ | 690,672 | 84.5 | % | ||||||||
| Yellow | 36,704 | 3.8 | 10,593 | 1.3 | ||||||||||||
| Red | - | 0.0 | - | 0.0 | ||||||||||||
| N/A(1) | 112,220 | 11.8 | 116,302 | 14.2 | ||||||||||||
| Total | $ | 954,664 | 100.0 | % | $ | 817,567 | 100.0 | % | ||||||||
| (1) | Comprised of our investment in the subordinated notes of Saratoga CLO and equity interests. |
The change in reserve from $0.0 million as of February 28, 2022 to $1.2 million as of August 31, 2022 was related to the non-accrual of interest income related to the Knowland Group.
The CMR distribution of Saratoga CLO investments at August 31, 2022 and February 28, 2022 was as follows:
| Saratoga CLO | ||||||||||||||||
| August 31, 2022 | February 28, 2022 | |||||||||||||||
| Color Score | Investments at Fair Value | Percentage of Total Portfolio | Investments at Fair Value | Percentage of Total Portfolio | ||||||||||||
| ($ in thousands) | ||||||||||||||||
| Green | $ | 558,144 | 92.4 | % | $ | 595,324 | 93.2 | % | ||||||||
| Yellow | 33,580 | 5.6 | 34,983 | 5.5 | ||||||||||||
| Red | 12,307 | 2.0 | 8,622 | 1.3 | ||||||||||||
| N/A(1) | - | 0.0 | 34 | 0.0 | ||||||||||||
| Total | $ | 604,031 | 100.0 | % | $ | 638,963 | 100.0 | % | ||||||||
| (1) | Comprised of Saratoga CLO’s equity interests. |
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Portfolio composition by industry grouping at fair value
The following table shows our portfolio composition by industry grouping at fair value at August 31, 2022 and February 28, 2022:
| Saratoga Investment Corp. | ||||||||||||||||
| August 31, 2022 | February 28, 2022 | |||||||||||||||
| Investments At Fair Value | Percentage of Total Portfolio | Investments At Fair Value | Percentage of Total Portfolio | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Healthcare Software | $ | 92,467 | 9.7 | % | $ | 90,126 | 11.0 | % | ||||||||
| IT Services | 83,506 | 8.7 | 80,804 | 9.9 | ||||||||||||
| HVAC Services and Sales | 64,701 | 6.8 | 29,976 | 3.7 | ||||||||||||
| Education Software | 61,262 | 6.4 | 33,656 | 4.1 | ||||||||||||
| Consumer Services | 58,657 | 6.1 | 38,234 | 4.7 | ||||||||||||
| Real Estate Services | 53,105 | 5.6 | 53,506 | 6.6 | ||||||||||||
| Education Services | 34,372 | 3.6 | 35,309 | 4.3 | ||||||||||||
| Structured Finance Securities(1) | 32,327 | 3.4 | 38,030 | 4.7 | ||||||||||||
| Marketing Orchestration Software | 28,544 | 3.0 | 28,777 | 3.5 | ||||||||||||
| Specialty Food Retailer | 26,992 | 2.8 | 34,013 | 4.2 | ||||||||||||
| Sports Management | 26,549 | 2.8 | 26,654 | 3.3 | ||||||||||||
| Healthcare Services | 26,169 | 2.7 | 42,054 | 5.1 | ||||||||||||
| Talent Acquisition Software | 25,940 | 2.7 | 19,652 | 2.4 | ||||||||||||
| Direct Selling Software | 25,936 | 2.7 | - | 0.0 | ||||||||||||
| Financial Services | 24,906 | 2.6 | 23,540 | 2.9 | ||||||||||||
| Restaurant | 24,808 | 2.6 | 15,686 | 1.9 | ||||||||||||
| Hospitality/Hotel | 21,833 | 2.3 | 19,925 | 2.4 | ||||||||||||
| Mentoring Software | 20,937 | 2.2 | 18,321 | 2.2 | ||||||||||||
| Legal Software | 20,930 | 2.2 | 7,425 | 0.9 | ||||||||||||
| Investment Fund | 20,799 | 2.2 | 25,140 | 3.1 | ||||||||||||
| Marketing Services | 17,200 | 1.8 | 17,327 | 2.1 | ||||||||||||
| Payroll Services | 15,423 | 1.6 | 17,000 | 2.1 | ||||||||||||
| Insurance Software | 14,907 | 1.6 | 10,921 | 1.3 | ||||||||||||
| Corporate Education Software | 14,880 | 1.6 | - | 0.0 | ||||||||||||
| Employee Collaboration Software | 12,086 | 1.3 | 10,000 | 1.2 | ||||||||||||
| Lead Management Software | 11,896 | 1.2 | - | 0.0 | ||||||||||||
| Research Software | 10,493 | 1.1 | - | 0.0 | ||||||||||||
| Non-profit Services | 10,000 | 1.0 | 10,039 | 1.2 | ||||||||||||
| Alternative Investment Management Software | 9,920 | 1.0 | - | 0.0 | ||||||||||||
| Waste Services | 9,000 | 0.9 | 9,000 | 1.1 | ||||||||||||
| Dental Practice Management | 8,626 | 0.9 | 8,403 | 1.0 | ||||||||||||
| Mental Healthcare Services | 8,419 | 0.9 | - | 0.0 | ||||||||||||
| Industrial Products | 8,263 | 0.9 | 8,427 | 1.0 | ||||||||||||
| Financial Services Software | 8,040 | 0.8 | 5,940 | 0.7 | ||||||||||||
| Field Service Management | 6,888 | 0.7 | 6,981 | 0.9 | ||||||||||||
| Corporate Education Software | 3,653 | 0.4 | 3,306 | 0.4 | ||||||||||||
| Office Supplies | 3,628 | 0.4 | 3,726 | 0.5 | ||||||||||||
| Cyber Security | 2,418 | 0.3 | 1,636 | 0.2 | ||||||||||||
| Staffing Services | 2,061 | 0.2 | 1,912 | 0.2 | ||||||||||||
| Consumer Products | 921 | 0.1 | 693 | 0.1 | ||||||||||||
| Facilities Maintenance | 617 | 0.1 | 482 | 0.1 | ||||||||||||
| Healthcare Products Manufacturing | 585 | 0.1 | 714 | 0.1 | ||||||||||||
| Healthcare Supply | - | 0.0 | 5,194 | 0.6 | ||||||||||||
| Dental Practice Management Software | - | 0.0 | 35,038 | 4.3 | ||||||||||||
| Total | $ | 954,664 | 100.0 | % | $ | 817,567 | 100.0 | % | ||||||||
| (1) | As of August 31, 2022 and February 28, 2022, comprised of our investment in the subordinated notes and F-2-R-3 Notes of Saratoga CLO, as well as the unsecured notes and equity interests in the SLF JV. |
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The following table shows Saratoga CLO’s portfolio composition by industry grouping at fair value at August 31, 2022 and February 28, 2022:
| Saratoga CLO | ||||||||||||||||
| August 31, 2022 | February 28, 2022 | |||||||||||||||
| Investments at Fair Value | Percentage of Total Portfolio | Investments at Fair Value | Percentage of Total Portfolio | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Banking, Finance, Insurance & Real Estate | $ | 112,361 | 18.6 | % | $ | 123,124 | 19.4 | % | ||||||||
| Services: Business | 58,705 | 9.7 | 69,491 | 10.9 | ||||||||||||
| High Tech Industries | 58,162 | 9.6 | 60,048 | 9.4 | ||||||||||||
| Healthcare & Pharmaceuticals | 38,153 | 6.3 | 43,136 | 6.9 | ||||||||||||
| Services: Consumer | 34,169 | 5.7 | 41,393 | 6.5 | ||||||||||||
| Telecommunications | 24,895 | 4.1 | 27,058 | 4.2 | ||||||||||||
| Consumer goods: Durable | 24,604 | 4.1 | 21,085 | 3.2 | ||||||||||||
| Retail | 22,691 | 3.8 | 16,050 | 2.5 | ||||||||||||
| Chemicals, Plastics, & Rubber | 21,604 | 3.6 | 22,669 | 3.5 | ||||||||||||
| Automotive | 21,069 | 3.5 | 24,207 | 3.7 | ||||||||||||
| Media: Advertising, Printing & Publishing | 20,087 | 3.3 | 19,660 | 3.1 | ||||||||||||
| Containers, Packaging & Glass | 18,478 | 3.1 | 15,253 | 2.4 | ||||||||||||
| Beverage, Food & Tobacco | 17,748 | 2.9 | 22,086 | 3.4 | ||||||||||||
| Aerospace & Defense | 13,459 | 2.2 | 14,369 | 2.2 | ||||||||||||
| Consumer goods: Non-durable | 13,308 | 2.2 | 14,359 | 2.2 | ||||||||||||
| Media: Broadcasting & Subscription | 11,628 | 1.9 | 11,539 | 1.8 | ||||||||||||
| Construction & Building | 11,279 | 1.9 | 11,102 | 1.7 | ||||||||||||
| Hotel, Gaming & Leisure | 11,156 | 1.8 | 16,572 | 2.6 | ||||||||||||
| Capital Equipment | 9,876 | 1.6 | 10,062 | 1.6 | ||||||||||||
| Utilities: Oil & Gas | 8,048 | 1.3 | 8,095 | 1.3 | ||||||||||||
| Health Care Equipment & Supplies | 7,215 | 1.2 | - | 0.0 | ||||||||||||
| Media: Diversified & Production | 6,949 | 1.2 | 9,203 | 1.4 | ||||||||||||
| Transportation: Consumer | 6,755 | 1.1 | 4,891 | 0.8 | ||||||||||||
| Transportation: Cargo | 4,397 | 0.7 | 3,752 | 0.6 | ||||||||||||
| Wholesale | 3,833 | 0.6 | 4,155 | 0.7 | ||||||||||||
| Forest Products & Paper | 3,560 | 0.6 | 9,367 | 1.5 | ||||||||||||
| Energy: Electricity | 3,376 | 0.6 | 3,660 | 0.6 | ||||||||||||
| Metals & Mining | 3,336 | 0.6 | 6,846 | 1.1 | ||||||||||||
| Diversified Financial Services | 2,903 | 0.5 | - | 0.0 | ||||||||||||
| Software | 2,613 | 0.4 | - | 0.0 | ||||||||||||
| Utilities: Electric | 2,325 | 0.4 | 4,026 | 0.6 | ||||||||||||
| Media | 1,861 | 0.3 | - | 0.0 | ||||||||||||
| Environmental Industries | 967 | 0.2 | 1,550 | 0.2 | ||||||||||||
| Diversified Telecommunication Services | 935 | 0.2 | - | 0.0 | ||||||||||||
| Real Estate Investment Trusts (REITs) | 872 | 0.1 | - | 0.0 | ||||||||||||
| Leisure Products | 483 | 0.1 | - | 0.0 | ||||||||||||
| Energy: Oil & Gas | 171 | 0.0 | 155 | 0.0 | ||||||||||||
| Total | $ | 604,031 | 100.0 | % | $ | 638,963 | $ | 100 | % | |||||||
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Portfolio composition by geographic location at fair value
The following table shows our portfolio composition by geographic location at fair value at August 31, 2022 and February 28, 2022. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.
| August 31, 2022 | February 28, 2022 | |||||||||||||||
| Investments at Fair Value | Percentage of Total Portfolio | Investments at Fair Value | Percentage of Total Portfolio | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Southeast | $ | 280,946 | 29.4 | % | $ | 257,199 | 31.5 | % | ||||||||
| West | 168,044 | 17.6 | 183,643 | 22.5 | ||||||||||||
| Midwest | 180,607 | 18.9 | 160,718 | 19.7 | ||||||||||||
| Northwestt | 2,418 | 0.3 | 62,475 | 7.6 | ||||||||||||
| Northeast | 134,643 | 14.1 | 85,414 | 10.4 | ||||||||||||
| Southwest | 114,628 | 12.0 | 1,636 | 0.2 | ||||||||||||
| Other(1) | 73,378 | 7.7 | 66,482 | 8.1 | ||||||||||||
| Total | $ | 954,664 | 100.0 | % | $ | 817,567 | 100.0 | % | ||||||||
| (1) | Comprised of our investment in the subordinated notes and F-2-R-3 Notes of Saratoga CLO, as well as the unsecured notes and equity interests in the SLF JV. |
Results of operations
Operating results for the three and six months ended August 31, 2022 and August 31, 2021 was as follows:
| For the three months ended | For the six months ended | |||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Total investment income | $ | 21,853 | $ | 18,441 | $ | 40,532 | $ | 35,257 | ||||||||
| Total operating expenses | 14,155 | 12,048 | 24,858 | 26,308 | ||||||||||||
| Net investment income | 7,698 | 6,393 | 15,674 | 8,949 | ||||||||||||
| Net realized gain (loss) from investments | 7,944 | 1,502 | 8,106 | 3,412 | ||||||||||||
| Income tax (provision) benefit from realized gain on investments | - | (449 | ) | 69 | (449 | ) | ||||||||||
| Net change in unrealized appreciation (depreciation) on investments | (13,259 | ) | 3,377 | (22,591 | ) | 20,189 | ||||||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | (230 | ) | (1,329 | ) | (592 | ) | (1,559 | ) | ||||||||
| Realized losses on extinguishment of debt | (1,205 | ) | (1,552 | ) | (1,205 | ) | (1,552 | ) | ||||||||
| Net increase (decrease) in net assets resulting from operations | $ | 948 | $ | 7,942 | $ | (539 | ) | $ | 28,990 | |||||||
Investment income
The composition of our investment income for three and six months ended August 31, 2022 and August 31, 2021 was as follows:
| For the three months ended | For the six months ended | |||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Interest from investments | $ | 19,233 | $ | 15,114 | $ | 35,839 | $ | 28,801 | ||||||||
| Interest from cash and cash equivalents | 34 | 1 | 35 | 2 | ||||||||||||
| Management fee income | 817 | 814 | 1,633 | 1,633 | ||||||||||||
| Dividend Income | 213 | 659 | 513 | 1,057 | ||||||||||||
| Structuring and advisory fee income | 1,408 | 1,038 | 2,260 | 2,340 | ||||||||||||
| Other income | 148 | 815 | 252 | 1,425 | ||||||||||||
| Total investment income | $ | 21,853 | $ | 18,441 | $ | 40,532 | $ | 35,258 | ||||||||
105
For the three months ended August 31, 2022, total investment income increased $3.4 million, or 18.5%, to $21.9 million from $18.4 million for the three months ended August 31, 2021. Interest income from investments increased $4.1 million, or 27.3%, to $19.2 million for the three months ended August 31, 2022 from $15.1 million for the three months ended August 31, 2021. Interest income from investment increased due to the increase of $288.6 million, or 43.3%, in total investments at August 31, 2022 from $666.1 million at August 31, 2021 to $954.7 million as of August 31, 2022, combined with the increase in the weighted average current yield on investments to 9.0%, up from 8.2% at August 31, 2021.
For the six months ended August 31, 2022, total investment income increased $5.3 million, or 15.0%, to $40.5 million from $35.3 million for the six months ended August 31, 2021. Interest income from investments increased $7.0 million, or 24.4%, to $35.8 million for the six months ended August 31, 2022 from $28.8 million for the six months ended August 31, 2021. Interest income from investment increased due to the increase of $288.6 million, or 30.2%, in total investments at August 31, 2022 from $666.1 million at August 31, 2021 to $954.7 million as of August 31, 2022.
For the three and six months ended August 31, 2022 and August 31, 2021, total PIK income was $0.2 million and $0.8 million, respectively and $0.4 million and $1.1 million respectively.
Management fee income reflects the fee income received for managing the Saratoga CLO. For the three months ended August 31, 2022 and August 31, 2021, total management fee income was $0.8 million and $0.8 million, respectively. For the six months ended August 31, 2022 and August 31, 2021, total management fee income was $1.6 million and $1.6 million, respectively.
For the three and six months ended August 31, 2022 and August 31, 2021, total dividend income was $0.2 million and $0.7 million, respectively, and $0.5 million and $1.1 million, respectively. Dividends received is recorded in the consolidated statements of operations when earned, and the decrease primarily reflects dividend income received on various preferred equity investments last year that were not received this year.
For the three and six months ended August 31, 2022 and August 31, 2021, total structuring and advisory fee income was $1.4 million and $1.0 million, respectively, and $2.3 million and $2.3 million, respectively. Structuring and advisory fee income represents fee income earned and received performing certain investment and advisory activities during the closing of new investments.
For the three and six months ended August 31, 2022 and August 31, 2021, other income was $0.2 million and $0.8 million, respectively, and $0.3 million and $1.4 million, respectively. Other income includes origination fees and prepayment income fees and is recorded in the consolidated statements of operations when earned. The decrease was driven primarily by prepayment penalties earned from certain redemptions in the prior year that did not recur this year.
Operating expenses
The composition of our operating expenses for the three and six months ended August 31, 2022 and August 31, 2021 was as follows:
| For the three months ended | For the three months ended | |||||||||||||||
| August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Interest and debt financing expenses | $ | 7,922 | $ | 5,184 | $ | 14,794 | $ | 9,525 | ||||||||
| Base management fees | 4,104 | 3,002 | 7,906 | 5,761 | ||||||||||||
| Incentive management fees expense (benefit) | 590 | 2,018 | (1,314 | ) | 7,281 | |||||||||||
| Professional fees | 368 | 461 | 785 | 968 | ||||||||||||
| Administrator expenses | 773 | 713 | 1,523 | 1,406 | ||||||||||||
| Insurance | 90 | 86 | 178 | 173 | ||||||||||||
| Directors fees and expenses | 110 | 101 | 220 | 192 | ||||||||||||
| General & administrative and other expenses | 300 | 453 | 967 | 944 | ||||||||||||
| Income tax expense (benefit) | (102 | ) | 30 | (201 | ) | 58 | ||||||||||
| Total operating expenses | $ | 14,155 | $ | 12,048 | $ | 24,858 | $ | 26,308 | ||||||||
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For the three months ended August 31, 2022, total operating expenses increased $2.1 million, or 17.5%, compared to the three months ended August 31, 2021. For the six months ended August 31, 2022, total operating expenses decreased $1.5 million, or 5.5%, compared to the six months ended August 31, 2021.
For the three months ended August 31, 2022, interest and debt financing expenses increased $2.7 million, or 52.8%, compared to the three months ended August 31, 2021. The increase is primarily attributable to an increase in average outstanding debt from $425.9 million for the three months ended August 31, 2021 to $626.7 million for the three months ended August 31, 2022, primarily reflecting (i) the issuance of the 4.375% 2026 Notes and the 4.35% 2027 Notes during the year ended February 28, 2022, and (ii) the issuance of the 6.00% 2027 Notes during the three months ended August 31, 2022.
For the six months ended August 31, 2022, interest and debt financing expenses increased $5.3 million, or 55.3%, compared to the six months ended August 31, 2021. The increase is primarily attributable to an increase in average outstanding debt from $378.3 million for the six months ended August 31, 2021 to $609.0 million for the six months ended August 31, 2022, primarily reflecting (i) the issuance of the 4.375% 2026 Notes and the 4.35% 2027 Notes during the year ended February 28, 2022, and (ii) the issuance of the 6.00% 2027 Notes during the six months ended August 31, 2022.
For the three and six months ended August 31, 2022 and August 31, 2021, the weighted average interest rate on our outstanding indebtedness was 4.46% and 4.26%, respectively and 4.45% and 4.39%, respectively. The decrease in weighted average interest rate was primarily driven by the issuance of the lower-rate 4.375% 2026 Notes and 4.35% 2026 Notes, the redemption of the 6.25% 2025 Notes, the redemption of the 7.25% 2027 Notes and the issuance of lower cost SBA debentures over the past year.
As of August 31, 2022 and February 28, 2022, the SBA debentures represented 36.8% and 36.2% of overall debt, respectively.
For the three months ended August 31, 2022, base management fees increased $1.1 million, or 36.7%, from $3.0 million to $4.1 million compared to the three months ended August 31, 2021. The increase in base management fees results from the 36.7% increase in the average value of our total assets, less cash and cash equivalents, from $680.6 million for the three months ended August 31, 2021 to $930.4 million for the three months ended August 31, 2022. For the six months ended August 31, 2022, base management fees increased $2.1 million, or 37.2%, from $5.8 million to $7.9 million compared to the six months ended August 31, 2021. The increase in base management fees results from the 37.2% increase in the average value of our total assets, less cash and cash equivalents, from $653.0 million for the three months ended August 31, 2021 to $896.2 million for the three months ended August 31, 2022.
For the three months ended August 31, 2022, incentive management fees decreased $1.4 million, or 70.8%, compared to the three months ended August 31, 2021. The incentive fee on income remained relatively unchanged at $1.7 million for the three months ended August 31, 2021and 2022. The incentive fee on capital gains decreased from a $0.3 million expense for the three months ended August 31, 2021 to a $(1.1) million benefit for the three months ended August 31, 2022, both reflecting the incentive fee income on net unrealized appreciation and depreciation recognized during both these periods.
For the six months ended August 31, 2022, incentive management fees decreased $8.6 million, or 118.0%, compared to the six months ended August 31, 2021. The incentive fee on income decreased from $3.2 million for the three months ended August 31, 2021 to $1.7 million for the three months ended August 31, 2022, reflecting the Company’s net investment income being below the hurdle based on net asset value for incentive fee purposes for part of the six months. The incentive fee on capital gains decreased from a $4.0 million expense for the three months ended August 31, 2021 to a $(3.0) million benefit for the three months ended August 31, 2022, both reflecting the incentive fee income on net unrealized appreciation and depreciation recognized during both these periods.
For the three and six months ended August 31, 2022, professional fees decreased $0.1 million, or 20.1%, and decreased $0.2 million, or 18.8%, respectively, compared to the three and six months ended August 31, 2021.
For the three and six months ended August 31, 2022, administrator expenses increased $0.1 million, or 8.5%, and increased $0.1 million or 8.3% compared to the three and six months ended August 31, 2022.
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As discussed above, the increase in interest and debt financing expenses for the three months ended August 31, 2022 compared to the three months ended August 31, 2021 is primarily attributable to an increase in the average dollar amount of outstanding debt. During the three months ended August 31, 2022 and August 31, 2021, the average borrowings outstanding under the Encina Credit Facility and the Madison Credit Facility was $25.0 million and $23.8 million, respectively, and the average weighted average interest rate on the outstanding borrowing under the Credit Facility was 5.83% and 6.37%, respectively. For the three months ended August 31, 2022 and August 31, 2021, the average borrowings outstanding of SBA debentures was $222.0 million and $181.1 million, respectively. For the three months ended August 31, 2022 and August 31, 2021, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 2.75% and 2.65%, respectively. During the three months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 6.25% fixed-rate 2025 Notes outstanding was $0.0 million and $60.0 million, respectively. During the three months ended August 31, 2022 and August 31, 2021, the weighted average dollar amount of our 7.25% fixed-rate 2025 Notes outstanding was $10.8 million and $43.1 million, respectively. During the three months ended August 31, 2022 and August 31, 2021, the weighted average dollar amount of our 7.75% fixed-rate 2025 Notes outstanding was $5.0 million and $5.0 million, respectively. During the three months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 6.25% fixed-rate 2027 Notes outstanding was $15.0 million and $15.0 million, respectively. During the three months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 4.375% fixed-rate 2026 Notes outstanding was $175.0 million and $115.2 million, respectively. During the three months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 4.35% fixed-rate 2027 Notes outstanding was $75.0 million and $0.0 million, respectively. During the three months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 6.00% fixed-rate 2027 Notes outstanding was $99.0 million and $0.0 million, respectively.
As discussed above, the increase in interest and debt financing expenses for the six months ended August 31, 2022 compared to the six months ended August 31, 2021 is primarily attributable to an increase in the average dollar amount of outstanding debt. During the six months ended August 31, 2022 and August 31, 2021, the average borrowings outstanding under the Encina Credit Facility and the Madison Credit Facility was $22.5 million and $9.5 million, respectively, and the average weighted average interest rate on the outstanding borrowing under the Credit Facility was 5.40% and 4.02%, respectively. For the six months ended August 31, 2022 and August 31, 2021, the average borrowings outstanding of SBA debentures was $218.4 million and $169.8 million, respectively. For the six months ended August 31, 2022 and August 31, 2021, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 2.67% and 2.78%, respectively. During the six months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 6.25% fixed-rate 2025 Notes outstanding was $0.0 million and $58.7 million, respectively. During the six months ended August 31, 2022 and August 31, 2021, the weighted average dollar amount of our 7.25% fixed-rate 2025 Notes outstanding was $27.0 million and $43.1 million, respectively. During the six months ended August 31, 2022 and August 31, 2021, the weighted average dollar amount of our 7.75% fixed-rate 2025 Notes outstanding was $5.0 million and $5.0 million, respectively. During the six months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 6.25% fixed-rate 2027 Notes outstanding was $15.0 million and $15.0 million, respectively. During the six months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 4.375% fixed-rate 2026 Notes outstanding was $175.0 million and $84.3 million, respectively. During the six months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 4.35% fixed-rate 2027 Notes outstanding was $75.0 million and $0.0 million, respectively. During the six months ended August 31, 2022 and August 31, 2021, the average dollar amount of our 6.00% fixed-rate 2027 Notes outstanding was $44.0 million and $60.0 million, respectively
For the three months ended August 31, 2022 and August 31, 2021, there were income tax expense (benefits) of $(0.1) million and $0.03 million, respectively. For the six months ended August 31, 2022 and August 31, 2021, there were income tax expense (benefits) of $(0.2) million and $0.06 million, respectively. This relates to net deferred federal and state income tax expense (benefit) with respect to operating gains and losses and income derived from equity investments held in the taxable blockers, as well as current federal and state income taxes on those operating gains and losses when realized.
Net realized gains (losses) on sales of investments
For the three months ended August 31, 2022, the Company had $75.1 million of sales, repayments, exits or restructurings resulting in $7.9 million of net realized gains. For the six months ended August 31, 2022, the Company had $85.2 million of sales, repayments, exits or restructurings resulting in $8.1 million of net realized gains.
| Six Months ended August 31, 2022 | ||||||||||||||
| Issuer | Asset Type | Gross Proceeds | Cost | Net Realized Gain (Loss) | ||||||||||
| PDDS Buyer, LLC | Equity Interests | $ | 9,943,838 | $ | 2,000,000 | $ | 7,943,838 | |||||||
| Censis Technologies | Equity Interests | - | - | 68,731 | ||||||||||
| Texas Teachers of Tomorrow, LLC | Equity Interests | - | - | 24,977 | ||||||||||
| V Rental Holdings LLC | Equity Interests | - | - | 68,800 | ||||||||||
The $7.9 million of net realized gains was from the sale of the equity position in the Company’s PPDS Buyer investment.
The Company received escrow payments from the prior sales of its investments in Censis Technologies, Texas Teachers of Tomorrow, LLC and V Rental Holdings, LLC.
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For the six months ended August 31, 2021, the Company had $149.8 million of sales, repayments, exits or restructurings resulting in $3.4 million of net realized gains.
| Six Months ended August 31, 2021 | ||||||||||||||
| Issuer | Asset Type | Gross Proceeds | Cost | Net Realized Gain | ||||||||||
| My Alarm Center, LLC | Equity Interests | $ | - | $ | 4,867,102 | $ | (4,837,102 | ) | ||||||
| Passageways, Inc. | Equity Interests | 7,439,802 | 1,000,000 | 6,439,802 | ||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-1-R-3 Note | Structured Finance Securities | 8,360,133 | 8,500,000 | (139,867 | ) | |||||||||
| V Rental Holdings LLC | Equity Interests | 2,344,817 | 365,814 | 1,978,903 | ||||||||||
The $4.9 million of net realized loss was from the Company’s My Alarm Center, LLC investment that was deemed worthless during this period.
The $6.4 million of net realized gains was from the sales of the equity position in the Company’s Passageways Inc. investment.
The $0.1 million of net realized loss was from the repayment of the structured finance securities in the Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-1-R-3 Note.
The $1.9 million of net realized gains was from the sales of the equity position in the Company’s V Rental Holdings LLC investment.
Net change in unrealized appreciation (depreciation) on investments
For the six months ended August 31, 2022, our investments had a net change in unrealized depreciation of $22.6 million versus a net change in unrealized appreciation of $20.2 million for the six months ended August 31, 2021. The most significant cumulative net change in unrealized appreciation (depreciation) for the six months ended August 31, 2022 were the following (dollars in thousands):
| Six Months ended August 31, 2022 | ||||||||||||||||||
| Issuer | Asset Type | Cost | Fair Value | Total Unrealized Appreciation (Depreciation) | YTD Change in Unrealized Appreciation (Depreciation) | |||||||||||||
| Artemis Wax Corp. | First Lien Term Loan & Equity Interests | $ | 55,023 | $ | 58,657 | $ | 3,634 | $ | 2,174 | |||||||||
| Netreo Holdings, LLC | First Lien Term Loan & Equity Interests | 31,330 | 40,506 | 9,176 | (1,468 | ) | ||||||||||||
| PDDS Buyer, LLC | First Lien Term Loan & Equity Interests | - | - | - | (5,094 | ) | ||||||||||||
| Pepper Palace, Inc. | First Lien Term Loan & Equity Interests | 34,383 | 26,992 | (7,391 | ) | (6,872 | ) | |||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. | Structured Finance Securities | 39,489 | 32,327 | (7,162 | ) | (3,543 | ) | |||||||||||
| Saratoga Senior Loan Fund I JV, LLC | Equity Interests | 14,072 | 6,727 | (7,345 | ) | (6,236 | ) | |||||||||||
| Zollege PBC | First Lien Term Loan & Equity Interests | 16,635 | 15,211 | (1,424 | ) | (1,289 | ) | |||||||||||
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The $2.2 million of unrealized appreciation in our investment in Artemis Wax Corp. was driven by growth and improved financial performance.
The $1.5 million of unrealized depreciation in our investment Netreo Holdings, LLC was driven by increased company leverage.
The $5.1 million of unrealized depreciation in our investment PDDS Buyer, LLC was driven by the sale of that investment, resulting in a reversal of previously recognized unrealized appreciation reclassified to realized gains.
The $6.9 million of unrealized depreciation in our investment Pepper Palace, Inc. was driven by overall company performance.
The $3.5 million of unrealized depreciation in our investment Saratoga Investment Corp. CLO 2013-1, Ltd was driven by the increase in discount rates, impact of LIBOR changes and overall market conditions.
The $6.2 million of unrealized depreciation in our investment Saratoga Senior Loan Fund I, JV, LLC was driven by the decrease in market prices of the underlying CLO warehouse assets.
The $1.3 million of unrealized depreciation in our investment in Zollege PBC was driven by overall company performance.
The most significant cumulative net change in unrealized appreciation (depreciation) for the six months ended August 31, 2021 were the following (dollars in thousands):
| Six Months ended August 31, 2021 | ||||||||||||||||||
| Issuer | Asset Type | Cost | Fair Value | Total Unrealized Appreciation | YTD Change in Unrealized Appreciation | |||||||||||||
| My Alarm Center, LLC | Equity Interests | $ | - | $ | - | $ | - | $ | 4,686 | |||||||||
| GreyHeller LLC | First Lien Term Loan & Equity Interests | 14,034 | 21,816 | 7,782 | 4,680 | |||||||||||||
| Netreo Holdings, LLC | First Lien Term Loan & Equity Interests | 23,942 | 33,770 | 9,828 | 4,240 | |||||||||||||
| Saratoga Investment Corp. CLO 2013-1, Ltd. | Structured Finance Securities | 34,505 | 35,061 | 556 | 2,953 | |||||||||||||
| Schoox, Inc. | Equity Interests | 476 | 3,258 | 2,783 | 2,783 | |||||||||||||
| Texas Teachers of Tomorrow, LLC | First Lien Term Loan & Equity Interests | 26,274 | 29,324 | 3,050 | 2,663 | |||||||||||||
| Destiny Solutions Inc. | First Lien Term Loan & Equity Interests | 3,969 | 6,217 | 2,248 | 1,221 | |||||||||||||
| Village Realty Holdings LLC | Equity Interests | 366 | 2,209 | 1,843 | (1,843 | ) | ||||||||||||
| Passageways, Inc. | First Lien Term Loan & Equity Interests | 10,953 | 17,598 | 6,645 | (2,311 | ) | ||||||||||||
The $4.7 million net change in unrealized appreciation in our investment in My Alarm Center, LLC was primarily driven by the reversal of previously recognized unrealized depreciation reclassified to realized losses.
The $4.7 million net change in unrealized appreciation in our investment in GreyHeller LLC was primarily driven by improved financial performance.
The $4.2 million net change in unrealized appreciation in our investment in Netreo Holdings, LLC was primarily driven by growth and improved financial performance.
The $3.0 million of unrealized appreciation in our investment in Saratoga Investment Corp. CLO 2013-1, Ltd. was primarily driven by improved market performance, combined with outperformance achieved from the assets in the CLO.
The $2.8 million net change in unrealized appreciation in our investment in Schoox, Inc. was primarily driven by overall company performance.
The $2.7 million net change in unrealized appreciation in our investment in Texas Teachers of Tomorrow, LLC was primarily driven by improved financial performance.
The $1.2 million net change in unrealized appreciation in our investment in Destiny Solutions Inc. was primarily driven by improved financial performance.
The $1.8 million net change in unrealized depreciation in our investment in Village Realty Holdings, LLC was primarily driven by the sale of that investment, resulting in a reversal of previously recognized unrealized appreciation reclassified to realized gains.
The $2.3 million net change in unrealized depreciation in our investment in Passageways, Inc. was primarily driven by the sale of that investment, resulting in a reversal of previously recognized unrealized appreciation reclassified to realized gains.
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Changes in net assets resulting from operations
For the three months ended August 31, 2022, we recorded a net increase in net assets resulting from operations of $1.0 million. Based on 11,963,276 weighted average common shares outstanding as of August 31, 2022, our per share net increase in net assets resulting from operations was $0.08 for the three months ended August 31, 2022. For the three months ended August 31, 2021, we recorded a net increase in net assets resulting from operations of $7.9 million. Based on 11,175,436 weighted average common shares outstanding as of August 31, 2021, our per share net increase in net assets resulting from operations was $0.71 for the three months ended August 31, 2021.
For the six months ended August 31, 2022, we recorded a net decrease in net assets resulting from operations of $0.5 million. Based on 12,037,855 weighted average common shares outstanding as of August 31, 2022, our per share net decrease in net assets resulting from operations was $0.04 for the six months ended August 31, 2022. For the six months ended August 31, 2021, we recorded a net increase in net assets resulting from operations of $29.0 million. Based on 11,172,787 weighted average common shares outstanding as of August 31, 2021, our per share net decrease in net assets resulting from operations was $2.59 for the six months ended August 31, 2021.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We intend to continue to generate cash primarily from cash flows from operations, including interest earned from our investments in debt in middle market companies, interest earned from the temporary investment of cash in U.S. government securities and other high- quality debt investments that mature in one year or less, the Encina Credit Facility, our continued access to the SBA debentures, future borrowings and future offerings of debt and equity securities.
Although we expect to fund the growth of our investment portfolio through the net proceeds from future equity offerings, including our dividend reinvestment plan (“DRIP”) and our equity ATM program, and issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act, we cannot assure you that our plans to raise capital will be successful. In this regard, because our common stock has historically traded at a price below our current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we have been and may continue to be limited in our ability to raise equity capital.
In addition, we intend to distribute to our stockholders substantially all of our operating taxable income in order to satisfy the distribution requirement applicable to RICs under the Code. In satisfying this distribution requirement, in accordance with certain applicable provisions of the Code and the Treasury regulations and a revenue procedure 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 that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. We may rely on the revenue procedure in future periods to satisfy our RIC distribution requirement.
Also, as a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200.0%, reduced to 150.0% effective April 16, 2019 following the approval received from the board of directors, including a majority of our independent directors, on April 16, 2018. This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 184.2% as of August 31, 2022 and 209.2% as of February 28, 2022. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and other debt-related markets, which may or may not be available on favorable terms, if at all.
Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies, to pay dividends or to repay borrowings. Also, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.
Due to the diverse capital sources available to us at this time, we believe we have adequate liquidity to support our near-term capital requirements. As the impact of COVID-19 continues to evolve, we will continually evaluate our overall liquidity position and take proactive steps to maintain that position based on the current circumstances. This “Financial Condition, Liquidity and Capital Resources” section should be read in conjunction with “Recent COVID-19 Developments” above, as well as with the notes of our consolidated financial statements.
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Madison Revolving Credit Facility
The senior secured revolving credit facility we entered into with Madison Capital Funding LLC (the “Madison Credit Facility”) on June 30, 2010, was most recently amended on September 3, 2021 and then fully repaid and terminated on October 4, 2021.
Encina Credit Facility
Below is a summary of the terms of the senior secured revolving credit facility we entered into with Encina Lender Finance, LLC on October 4, 2021.
Commitment. The Company entered into a senior secured revolving credit facility in the initial facility amount of $50.0 million (the “Facility Amount”). The Company has the ability to request an increase in the Facility Amount during the first two years following the closing date to up to $75.0 million. The commitment termination date is October 4, 2024.
Availability. The Company can draw up to the lesser of (i) the Facility Amount and (ii) the Borrowing Base. The Borrowing Base is an amount equal to (i) the difference of (A) the product of the applicable advance rate which varies from 50.0% to 75.0% depending on the type of loan asset (Defaulted Loans being excluded in that they carry an advance rate of 0%) and the value, determined in accordance with the Encina Credit Facility (the “Adjusted Borrowing Value”), of certain “eligible” loan assets pledged as security for the loan (the “Borrowing Base Value”) and (B) the Excess Concentration Amount, as calculated in accordance with the Encina Credit Facility, plus (ii) any amounts held in the Prefunding Account and, without duplication, Excess Cash held in the Collection Account, less (iii) the product of (a) the amount of any undrawn funding commitments the Company has under any loan asset and (b) the Unfunded Exposure Haircut Percentage, and less (iv) $100,000. Each loan asset held by the Company as of the date on which the Encina Credit Facility was closed was valued as of that date and each loan asset that the Company acquires after such date will be valued at the lowest of its fair value, its face value (excluding accrued interest) and the purchase price paid for such loan asset. Adjustments to the value of a loan asset will be made to reflect, among other things and under certain circumstances, changes in its fair value, a default by the obligor on the loan asset, insolvency of the obligor, acceleration of the loan asset, and certain modifications to the terms of the loan asset.
The Encina Credit Facility contains limitations on the type of loan assets that are “eligible” to be included in the Borrowing Base and as to the concentration level of certain categories of loan assets in the Borrowing Base such as restrictions on geographic and industry concentrations, asset size and quality, payment frequency, status and terms, average life, and collateral interests. In addition, if an asset is to remain an “eligible” loan asset, the Company may not make changes to the payment, amortization, collateral and certain other terms of the loan assets without the consent of the administrative agent that will either result in subordination of the loan asset or be materially adverse to the lenders.
The Encina Credit Facility requires certain minimum drawn amounts. For the period beginning on the closing date and ended April 4, 2022, the minimum funding amount was $12.5 million. For the period beginning on April 5, 2022 through maturity, the minimum funding amount is the greater of $25.0 million and 50% of the Facility Amount in effect from time to time.
Collateral. The Encina Credit Facility is secured by assets of Saratoga Investment Funding II LLC (“SIF II”) and pledged to the lender under the credit facility. SIF II is a wholly owned special purpose entity formed by the Company for the purpose of entering into the Encina Credit Facility.
Interest Rate and Fees. Under the Encina Credit Facility, funds are borrowed from or through certain lenders at the greater of the prevailing LIBOR rate and 0.75%, plus an applicable margin of 4.00%. The Encina Credit Facility includes benchmark replacement provisions which permit the Administrative Agent and the Borrower to select a replacement rate upon the unavailability of LIBOR. In addition, the Company pays the lenders a commitment fee of 0.75% per year (or 0.50% if the ratio of advances outstanding to aggregate commitments is greater than or equal to 50%) on the unused amount of the Encina Credit Facility for the duration of the term of the credit facility. Accrued interest and commitment fees are payable monthly in arrears. The Company was also obligated to pay certain other fees to the lenders in connection with the closing of the Encina Credit Facility.
Collateral Tests. It is a condition precedent to any borrowing under the Encina Credit Facility that the principal amount outstanding under the Encina Credit Facility, after giving effect to the proposed borrowings, not exceed the Borrowing Base (the “Borrowing Base Test”). In addition to satisfying the Borrowing Base Test, the following tests must also be satisfied (together with Borrowing Base Test, the “Collateral Tests”):
| o | Interest Coverage Ratio. The ratio (expressed as a percentage) of interest collections with respect to pledged loan assets, less certain fees and expenses relating to the Encina Credit Facility, to accrued interest and commitment fees payable to the lenders under the Encina Credit Facility for the last 6 payment periods must equal at least 175.0%. |
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| o | Overcollateralization Ratio. The ratio (expressed as a percentage) of the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets plus the fair value of certain ineligible pledged loan assets (in each case, subject to certain adjustments) to outstanding borrowings under the Encina Credit Facility plus the Unfunded Exposure Amount must equal at least 200.0%. |
The Encina Credit Facility also may require payment of outstanding borrowings or replacement of pledged loan assets upon the Company’s breach of its representation and warranty that pledged loan assets included in the Borrowing Base are “eligible” loan assets. Such ineligible collateral loans will be excluded from the calculation of the Borrowing Base and may lead to a Borrowing Base Deficiency, which may be cured by effecting one or more (or any combination thereof) of the following actions: (A) deposit into or credit to the collection account cash and eligible investments, (B) repay outstanding borrowings (together with certain costs and expenses), (C) sell or substitute loan assets in accordance with the Encina Credit Facility, or (D) pledge additional loan assets as collateral. Compliance with the Collateral Tests is also a condition to the discretionary sale of pledged loan assets by the Company.
Priority of Payments. The priority of payments provisions of the Encina Credit Facility require, after payment of specified fees and expenses, that collections of interest from the loan assets and, to the extent that these are insufficient, collections of principal from the loan assets, be applied on each payment date to payment of outstanding borrowings if the Borrowing Base Test, the Overcollateralization Ratio and the Interest Coverage Ratio would not otherwise be met.
Operating Expenses. The priority of payments provision of the Encina Credit Facility provides for the payment of certain operating expenses of the Company out of collections on interest and principal in accordance with the priority established in such provision. The operating expenses payable pursuant to the priority of payment provisions is limited to $200,000 per annum.
Covenants; Representations and Warranties; Events of Default. The Encina Credit Facility contains customary representations and warranties, affirmative covenants, negative covenants and events of default. The Encina Credit Facility does not contain grace periods for breach by the Company of any negative covenants or of certain of the affirmative covenants, including, without limitation, those related to preservation of the existence and separateness of the Company. Other events of default under the Encina Credit Facility include, among other things, the following:
| o | failure of the Company to maintain an Interest Coverage Ratio of less than 175.0%; |
| o | failure of the Company to maintain an Overcollateralization Ratio of less than 200.0%; |
| o | the filing of certain ERISA or tax liens on assets of the Company or the Equityholder; |
| o | failure by Specified Holders to collectively, directly or indirectly, own and control at least 51% of the outstanding equity interests of Saratoga Investment Advisor, or (y) possess the right to elect (through contract, ownership of voting securities or otherwise) at all times a majority of the board of directors (or similar governing body) of Saratoga Investment Advisor and to direct the management policies and decisions of Saratoga Investment Advisor, or (ii) the dissolution, termination or liquidation in whole or in part, transfer or other disposition, in each case, of all or substantially all of the assets of, Saratoga Investment Advisor; |
| o | indictment or conviction of Saratoga Investment Advisors or any “key person” for a felony offense, or any fraud, embezzlement or misappropriation of funds by Saratoga Investment Advisors or any “key person” and, in the case of “key persons,” without a reputable, experienced individual reasonably satisfactory to Encina Lender Finance appointed to replace such key person within 30 days; |
| o | resignation, termination, disability or death of a “key person” or failure of any “key person” to provide active participation in Saratoga Investment Advisors’ daily activities, all without a reputable, experienced individual reasonably satisfactory to Encina Lender Finance appointed within 30 days. |
Fees and Expenses. The Company paid certain fees and reimbursed Encina Lender Finance, LLC for the aggregate amount of all documented, out-of-pocket costs and expenses, including the reasonable fees and expenses of lawyers, incurred by Encina Lender Finance, LLC in connection with the Encina Credit Facility and the carrying out of any and all acts contemplated thereunder up to and as of the date of closing. These amounts totaled $1.4 million.
As of August 31, 2022, we had $25.0 million outstanding borrowings under the Encina Credit Facility and $233.6 million of SBA- guaranteed debentures outstanding (which are discussed below).
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SBA-guaranteed debentures
In addition, we, through two wholly owned subsidiaries, sought and obtained licenses from the SBA to operate an SBIC. In this regard, on March 28, 2012, our wholly owned subsidiary, Saratoga Investment Corp. SBIC LP, received a license from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958 and on August 14, 2019, our wholly owned subsidiary, Saratoga Investment Corp. SBIC II LP, also received a license. SBICs are designated to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses.
The SBIC licenses allows our SBIC subsidiaries to obtain leverage by issuing SBA-guaranteed debentures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten-year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities.
SBA regulations previously limited the amount that our SBIC subsidiary may borrow to a maximum of $150.0 million when it has at least $75.0 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing. This maximum has been increased by SBA regulators for new licenses to $175.0 million of SBA debentures when it has at least $87.5 million in regulatory capital. SBIC II LP’s SBIC license provides up to $175.0 million in additional long-term capital in the form of SBA-guaranteed debentures. The SBIC LP and SBIC II LP are regulated by the SBA. As a result of the 2016 omnibus spending bill signed into law in December 2015, the maximum amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding was increased from $225.0 million to $350.0 million, subject to SBA approval. Our wholly owned SBIC subsidiaries are able to borrow funds from the SBA against regulatory capital (which generally approximates equity capital in the respective SBIC) and is subject to customary regulatory requirements, including, but not limited to, a periodic examination by the SBA. With this license approval, Saratoga can grow its SBA relationship from $150.0 million to $325.0 million of committed capital.
We received exemptive relief from the SEC to permit us to exclude the senior securities issued by of our SBIC subsidiaries from the definition of senior securities in the asset coverage requirement applicable to the Company under the 1940 Act. This allows us increased flexibility under the asset coverage requirement by permitting us to borrow up to $325.0 million more than we would otherwise be able to absent the receipt of this exemptive relief. On April 16, 2018, as permitted by the Small Business Credit Availability Act, which was signed into law on March 23, 2018, our independent directors approved of our becoming subject to a reduced minimum asset coverage ratio of 150.0% from 200% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act. The 150% asset coverage ratio became effective on April 16, 2019.
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As of August 31, 2022, our SBIC LP subsidiary had $75.0 million in regulatory capital and $67.7 million in SBA-guaranteed debentures outstanding and our SBIC II LP subsidiary had $87.5 million in regulatory capital and $166.0 million in SBA-guaranteed debentures outstanding.
Unsecured notes
In May 2013, the Company issued $48.3 million in aggregate principal amount of 7.50% fixed-rate notes due 2020 (the “2020 Notes”). The 2020 Notes were redeemed in full on January 13, 2017 and are no longer listed on the NYSE.
On May 29, 2015, we entered into a Debt Distribution Agreement with Ladenburg Thalmann & Co Inc. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the 2020 Notes through an ATM offering. Prior to the 2020 Notes being redeemed in full, the Company had sold 539,725 bonds with a principal of $13.5 million at an average price of $25.31 for aggregate net proceeds of $13.4 million (net of transaction costs).
On December 21, 2016, we issued $74.5 million in aggregate principal amount of our 2023 Notes for net proceeds of $71.7 million after deducting underwriting commissions of approximately $2.3 million and offering costs of approximately $0.5 million. The net proceeds from the offering were used to repay all of the outstanding indebtedness under the 2020 Notes (as described above), and for general corporate purposes in accordance with our investment objective and strategies. On December 21, 2019 and February 7, 2020, the Company redeemed $50.0 million and $24.5 million, respectively, in aggregate principal amount of the $74.5 million in aggregate principal amount of the issued and outstanding 2023 Notes and are no longer listed on the NYSE.
On August 28, 2018, the Company issued $40.0 million in aggregate principal amount of the 6.25% 2025 Notes for net proceeds of $38.7 million after deducting underwriting commissions of approximately $1.3 million. Offering costs incurred were approximately $0.3 million. The issuance included the full exercise of the underwriters’ option to purchase an additional $5.0 million in aggregate principal amount of 6.25% 2025 Notes within 30 days. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.6 million related to the 6.25% 2025 Notes have been capitalized and were amortized over the term of the 6.25% 2025 Notes.
On February 5, 2019, the Company issued an additional $20.0 million in aggregate principal amount of the 6.25% 2025 Notes for net proceeds of $19.2 million after deducting underwriting commissions of approximately $0.6 million and discount of $0.2 million. The additional 6.25% 2025 Notes were treated as a single series with the existing 6.25% 2025 Notes under the indenture and had the same terms as the existing 6.25% 2025 Notes. Offering costs incurred were approximately $0.2 million. The issuance included the full exercise of the underwriters’ option to purchase an additional $2.5 million in aggregate principal amount of 6.25% 2025 Notes within 30 days. The net proceeds from this offering were used for general corporate purposes in accordance with our investment objective and strategies. The financing costs and discount of $1.0 million related to the 6.25% 2025 Notes have been capitalized and were amortized over the term of the 6.25% 2025 Notes.
On August 31, 2021, the Company redeemed $60.0 million in aggregate principal amount of the issued and outstanding 6.25% 2025 Notes at par. The 6.25% 2025 Notes were listed on the NYSE under the trading symbol of “SAF” with a par value of $25.00 per share and have been delisted following the full redemption on August 31, 2021.
On June 24, 2020, the Company issued $37.5 million in aggregate principal amount of our 7.25% fixed-rate notes due 2025 (the “7.25% 2025 Notes”) for net proceeds of $36.3 million after deducting underwriting commissions of approximately $1.2 million. Offering costs incurred were approximately $0.3 million. On July 6, 2020, the underwriters exercised their option in full to purchase an additional $5.625 million in aggregate principal amount of its 7.25% unsecured notes due 2025. Net proceeds to the Company were $5.4 million after deducting underwriting commissions of approximately $0.2 million. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.6 million related to the 7.25% 2025 Notes have been capitalized and were amortized over the term of the 7.25% 2025 Notes.
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On July 14, 2022, the Company redeemed $43.1 million in aggregate principal amount of the issued and outstanding 7.25% 2025 Notes. The 7.25% 2025 Notes were listed on the NYSE under the trading symbol of “SAK”, and have been delisted following the full redemption on July 14, 2022.
On July 9, 2020, the Company issued $5.0 million in aggregate principal amount of our 7.75% fixed-rate Notes due in 2025 (the “7.75% 2025 Notes”) for net proceeds of $4.8 million after deducting underwriting commissions of approximately $0.2 million. Offering costs incurred were approximately $0.1 million. Interest on the 7.75% Notes 2025 is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 7.75% per year, beginning August 31, 2020. The 7.75% Notes 2025 mature on July 9, 2025 and may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $0.3 million related to the 7.75% Notes 2025 have been capitalized and are being amortized over the term of the 7.75% 2025 Notes. The 7.75% 2025 Notes are unlisted and have a par value of $25.00 per share.
At August 31, 2022, the total 7.75% 2025 Notes outstanding was $5.0 million.
On December 29, 2020, the Company issued $5.0 million in aggregate principal amount of our 6.25% fixed-rate notes due in 2027 (the “6.25% Notes 2027”). Offering costs incurred were approximately $0.1 million. Interest on the 6.25% Notes 2027 is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 6.25% per year, beginning February 28, 2021. The 6.25% Notes 2027 mature on December 29, 2027 and may be redeemed in whole or in part at any time or from time to time at our option, on or after December 29, 2024. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $0.1 million related to the 6.25% Notes 2027 have been capitalized and are being amortized over the term of the 6.25% Notes 2027.
On January 28, 2021, the Company issued $10.0 million in aggregate principal amount of the 6.25% Notes 2027 for net proceeds of $9.7 million after deducting underwriting commissions of approximately $0.3 million. Offering costs incurred were approximately $0.0 million. Interest on the 6.25% Notes 2027 is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 6.25% per year. The 6.25% Notes 2027 mature on January 28, 2027 and commencing January 28, 2023, may be redeemed in whole or in part at any time or from time to time at our option on or after December 29, 2024. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $0.3 million related to the 6.25% Notes 2027 have been capitalized and are being amortized over the term of the 6.25% Notes 2027.
At August 31, 2022, the total 6.25% 2027 Notes outstanding was $15.0 million.
On March 10, 2021, the Company issued $50.0 million in aggregate principal amount of the 4.375% Notes 2026 for net proceeds of $49.0 million after deducting underwriting commissions of approximately $1.0 million. Offering costs incurred were approximately $0.2 million. Interest on the 4.375% Notes 2026 is paid semi-annually in arrears on February 28 and August 28, at a rate of 4.375% per year. The 4.375% Notes 2026 mature on February 28, 2026 and may be redeemed in whole or in part at any time on or after November 28, 2025 at par plus a “make-whole” premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.2 million related to the 4.375% Notes 2026 have been capitalized and are being amortized over the term of the 4.375% Notes 2026.
On July 15, 2021, the Company issued an additional $125.0 million in aggregate principal amount of the Company’s 4.375% Notes 2026 (the “Additional 4.375% 2026 Notes”) for net proceeds for approximately $123.5 million, based on the public offering price of 101.00% of the aggregate principal amount of the Additional 4.375% 2026 Notes, after deducting the underwriting discount of $2.5 million and offering expenses of $0.2 million payable by the Company. The net proceeds from the offering were used to redeem all of the outstanding 6.25% 2025 Notes (as described above), and for general corporate purposes in accordance with our investment objective and strategies. The Additional 4.375% 2026 Notes were treated as a single series with the existing 4.375% 2026 Notes under the indenture and had the same terms as the existing 4.375% 2026 Notes.
At August 31, 2022, the total 4.375% Notes 2026 outstanding was $175.0 million.
On January 19, 2022, the Company issued $75.0 million in aggregate principal amount of our 4.35% fixed-rate Notes due in 2027 (the “4.35% Notes 2027”) for net proceeds of $73.0 million, based on the public offering price of 99.317% of the aggregate principal amount of the 4.35% Notes 2027, after deducting the underwriting commissions of approximately $1.5 million. Offering costs incurred were approximately $0.2 million. Interest on the 4.35% Notes 2027 is paid semi-annually in arrears on February 28 and August 28, at a rate of 4.35% per year, beginning August 28, 2022. The 4.35% Notes 2027 mature on February 28, 2027 and may be redeemed in whole or in part at the Company’s option at any time prior to November 28, 2026, at par plus a “make-whole” premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of $1.7 million related to the 4.35% Notes 2027 have been capitalized and are being amortized over the term of the Notes.
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At August 31, 2022 the total 4.35% Notes 2027 outstanding was $75.0 million.
On April 27, 2022, the Company issued $87.5 million in aggregate principal amount of our 6.00% fixed-rate notes due 2027 (the “6.00% Notes 2027”) for net proceeds of $84.8 million after deducting underwriting commissions of approximately $2.7 million. Offering costs incurred were approximately $0.1 million. On May 10, 2022, the underwriters partially exercised their option to purchase an additional $10.0 million in aggregate principal amount of its 6.00% Notes 2027. Net proceeds to the Company were $9.7 million after deducting underwriting commissions of approximately $0.3 million. Interest on the 6.00% Notes 2027 is paid quarterly in arrears on February 28, May 31, August 31 and November 30, at a rate of 6.00% per year, beginning August 31, 2022. The 6.00% Notes 2027 mature on April 30, 2027 and commencing April 27, 2024, may be redeemed in whole or in part at any time or from time to time at our option. Financing costs of $3.0 million related to the 6.00% Notes 2027 have been capitalized and are being amortized over the term of the 6.00% 2027 Notes. The 6.00% 2027 Notes are listed on the NYSE under the trading symbol “SAT” with a par value of $25.00 per share.
On August 15, 2022, the Company issued $8.0 million in aggregate principal amount of our 6.00% fixed-rate notes due 2027 (the “6.00% 2027 Notes”) for net proceeds of $7.8 million, based on the public offering price of 97.80% of the aggregate principal amount of the 6.00% Notes 2027. Additional offering costs incurred were approximately $0.03 million. Additional financing costs of $0.03 million related to the 6.00% 2027 Notes have been capitalized and are being amortized over the term of the 6.00% 2027 Notes.
At August 31, 2022 the total 6.00% Notes 2027 outstanding was $105.5 million.
At August 31, 2022 and February 28, 2022, the fair value of investments, cash and cash equivalents and cash and cash equivalents, reserve accounts were as follows:
| August 31, 2022 | February 28, 2022 | |||||||||||||||
| Fair Value | Percentage of Total | Fair Value | Percentage of Total | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Cash and cash equivalents | $ | 3,068 | 0.3 | % | $ | 47,258 | 5.4 | % | ||||||||
| Cash and cash equivalents, reserve accounts | 9,579 | 1.0 | 5,613 | 0.6 | ||||||||||||
| First lien term loans | 793,011 | 80.5 | 631,573 | 72.6 | ||||||||||||
| Second lien term loans | 23,662 | 4.5 | 44,385 | 5.1 | ||||||||||||
| Unsecured term loans | 16,841 | 1.8 | 38,030 | 4.4 | ||||||||||||
| Structured finance securities | 32,327 | 3.4 | 15,931 | 1.8 | ||||||||||||
| Equity interests | 82,096 | 8.5 | 87,648 | 10.1 | ||||||||||||
| Total | $ | 960,584 | 100.0 | % | $ | 870,438 | 100.0 | % | ||||||||
On July 13, 2018, the Company issued 1,150,000 shares of its common stock priced at $25.00 per share (par value $0.001 per share) at an aggregate total of $28.75 million. The net proceeds, after deducting underwriting commissions of $1.15 million and offering costs of approximately $0.2 million, amounted to approximately $27.4 million. The Company also granted the underwriters a 30-day option to purchase up to an additional 172,500 shares of its common stock, which was not exercised.
On March 16, 2017, we entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc., through which we may offer for sale, from time to time, up to $30.0 million of our common stock through an ATM offering. Subsequent to this, BB&T Capital Markets and B. Riley FBR, Inc. were added to the equity ATM program. On July 11, 2019, the amount of the common stock to be offered was increased to $70.0 million, and on October 8, 2019, the amount of the common stock to be offered was increased to $130.0 million. This agreement was terminated as of July 29, 2021, and as of that date, the Company had sold 3,922,018 shares for gross proceeds of $97.1 million at an average price of $24.77 for aggregate net proceeds of $95.9 million (net of transaction costs).
On July 30, 2021, we entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc. and Compass Point Research and Trading, LLC (the “Agents”), through which we may offer for sale, from time to time, up to $150.0 million of our common stock through the Agents, or to them, as principal for their account. As of August 31, 2022, the Company sold 4,840,361 shares for gross proceeds of $124.0 million at an average price of $25.61 for aggregate net proceeds of $122.4 million (net of transaction costs). During the three and six months ended August 31, 2022, there were no shares sold pursuant to the equity distribution agreement with the Agents.
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On September 24, 2014, the Company announced the approval of an open market share repurchase plan that allowed it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published consolidated financial statements (the “Share Repurchase Plan”). On October 7, 2015, our board of directors extended the Share Repurchase Plan for another year and increased the number of shares the Company is permitted to repurchase at prices below its NAV, as reported in its then most recently published consolidated financial statements, to 400,000 shares of its common stock. On October 5, 2016, our board of directors extended the Share Repurchase Plan for another year to October 15, 2017 and increased the number of shares the Company is permitted to repurchase at prices below its NAV, as reported in its then most recently published consolidated financial statements, to 600,000 shares of its common stock. On October 10, 2017, January 8, 2019 and January 7, 2020, our board of directors extended the Share Repurchase Plan for another year to October 15, 2018, January 15, 2020 and January 15, 2021, respectively, each time leaving the number of shares unchanged at 600,000 shares of its common stock. On May 4, 2020, our board of directors increased the Share Repurchase Plan to 1.3 million shares of common stock. On January 5, 2021, our board of directors extended the Shares Repurchase Plan for another year to January 15, 2022, leaving the number of shares unchanged at 1.3 million shares of common stock. On January 4, 2022, our board of directors extended the Shares Repurchase Plan for another year to January 15, 2023, leaving the number of shares unchanged at 1.3 million shares of common stock. As of August 31, 2022, the Company purchased 803,963 shares of common stock, at the average price of $21.47 for approximately $17.3 million pursuant to the Share Repurchase Plan. During the three months ended August 31, 2022, the Company purchased 153,350 shares of common stock, at the average price of $24.04 for approximately $3.7 million pursuant to the Share Repurchase Plan. During the six months ended August 31, 2022, the Company purchased 295,527 shares of common stock, at the average price of $25.11 for approximately $7.4 million pursuant to the Share Repurchase Plan.
On August 29, 2022, the Company declared a dividend of $0.54 per share payable on September 29, 2022, to common stockholders of record on September 14, 2022. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $5.3 million in cash and 52,313 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $22.00 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on September 16, 19, 20, 21, 22, 23, 26, 27, 28 and 29, 2022.
On May 26, 2022, the Company declared a dividend of $0.53 per share payable on June 29, 2022, to common stockholders of record on June 14, 2022. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $5.1 million in cash and 48,590 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $22.40 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on June 15, 16, 17, 21, 22, 23, 24, 27, 28 and 29, 2022.
On February 24, 2022, the Company declared a dividend of $0.53 per share payable on March 28, 2022, to common stockholders of record on March 14, 2022. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $5.3 million in cash and 42,825 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $25.89 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on March 15, 16, 17, 18, 21, 22, 23, 24, 25 and 28, 2022.
On November 30, 2021, the Company declared a dividend of $0.53 per share payable on January 19, 2022, to common stockholders of record on January 4, 2021. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $5.3 million in cash and 41,520 newly issued shares of common stock, or 0.3% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $26.85 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on January 5, 6, 7, 10, 11, 12, 13, 14, 18 and 19, 2022.
On August 26, 2021, the Company declared a dividend of $0.52 per share payable on September 28, 2021, to common stockholders of record on September 14, 2021. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $4.9 million in cash and 38,016 newly issued shares of common stock, or 0.3% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $26.76 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on September 15, 16, 17, 20, 21, 22, 23, 24, 27 and 28, 2021.
On May 27, 2021, the Company declared a dividend of $0.44 per share payable on June 29, 2021, to common stockholders of record on June 15, 2021. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $4.1 million in cash and 33,100 newly issued shares of common stock, or 0.3% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $25.03 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on June 16, 17, 18, 21, 22, 23, 24, 25, 28 and 29, 2021.
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On March 22, 2021, the Company declared a dividend of $0.43 per share payable on April 22, 2021, to common stockholders of record on April 8, 2021. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $3.9 million in cash and 38,580 newly issued shares of common stock, or 0.3% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $23.69 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on April 9,12, 13, 14, 15, 16, 19, 20, 21 and 22, 2021.
On January 5, 2021, our board of directors declared a dividend of $0.42 per share, which was paid on February 10, 2021, to common stockholders of record as of January 26, 2021. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $3.8 million in cash and 41,388 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $21.75 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on January 28, 29 and February 1, 2, 3, 4, 5, 8, 9 and 10, 2021.
On October 7, 2020, our board of directors declared a dividend of $0.41 per share, which was paid on November 10, 2020, to common stockholders of record as of October 26, 2020. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $3.8 million in cash and 45,706 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $17.63 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on October 28, 29, 30 and November 2, 3, 4, 5, 6, 9 and 10, 2020.
On July 7, 2020, the Company declared a dividend of $0.40 per share payable on August 12, 2020, to common stockholders of record on July 27, 2020. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $3.7 million in cash and 47,098 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $16.45 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock on July 30, 31 and August 3, 4, 5, 6, 7, 10, 11 and 12, 2020.
On January 8, 2020, the Company declared a dividend of $0.56 per share, which was paid on February 6, 2020, to common stockholders of record on January 24, 2020. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $5.4 million in cash and 35,682 newly issued shares of common stock, or 0.3% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $25.44 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock on January 24, 27, 28, 29, 30, 31 and February 3, 4, 5 and 6, 2020.
On August 27, 2019, the Company declared a dividend of $0.56 per share, which was paid on September 26, 2019, to common stockholders of record on September 13, 2019. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $4.5 million in cash and 34,575 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $23.34 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock on September 13, 16, 17, 18, 19, 20, 23, 24, 25 and 26, 2019.
On May 28, 2019, our board of directors declared a dividend of $0.55 per share, which was paid on June 27, 2019, to common stockholders of record as of June 13, 2019. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $3.6 million in cash and 31,545 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $22.65 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on June 14, 17, 18, 19, 20, 21, 24, 25, 26 and 27, 2019.
On February 26, 2019, our board of directors declared a dividend of $0.54 per share, which was paid on March 28, 2019, to common stockholders of record as of March 14, 2019. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $3.5 million in cash and 31,240 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $21.36 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on March 15, 18, 19, 20, 21, 22, 25, 26, 27 and 28, 2019.
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On November 27, 2018, our board of directors declared a dividend of $0.53 per share, which was paid on January 2, 2019, to common stockholders of record on December 17, 2018. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $3.4 million in cash and 30,796 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $18.88 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock on December 18, 19, 20, 21, 24, 26, 27, 28, 31, 2018 and January 2, 2019.
On August 28, 2018, our board of directors declared a dividend of $0.52 per share, which was paid on September 27, 2018, to common stockholders of record as of September 17, 2018. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $3.3 million in cash and 25,862 newly issued shares of common stock, or 0.3% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $22.35 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock on September 14, 17, 18, 19, 20, 21, 24, 25, 26 and 27, 2018.
On May 30, 2018, our board of directors declared a dividend of $0.51 per share, which was paid on June 27, 2018, to common stockholders of record as of June 15, 2018. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $2.7 million in cash and 21,562 newly issued shares of common stock, or 0.3% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $23.72 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock on June 14, 15, 18, 19, 20, 21, 22, 25, 26 and 27, 2018.
On February 26, 2018, our board of directors declared a dividend of $0.50 per share, which was paid on March 26, 2018, to common stockholders of record as of March 14, 2018. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $2.6 million in cash and 25,354 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $19.91 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on March 13, 14, 15, 16, 19, 20, 21, 22, 23 and 26, 2018.
On November 29, 2017, our board of directors declared a dividend of $0.49 per share, which was paid on December 27, 2017, to common stockholders of record on December 15, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $2.5 million in cash and 25,435 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $21.14 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on December 13, 14, 15, 18, 19, 20, 21, 22, 26 and 27, 2017.
On August 28, 2017, our board of directors declared a dividend of $0.48 per share, which was paid on September 26, 2017, to common stockholders of record on September 15, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $2.2 million in cash and 33,551 newly issued shares of common stock, or 0.6% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $20.19 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on September 13, 14, 15, 18, 19, 20, 21, 22, 25 and 26, 2017.
On May 30, 2017, our board of directors declared a dividend of $0.47 per share, which was paid on June 27, 2017, to common stockholders of record on June 15, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $2.3 million in cash and 26,222 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $20.04 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on June 14, 15, 16, 19, 20, 21, 22, 23, 26 and 27, 2017.
On February 28, 2017, our board of directors declared a dividend of $0.46 per share, which was paid on March 28, 2017, to common stockholders of record as of March 15, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $2.0 million in cash and 29,096 newly issued shares of common stock, or 0.5% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $21.38 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on March 15, 16, 17, 20, 21, 22, 23, 24, 27 and 28, 2017.
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On January 12, 2017, our board of directors declared a dividend of $0.45 per share, which was paid on February 9, 2017, to common stockholders of record as of January 31, 2017. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $1.6 million in cash and 50,453 newly issued shares of common stock, or 0.9% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $20.25 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on January 27, 30, 31 and February 1, 2, 3, 6, 7, 8 and 9, 2017.
On October 5, 2016, our board of directors declared a dividend of $0.44 per share, which was paid on November 9, 2016, to common stockholders of record as of October 31, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 58,548 newly issued shares of common stock, or 1.0% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $17.12 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on October 27, 28, 31 and November 1, 2, 3, 4, 7, 8 and 9, 2016.
On August 8, 2016, our board of directors declared a special dividend of $0.20 per share, which was paid on September 5, 2016, to common stockholders of record as of August 24, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $0.7 million in cash and 24,786 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $17.06 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on August 22, 23, 24, 25, 26, 29, 30, 31 and September 1 and 2, 2016.
On July 7, 2016, our board of directors declared a dividend of $0.43 per share, which was paid on August 9, 2016, to common stockholders of record as of July 29, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 58,167 newly issued shares of common stock, or 1.0% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $16.32 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on July 27, 28, 29 and August 1, 2, 3, 4, 5, 8 and 9, 2016.
On March 31, 2016, our board of directors declared a dividend of $0.41 per share, which was paid on April 27, 2016, to common stockholders of record as of April 15, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 56,728 newly issued shares of common stock, or 1.0% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.43 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on April 14, 15, 18, 19, 20, 21, 22, 25, 26 and 27, 2016.
On January 12, 2016, our board of directors declared a dividend of $0.40 per share, which was paid on February 29, 2016, to common stockholders of record as of February 1, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $1.4 million in cash and 66,765 newly issued shares of common stock, or 1.2% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $13.11 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on February 16, 17, 18, 19, 22, 23, 24, 25, 26 and 29, 2016.
On October 7, 2015, our board of directors declared a dividend of $0.36 per share, which was paid on November 30, 2015, to common stockholders of record as of November 2, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 61,029 newly issued shares of common stock, or 1.1% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.53 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on November 16, 17, 18, 19, 20, 23, 24, 25, 27 and 30, 2015.
On July 8, 2015, our board of directors declared a dividend of $0.33 per share, which was paid on August 31, 2015, to common stockholders of record as of August 3, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 47,861 newly issued shares of common stock, or 0.9% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.28 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on August 18, 19, 20, 21, 24, 25, 26, 27, 28 and 31, 2015.
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On May 14, 2015, our board of directors declared a special dividend of $1.00 per share, which was paid on June 5, 2015, to common stockholders of record on as of May 26, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $3.4 million in cash and 126,230 newly issued shares of common stock, or 2.3% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $16.47 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on May 22, 26, 27, 28, 29 and June 1, 2, 3, 4 and 5, 2015.
On April 9, 2015, our board of directors declared a dividend of $0.27 per share, which was paid on May 29, 2015, to common stockholders of record as of May 4, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $0.9 million in cash and 33,766 newly issued shares of common stock, or 0.6% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $16.78 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on May 15, 18, 19, 20, 21, 22, 26, 27, 28 and 29, 2015.
On September 24, 2014, our board of directors declared a dividend of $0.22 per share, which was paid on February 27, 2015, to common stockholders of record on February 2, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $0.8 million in cash and 26,858 newly issued shares of common stock, or 0.5% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.97 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on February 13, 17, 18, 19, 20, 23, 24, 25, 26 and 27, 2015.
Also, on September 24, 2014, our board of directors declared a dividend of $0.18 per share, which was paid on November 28, 2014, to common stockholders of record on November 3, 2014. Shareholders had the option to receive payment of the dividend in cash or receive shares of common stock pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately $0.6 million in cash and 22,283 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.37 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on November 14, 17, 18, 19, 20, 21, 24, 25, 26 and 28, 2014.
On October 30, 2013, our board of directors declared a dividend of $2.65 per share, which was paid on December 27, 2013, to common stockholders of record as of November 13, 2013. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $2.5 million or $0.53 per share. This dividend was declared in reliance on certain private letter rulings issued by the IRS concluding that a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC subject to a limitation on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20.0% of the aggregate declared distribution. Based on shareholder elections, the dividend consisted of approximately $2.5 million in cash and 649,500 shares of common stock, or 13.7% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.439 per share, which 95% of equaled the volume weighted average trading price per share of the common stock on December 11, 13, and 16, 2013.
On November 9, 2012, our board of directors declared a dividend of $4.25 per share, which was paid on December 31, 2012, to common stockholders of record as of November 20, 2012. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $3.3 million or $0.85 per share. Based on shareholder elections, the dividend consisted of $3.3 million in cash and 853,455 shares of common stock, or 22.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.444 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on December 14, 17 and 19, 2012.
On November 15, 2011, our board of directors declared a dividend of $3.00 per share, which was paid on December 30, 2011, to common stockholders of record as of November 25, 2011. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.0 million or $0.60 per share. Based on shareholder elections, the dividend consisted of $2.0 million in cash and 599,584 shares of common stock, or 18.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $13.117067 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2011.
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On November 12, 2010, our board of directors declared a dividend of $4.40 per share to shareholders payable in cash or shares of our common stock, in accordance with the provisions of the IRS Revenue Procedure 2010-12, which allows a publicly-traded regulated investment company to satisfy its distribution requirements with a distribution paid partly in common stock provided that at least 10.0% of the distribution is payable in cash. The dividend was paid on December 29, 2010 to common shareholders of record on November 19, 2010. Based on shareholder elections, the dividend consisted of $1.2 million in cash and 596,235 shares of common stock, or 22.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 10.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $17.8049 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2010.
On November 13, 2009, our board of directors declared a dividend of $18.25 per share, which was paid on December 31, 2009, to common stockholders of record as of November 25, 2009. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.1 million or $0.25 per share. Based on shareholder elections, the dividend consisted of $2.1 million in cash and 864,872.5 shares of common stock, or 104.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 13.7% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $1.5099 per share, which equaled 95% of the volume weighted average trading price per share of the common stock on December 24 and 28, 2009.
We cannot provide any assurance that these measures will provide sufficient sources of liquidity to support our operations and growth.
Our asset coverage ratio, as defined in the 1940 Act, was 184.2% as of August 31, 2022 and 209.3% as of February 28, 2022.
Subsequent Events
On July 9, 2020, the Company entered into the Notes Purchase Agreement (the “Notes Purchase Agreement”) governing the issuance of its 7.75% Notes due 2025 in the aggregate principal amount of $5.0 million to an institutional investor (the “Purchaser”) in a private placement. Pursuant to the terms of the Notes Purchase Agreement, upon the mutual agreement of the Company and the Purchaser, the Company may issue additional notes with modified pricing terms, in the aggregate, up to a maximum of $50.0 million in one or more private offerings. On January 28, 2021, the Company entered into the First Supplemental Notes Purchase Agreement (the “First Supplemental Agreement”) governing the issuance of its 6.25% Notes due 2027 in the aggregate principal amount of $10.0 million to the Purchaser in a private placement. On September 8, 2022, the Company entered into the Second Supplemental Notes Purchase Agreement (the “Second Supplemental Agreement”) governing the issuance of its 7.00% Notes due 2025 (the “7.00% 2025 Notes”) in the aggregate principal amount of $12.0 million to the Purchaser in a private placement. In addition, pursuant to the Second Supplement Agreement, upon the mutual agreement of the Company and the Purchaser, the Purchaser may purchase from the Company up to an additional $8.0 million in aggregate principal amount of the 7.00% 2025 Notes by September 30, 2022, which did not occur. The 7.00% 2025 Notes were delivered and paid for on September 8, 2022. Upon the issuance of the 7.00% 2025 Notes, the outstanding aggregate principal amount of the Company’s unsecured notes held by the Purchaser under the Notes Purchase Agreement, the First Supplemental Agreement and the Second Supplemental Agreement, collectively, is $27.0 million.
On September 29, 2022, the Company announced that it received notification from the Small Business Administration (the “SBA”) that the Company’s application for a third Small Business Investment Company (“SBIC”) license has been approved. The new SBIC license will provide up to $175 million in additional long-term capital in the form of SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA. Under current SBIC regulations, for two or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot exceed $350.0 million with at least $175.0 million in combined regulatory capital.
Contractual obligations
The following table shows our payment obligations for repayment of debt and other contractual obligations at August 31, 2022:
| Payment Due by Period | ||||||||||||||||||||
| Long-Term Debt Obligations | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | |||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Revolving credit facility | $ | 25,000 | $ | - | $ | 25,000 | $ | - | $ | - | ||||||||||
| SBA debentures | 233,660 | - | 15,000 | 33,660 | 185,000 | |||||||||||||||
| 7.75% 2025 Notes | 5,000 | - | 5,000 | - | - | |||||||||||||||
| 4.375% 2026 Notes | 175,000 | - | - | 175,000 | - | |||||||||||||||
| 4.35% 2027 Notes | 75,000 | - | - | 75,000 | - | |||||||||||||||
| 6.25% 2027 Notes | 15,000 | - | - | - | 15,000 | |||||||||||||||
| 6.00% 2027 Notes | 105,500 | - | - | 105,500 | - | |||||||||||||||
| Total Long-Term Debt Obligations | $ | 634,160 | $ | - | $ | 45,000 | $ | 389,160 | $ | 200,000 | ||||||||||
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Off-balance sheet arrangements
As of August 31, 2022 and February 28, 2022, the Company’s off-balance sheet arrangements consisted of $90.7 million and $83.4 million, respectively, of unfunded commitments outstanding to provide debt financing to its portfolio companies or to fund limited partnership interests. Such commitments are generally up to the Company’s discretion to approve, or the satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Company’s consolidated statements of assets and liabilities and are not reflected in the Company’s consolidated statements of assets and liabilities.
A summary of the unfunded commitments outstanding as of August 31, 2022 and February 28, 2022 is shown in the table below (dollars in thousands):
| August 31, 2022 | February 28, 2022 | |||||||
| At Company’s discretion | ||||||||
| ActiveProspect, Inc. | $ | 10,000 | $ | - | ||||
| Artemis Wax | 3,000 | 3,700 | ||||||
| Ascend Software LLC | 5,000 | 5,000 | ||||||
| Axero Holdings | - | 3,000 | ||||||
| Davisware | 2,000 | 2,000 | ||||||
| Granite Comfort | 5,000 | - | ||||||
| JDXpert | 5,000 | - | ||||||
| Lee’s Famous Recipe Chicken | 4,000 | 10,000 | ||||||
| Netreo Holdings, LLC | - | 4,000 | ||||||
| Pepper Palace | 3,000 | 3,000 | ||||||
| Procrement Partners | - | 2,800 | ||||||
| Saratoga Senior Loan Fund I JV LLC | 15,606 | 17,500 | ||||||
| Sceptre Hospitality Resources | 250 | 1,000 | ||||||
| Book4Time, Inc. | - | 2,000 | ||||||
| Total | $ | 52,856 | $ | 54,000 | ||||
| At portfolio company’s discretion - satisfaction of certain financial and nonfinancial covenants required | ||||||||
| Ascend Software LLC | $ | 4,200 | $ | 6,500 | ||||
| ARC Health | 8,500 | - | ||||||
| Axero Holdings | - | 2,000 | ||||||
| Axero Holdings - Revolver | 500 | 500 | ||||||
| Davisware, LLC | 1,000 | 1,000 | ||||||
| Exigo - DDTL | 4,167 | - | ||||||
| Exigo - Revolver | 833 | - | ||||||
| GDS Holdings US, Inc. | 1,036 | 2,786 | ||||||
| Granite Comfort | 5,000 | - | ||||||
| GoReact | 500 | 2,500 | ||||||
| JDXpert | 1,000 | - | ||||||
| Madison Logic - Revolver | 1,084 | 1,084 | ||||||
| New England Dental Partners | 4,500 | 4,500 | ||||||
| Pepper Palace - DDTL | 2,000 | 2,000 | ||||||
| Pepper Palace - Revolver | 2,500 | 2,500 | ||||||
| Zollege | 1,000 | 1,000 | ||||||
| Lee’s Famous Recipe Chicken | - | 3,000 | ||||||
| 37,820 | 29,370 | |||||||
| Total | $ | 90,676 | $ | 83,370 | ||||
The Company believes its assets will provide adequate coverage to satisfy these unfunded commitments. As of August 31, 2022, the Company had cash and cash equivalents of $12.6 million and $25.0 million in available borrowings under the Encina Credit Facility.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our business activities contain elements of market risk. We consider our principal market risk to be the fluctuation in interest rates. Managing this risk is essential to our business. Accordingly, we have systems and procedures designed to identify and analyze our risks, to establish appropriate policies and thresholds and to continually monitor this risk and thresholds by means of administrative and information technology systems and other policies and processes. In addition, U.S. and global capital markets and credit markets have experienced a higher level of stress due to the global COVID-19 pandemic, which has resulted in an increase in the level of volatility across such markets and a general decline in value of the securities held by us.
Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, including relative changes in different interest rates, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest earning assets and our interest expense incurred in connection with our interest-bearing debt and liabilities. Changes in interest rates can also affect, among other things, our ability to acquire leveraged loans, high yield bonds and other debt investments and the value of our investment portfolio.
Our investment income is affected by fluctuations in various interest rates, including LIBOR and the prime rate. Substantially all of our portfolio is, and we expect will continue to be, comprised of floating rate investments that utilize LIBOR. In connection with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments, a decrease in in our operating expenses, including with respect to our income incentive fee, or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR. Conversely, in a rising interest rate environment, such difference could potentially increase thereby increasing our gross investment income as indicated below. In March 2022, the Federal Reserve raised interest rates by 0.25%, the first increase since December 2018 and, since then, has raised interest rates by an additional 2.00%, and indicated that it would continue to raise interest rates in response to ongoing inflation concerns. Our interest expense is affected by fluctuations in LIBOR only on our Encina Credit Facility. In addition, substantially all of our assets and our Encina Credit Facility have LIBOR transition language to include the use of an acceptable replacement rate, such as SOFR. At August 31, 2022, we had $609.2 million of borrowings outstanding. In addition, there were $25.0 million borrowings outstanding under the Encina Credit Facility as of August 31, 2022.
We have analyzed the potential impact of changes in interest rates on interest income from investments. Assuming that our investments as of August 31, 2022 were to remain constant for a full fiscal year and no actions were taken to alter the current interest rate terms, a hypothetical change of a 1.0% increase in interest rates would cause a corresponding increase of approximately $8.1 million to our interest income. Conversely, a hypothetical change of a 1.0% decrease in interest rates would cause a corresponding decrease of approximately $7.6 million to our interest income.
Changes in interest rates would have no impact to our current interest and debt financing expense, as all our borrowings, except for the Encina Credit Facility, are fixed rate.
Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the statements of assets and liabilities and other business developments that could magnify or diminish our sensitivity to interest rate changes, nor does it account for divergences in LIBOR and the commercial paper rate, which have historically moved in tandem but, in times of unusual credit dislocations, have experienced periods of divergence. Accordingly, no assurances can be given that actual results would not materially differ from the potential outcome simulated by this estimate.
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For further information, the following table shows the approximate annualized increase or decrease in the components of net investment income due to hypothetical base rate changes in interest rates, assuming no changes in our investments and borrowings as of August 31, 2022.
| Basis Point Change | Increase (Decrease) in Interest Income | (Increase) Decrease in Interest Expense | Increase (Decrease) in Net Investment Income | Increase (Decrease) in Net Investment Income per Share | |||||||||||||
| ($ in thousands) | |||||||||||||||||
| -100 | $ | (7,554 | ) | $ | - | $ | (7,554 | ) | $ | (0.63 | ) | ||||||
| -50 | (3,966 | ) | - | (3,966 | ) | (0.33 | ) | ||||||||||
| -25 | (2,018 | ) | - | (2,018 | ) | (0.17 | ) | ||||||||||
| 25 | 2,018 | - | 2,018 | 0.17 | |||||||||||||
| 50 | 4,037 | - | 4,037 | 0.34 | |||||||||||||
| 100 | 8,073 | (86 | ) | 7,987 | 0.66 | ||||||||||||
| 200 | 16,365 | (336 | ) | 16,029 | 1.33 | ||||||||||||
| 300 | 24,658 | (586 | ) | 24,072 | 2.00 | ||||||||||||
| 400 | 32,950 | (836 | ) | 32,114 | 2.67 | ||||||||||||
ITEM 4. CONTROLS AND PROCEDURES
| (a) | As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, our chief executive officer and our chief financial officer have concluded that our current disclosure controls and procedures are effective in facilitating timely decisions regarding required disclosure of any material information relating to us that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. |
| (b) | There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of Exchange Act) that occurred during the quarter ended August 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. |
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither we nor our wholly owned subsidiaries, Saratoga Investment Funding LLC, Saratoga Investment Funding II, LLC, Saratoga Investment Corp. SBIC LP and Saratoga Investment Corp. SBIC II LP, are currently subject to any material legal proceedings.
Item 1A. Risk Factors
In addition to information set forth in this report, you should carefully consider the “Risk Factors” discussed in our most recent Annual Report on Form 10-K filed with the SEC, which could materially affect our business, financial condition and/or operating results. Other than as set forth below, there have been no material changes during the six months ended August 31, 2022 to the risk factors discussed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended February 28, 2022. Additional risks or uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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ITEM 6. EXHIBITS
Listed below are the exhibits which are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):
EXHIBIT INDEX
128
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SARATOGA INVESTMENT CORP. | ||
| Date: October 4, 2022 | By: | /s/ CHRISTIAN L. OBERBECK |
| Christian L. Oberbeck | ||
| Chief Executive Officer | ||
| By: | /s/ HENRI J. STEENKAMP | |
| Henri J. Steenkamp | ||
| Chief Financial Officer and Chief Compliance Officer | ||
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Exhibit 10.13
SARATOGA INVESTMENT
CORP.
NOTES PURCHASE AGREEMENT
Dated as of July 9, 2020
To the Purchaser Listed in the signature page:
Ladies and Gentlemen:
The undersigned, Saratoga Investment Corp., a Maryland corporation (the “Corporation”), hereby agrees with you as follows:
1. AUTHORIZATION; SALE AND PURCHASE OF NOTES
1.1. Authorization of Notes. The Corporation has duly authorized the issuance and sale of $5,000,000 aggregate principal amount of its 7.75% Notes due 2025 (the “Notes”) in a private offering, pursuant to an offering memorandum dated on or about the date hereof (the “Offering Memorandum”). Upon the mutual agreement of the Corporation and the Purchaser (as defined below), the Corporation may authorize additional Notes for sale in a subsequent offering (the “Additional Notes”), or issue additional notes with modified pricing terms (the “New Notes”), in the aggregate, up to a maximum of $50,000,000 in one or more private offerings.
1.2. Sale and Purchase of the Notes. Subject to the terms and conditions herein provided, the Corporation hereby agrees to sell to the purchaser listed in the signature page attached hereto (the “Purchaser”), and the Purchaser agrees to purchase from the Corporation, at the Closing provided for in Section 2 hereof, that aggregate principal amount of Notes specified directly opposite its name in the signature page, at the purchase price of 96.25% of the principal amount thereof (the “Purchase Price”). The Purchaser understands and acknowledges that it has made its own review of the investment merits and risks of the Notes.
1.3. On the date hereof, the Corporation and the Purchaser are entering into this Notes Purchase Agreement (the “Agreement” and, together with each of the other agreements (the “Transaction Documents”) entered into by the parties hereto or by the Corporation and U.S. Bank National Association, as trustee (the “Trustee”), including the Notes and the base indenture, dated May 10, 2013, governing the Notes, entered into by and between the Corporation, as issuer, and the Trustee, as well as a fifth supplemental indenture, dated on or about the Closing Date (as defined herein), entered into in connection with the closing of the sale of the Notes, by and between the Corporation, as issuer, and the Trustee (the “Supplemental Indenture,” and together with the Base Indenture, the “Indenture”), in connection with the transactions contemplated by this Agreement (collectively, the “Transactions”).
2. THE CLOSING.
2.1. Time and Place of the Closing. Subject to Section 3 hereof, payment of the Purchase Price for and delivery of the Notes shall be made at the offices of the Corporation, or at such other place or in such other manner as may be agreed upon by the Corporation and the Purchaser, at 1:00 P.M., New York time, on July 9, 2020 or at such other time or date as the Purchaser and the Corporation may mutually determine (such date and time of payment and delivery being herein called the “Closing Date”).
2.2. Delivery of and Payment for the Notes. Subject to Section 3 hereof, at the closing of the Transactions contemplated by this Agreement (the “Closing”), the Corporation shall instruct the Trustee to deliver to the Purchaser a definitive Note bearing an appropriate restricted securities legend, against payment in full on the Closing Date of the Purchase Price therefor by wire transfer of immediately available funds for credit to the following account, or such other account as the Corporation shall direct in writing on or prior to the Closing Date.
3. CONDITIONS TO CLOSING
3.1. Conditions to the Purchaser’s Obligations. The obligations of the Purchaser hereunder are subject to the accuracy, as of the date hereof and on the Closing Date, of the representations and warranties of the Corporation contained herein, except to the extent any such representation or warranty expressly specifies an earlier date, and to the performance by the Corporation of its obligations hereunder and to each of the following additional terms and conditions:
(a) The representations and warranties of the Corporation herein shall be true and correct in all respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date) and the Corporation shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required hereby to be performed, satisfied or complied with by the Corporation at or prior to the Closing Date.
(b) Any authorizations, consents, commitments, agreements, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by any federal, state or local court or governmental or regulatory agency or authority or applicable stock exchange or trading market (any such court, agency, authority, exchange or market, a “Governmental Authority”) required for the consummation of the Transactions shall have been obtained or filed or shall have occurred and any such orders shall have become final, non-appealable orders. Each of the Corporation and the Purchaser agrees to use commercially reasonable efforts to take all actions, if any, and to do all things necessary, proper or advisable, if any, to obtain any applicable authorizations, consents, orders and approvals of all Governmental Authorities necessary for the Corporation to sell the Notes on the Closing Date on terms consistent with the terms set forth in this Agreement.
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(c) The Corporation shall have executed and delivered to the Purchaser each of the Transaction Documents, as well as:
(i) an Officer’s Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 3.1(a) and 3.1(b) have been fulfilled and that the representations and warranties contained in Section 4.1 are true and correct, with the same force and effect as though expressly made and fulfilled, as applicable, at and as of Closing (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date); and
(ii) a certificate of the Corporation’s Secretary, dated the date of the Closing, certifying as to (i) the resolutions attached thereto, and other corporate proceedings, relating to the authorization, execution and delivery of the Notes and this Agreement and (ii) the Corporation’s organizational documents as then in effect.
(d) The Corporation shall have delivered to counsel for Purchaser an amount equal to the legal fees, subject to a cap of $10,000, incurred in connection with the Transactions by wire transfer of immediately available funds pursuant to the wire instructions provided by the counsel to the Purchaser.
3.2. Conditions to the Corporation’s Obligations. The obligations of the Corporation hereunder are subject to the accuracy, as of the date hereof and as of the Closing Date, of the representations and warranties of the Purchaser contained herein and to the performance by the Purchaser of its obligations hereunder and to each of the following additional terms and conditions:
(a) The Purchaser shall have received any and all necessary approvals from all Governmental Authorities necessary for the purchase by the Purchaser of the Notes as the case may be, pursuant to this Agreement, and any and all applicable waiting periods upon which such approvals are conditioned shall have expired.
(b) The Purchaser shall have delivered to the Corporation the Purchase Price for the Notes being purchased by the Purchaser, at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Corporation.
4. REPRESENTATIONS AND WARRANTIES & COVENANTS
4.1. Representations and Warranties of the Corporation. The Corporation represents and warrants to, and agrees with the Purchaser that as of the date hereof and as of the Closing Date:
(a) The Corporation has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, any governmental entities that are required in order to carry on its business as presently conducted and that are material to the business of the Corporation, except where the failure to have such permits, licenses, authorizations, orders and approvals or the failure to make such filings, applications and registrations would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (as defined herein); and all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the knowledge of the Corporation, no suspension or cancellation of any of them is threatened, and all such filings, applications and registrations are current.
(b) The Purchaser has reviewed the Offering Memorandum, as amended or supplemented (together with the documents incorporated by reference into the Offering Memorandum, the “Disclosure Materials”). As of the date hereof, each of the documents comprising a part of the Disclosure Materials, when such documents are considered together as a whole, did not contain or will not contain any untrue statement of material fact or omitted to state or will not omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
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(c) Based in part upon the representations and warranties of the Purchaser contained herein, the Corporation is not required by applicable law or regulation in connection with the offer, sale and delivery of the Notes to the Purchaser in the manner contemplated by this Agreement to register the Notes under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws.
(d) The Corporation, (i) has been duly incorporated and is validly existing in good standing under the laws of its jurisdiction of incorporation, (ii) is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or the conduct of its businesses requires such qualification, except where the failure to be so qualified would not result in any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Corporation, or which would not materially and adversely affect the assets or properties of the Corporation, or which would not materially and adversely affect the ability of the Corporation to perform its obligations under the Transaction Documents (individually or in the aggregate, a “Material Adverse Effect,” except that the mere filing of any action, claim, suit or order relating to any actual or threatened litigation involving the Corporation or any of its employees after the date of this Agreement (rather than the actual facts and circumstances underlying such action, claim, suit or order) shall not be deemed a Material Adverse Effect); and (iii) has all corporate power and authority necessary to own or hold its respective properties and to conduct the businesses in which it is currently engaged.
(e) The Notes have been duly authorized by the Corporation and, when issued and authenticated by the Trustee pursuant to the Indenture, will have been duly executed, issued and delivered and will constitute valid and legally binding agreements of the Corporation enforceable against the Corporation in accordance with their terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, and general equitable principles (whether considered in a proceeding in equity or at law). The Indenture has been duly authorized, executed and delivered by the Corporation and, when executed and delivered by the Trustee, will constitute a valid and legally binding agreement of the Corporation enforceable against the Corporation in accordance with its terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, and general equitable principles (whether considered in a proceeding in equity or at law).
(f) This Agreement has been duly authorized by the Corporation.
(g) The execution, delivery and performance of this Agreement, the issuance and sale of the Notes in the manner contemplated hereby, and the consummation of the Transactions, will not (i) conflict with or constitute a violation of, or default (with the passage of time or the delivery of notice) under, (A) any bond, debenture, note or other evidence of indebtedness, or any agreement, lease, franchise, license, permit, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Corporation is a party or by which it or its property is bound, where such conflict, violation or default would reasonably be expected to have a Material Adverse Effect, or (B) to the knowledge of the Corporation, any law, administrative regulation, ordinance or judgment, order or decree of any court or governmental agency, arbitration panel or authority binding upon the Corporation or any of its property, where such conflict, violation or default would reasonably be expected to have a Material Adverse Effect, or (ii) violate any of the provisions of the Corporation’s Articles of Amendments, as amended, or the Corporation’s Second Amended and Restated Bylaws; and no consent, approval, authorization or order of, or filing or registration with any person (including, without limitation, any such court or governmental agency or body) is required for the consummation of the Transactions by the Corporation, except such as may be required under state securities laws or the Securities Act.
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(h) The Corporation’s audited financial statements (including the related notes) dated as of February 29, 2020 present fairly, in all material respects, the financial condition and results of operations of the Corporation, at the dates and for the periods indicated, and have been prepared in conformity with U.S. generally accepted accounting principles applied on a consistent basis throughout the periods involved.
(i) The Offering Memorandum describes the outstanding “senior securities” (as that term is defined in the Investment Company Act of 1940, as amended, or the “1940 Act”) representing indebtedness of the Corporation, and since the date specified there, there has been no material change in the amounts, interest rates, sinking funds, installment payments or maturities of the indebtedness of the Corporation. As of the date hereof, the Corporation is not in default and no waiver of default is currently in effect in the payment of any principal or interest on any “senior securities” representing indebtedness of the Corporation and, to the knowledge of the Corporation, no event or condition exists with respect to any “senior securities” representing indebtedness of the Corporation that would permit (or that with notice or the lapse of time, or both, would permit) one or more persons to cause such indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.
(j) The Corporation has not changed its jurisdiction of incorporation or organization, as applicable, or been a party to any merger or consolidation or succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Section 4.1(h).
(k) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Transactions is in effect nor has any action been filed or is any proceeding pending that seeks any such event.
(l) No broker’s, finder’s, investment banker’s or similar fee or commission has been paid or will be payable by the Corporation with respect to, or for any services rendered to the Corporation ancillary to, the offer, issue and sale of the Notes contemplated by this Agreement.
(m) There are no actions, suits, investigations or proceedings pending or, to the knowledge of the Corporation, threatened against or affecting the Corporation or any property of the Corporation in any court or before or by any governmental authority that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(n) To its knowledge, the Corporation is in compliance with all applicable laws, rules, regulations, orders, decrees and judgments applicable to it, including, without limitation, the 1940 Act and the rules promulgated thereunder, all applicable local, state and federal environmental laws and regulations, the provisions of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”), and the applicable federal and state banking laws, rules and regulations (collectively, the “Applicable Laws”), except where failure to be so in compliance would not have a Material Adverse Effect. The Corporation has not received any notice of purported or actual non-compliance with Applicable Laws, except to the extent it would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Corporation has not received any communication from any Governmental Authority threatening to revoke any permit, license, franchise, certificate of authority or other governmental authorization.
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(o) The Corporation maintains insurance (issued by insurers of recognized financial responsibility) of the types, against such losses and in the amounts, with such insurers and subject to deductibles and exclusions as are customary in the Corporation’s industry and otherwise reasonably prudent, including, without limitation, insurance covering all real and personal property owned or leased by the Corporation against theft, damage, destruction, acts of vandalism and all other risks customarily insured against by similarly situated companies, all of which insurance is in full force and effect.
(p) None of the Corporation, any of its affiliates, and any Person acting on its behalf has, directly or indirectly, made any offers or sales of the Notes or solicited any offers to buy the Notes in this Offering, under circumstances that would require registration of the Notes to be sold in this Offering under the Securities Act. None of the Corporation, any of its affiliates, and any Person acting on its behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause this Offering of the Notes to be integrated with the current or any prior public offerings by the Corporation for purposes of the Securities Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Corporation are listed or designated. None of the Corporation, its affiliates and any Person acting on its behalf will take any action or steps referred to in the preceding sentence that would require registration of any of the Notes to be sold in this Offering under the Securities Act. For the purposes of this Agreement, “Person” shall mean any individual, corporation, partnership, joint venture, limited liability company, business trust, joint stock corporation, trust or unincorporated organization or any government or agency or political subdivision thereof.
(q) The Corporation shall use the proceeds from the sale of Notes in this Offering as described in the Offering Memorandum under the caption “Use of Proceeds.”
(r) The Corporation is in compliance in all respects with its investment policies, except to the extent that the failure to comply therewith would not reasonably be expected to have a Material Adverse Effect.
4.2. Covenants of the Corporation. For so long as the Notes are issued and outstanding, the Corporation shall comply with the following covenant:
(a) In the event that the Corporation shall offer the Additional Notes or the New Notes for sale, the Purchaser shall have the right, but not the obligation, to purchase some or all of the Additional Notes or the New Notes, as applicable, before any of the Additional Notes or the New Notes, as applicable, are offered to any other person; provided that (i) the Purchaser shall provide notice (the “Purchaser’s Notice”) to the Corporation of its intent to exercise its right to purchase the Additional Notes or the New Notes, as applicable, under this Section 4.2(a) within five (5) business days of notice by the Corporation to the Purchaser of the Corporation’s intent to offer the Additional Notes or the New Notes, as applicable; and further provided that (ii) the Purchaser shall enter into a definitive agreement with the Corporation to purchase the Additional Notes or the New Notes, as applicable, within two (2) business days of the Purchaser’s Notice. In the event that the requirements contained in sub-parts 4.2(a)(i) or 4.2(a)(ii) above are not met, the Corporation shall have the right to offer the Additional Notes or the New Notes, as applicable, to third parties notwithstanding the requirements otherwise imposed on the Corporation by this Section 4.2(a).
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4.3. Representations and Warranties of the Purchaser. The Purchaser represents and warrants to, and agrees with the Corporation that, as of the date hereof:
(a) The Purchaser has full power and authority to enter into this Agreement and this Agreement constitutes a valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor’s rights generally, and general equitable principles (whether considered in a proceeding in equity or at law).
(b) The Purchaser is a Cayman Islands exempted company incorporated with limited liability and it represents that: (i) it is duly organized, validly existing and in good standing in its jurisdiction of incorporation or organization and has all the requisite power and authority to purchase the Notes as provided herein, and (ii) such investment has been duly authorized by all necessary action on behalf of the Purchaser.
(c) If the Purchaser is purchasing the Notes in a representative or fiduciary capacity, the representations and warranties contained herein (and in any other written statement or document delivered to the Corporation in connection herewith) shall be deemed to have been made on behalf of the person or persons for whom such Notes are being purchased.
(d) The Purchaser is purchasing the Notes for Purchaser’s own account and not with a view to or for sale in connection with any distribution thereof in a transaction that would violate or cause a violation of the Securities Act or the securities laws of any state or any other applicable jurisdiction. The Purchaser has no present intention of selling the Notes, granting any participation interest in the Notes or otherwise distributing the Notes, in each case in violation of the Securities Act. If the Purchaser is an entity, the Purchaser has not been organized solely for the purpose of acquiring the Notes. Purchaser is not a broker dealer registered with the SEC under the Securites Exchange Act of 1934 (the “Exchange Act”) or an entity engaged in a business that would require it to be so registered.
(e) The Purchaser is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act and understands and agrees that the offer and sale of the Notes to the Purchaser hereunder have not been registered under the Securities Act or any state securities law in reliance on the availability of an exemption from such registration requirements based in part on the accuracy of the Purchaser’s representations in this Section 4.3.
(f) In the normal course of the Purchaser’s business or affairs, Purchaser invests in or purchases securities similar to the Notes and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of purchasing the Notes. Purchaser has received and carefully reviewed the Disclosure Materials and understands the information contained therein. Purchaser understands that the Disclosure Materials contain certain “forward-looking” information regarding the Corporation and its business, and that the Corporation’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Purchaser has received all information it believes necessary to decide to purchase the Notes. Purchaser has had access to such financial and other information concerning the Corporation as Purchaser deemed necessary or desirable in making a decision to purchase the Notes, including an opportunity to ask questions and receive answers from officers of the Corporation and to obtain additional information (to the extent the Corporation possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to Purchaser or to which Purchaser had access.
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(g) The Purchaser is not relying on the Corporation or any of its affiliates with respect to an analysis or consideration of the terms of or economic considerations relating to an investment in the Notes. In regard to such considerations and analysis, the Purchaser has relied on the advice of, or has consulted with, only his, her or its own advisors, other than those advisors of the undersigned affiliated with the Corporation or any of its affiliates or the Corporation’s placement agent.
(h) The Purchaser acknowledges and is aware that there are substantial restrictions on the transferability of the Notes. Purchaser understands that the Notes have not been registered under the Securities Act and are “restricted securities” within the meaning of Rule 144 and may not be sold, transferred, or otherwise disposed of without registration under the Securities Act or an exemption therefrom. Furthermore, Purchaser acknowledges that the Notes purchased hereunder will bear a legend substantially to the effect set forth below, and the Purchaser covenants that, except to the extent such restrictions are waived by the Corporation, the Purchaser shall not transfer the Notes without complying with the restrictions on transfer described in the legend:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT (A) IF REGISTERED UNDER APPLICABLE SECURITIES LAWS OR (B) IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAW, SUBJECT TO THE CORPORATION’S AND THE TRUSTEE’S RIGHT TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EACH OF THEM THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND/OR APPLICABLE STATE SECURITIES LAW.
Purchaser understands that Purchaser has no right to require that the Notes be registered under the Securities Act.
(i) The Purchaser represents and warrants that it is not required to obtain, prepare or file any authorization, approval, consent, filing or registration with any federal Governmental Authority in order to consummate the Transactions at the Closing Date.
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(j) Purchaser did not learn of the investment in the Notes by means of any formal general or public solicitation or general advertising or publicly disseminated advertisements or sales literature, including (i) any registration statement or prospectus filed by the Corporation with the SEC, (ii) any advertisement, articles, notices or other communication published in any newspaper, magazine or similar media, or broadcast over television or radio, or (iii) any seminar or meeting to which the Purchaser was invited by any of the foregoing means of communications.
(k) The Purchaser understands that the Notes are being offered and sold to it in reliance upon specific exemptions from the registration requirements of U.S. federal and state securities laws and that the Corporation is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgements and understandings of the Purchaser set forth in this Section 4.3 in order to determine the availability of such exemption and the eligibility of the Purchaser to acquire the Notes.
(l) The Purchaser acknowledges and understands that its investment in the Notes involves a significant degree of risk, including, without limitation that (i) an investment in the Corporation is not without risk (and specific reference is made to the “Risk Factors” section contained in the Offering Memorandum) and (ii) in the event of a disposition of the Notes, the Purchaser could sustain the loss of its entire investment.
(m) The Purchaser hereby acknowledges that the Corporation seeks to comply with all applicable laws concerning money laundering and related activities. In furtherance of such efforts, the Purchasers hereby represent, warrant and agree that to the best of the the Purchasers’ knowledge, based upon reasonable diligence and investigation, no consideration that the Purchaser has contributed or will contribute to the Corporation has been or shall be derived from, or related to, any activity that is in contravention of any federal, state or international laws and regulations, including anti-money laundering laws and regulations. The Purchasers hereby represent that neither they nor any of their owners or affiliates is a person or entity named on a list maintained by the Office of Foreign Asset Control (“OFAC”) of the U.S. Department of the Treasury, nor are the undersigned or any of their owners or affiliates a person or entity with whom dealings are prohibited under any OFAC regulations. Federal regulations and Executive Orders administered by OFAC prohibit, among other things, the engagement in transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals. The lists of OFAC prohibited countries, territories, persons and entities, including without limitation the Specially Designated Nationals and Blocked Nations List, can be found on the OFAC website at http://www.treas.gov/ofac. In addition, the programs administered by OFAC prohibit dealing with individuals or entities in certain countries regardless of whether such individuals or entities appear on the OFAC lists. Please be advised that the Corporation may not accept any amounts from a Purchaser if the Purchaser cannot make the representation set forth in the preceding sentence. The Purchaser agrees to promptly notify the Corporation should the Purchaser become aware of any change in the information set forth in these representations.
(n) The Purchaser understands and agrees that if at any time it is discovered that any of the foregoing representations set forth in Section 4.3(m) above are incorrect, or if otherwise required by applicable law or regulation related to money laundering and similar activities, the Corporation may, in its sole discretion, undertake appropriate actions to ensure compliance with applicable law or regulation, including but not limited to freezing, segregating or requiring the Purchaser to sell the Purchaser’s Shares. The Purchaser agrees to provide to the Corporation any additional information regarding the Purchaser that the Corporation deems necessary or appropriate to ensure compliance with all laws and regulations concerning money laundering and similar activities that may apply now or in the future.
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(o) To the best of the Purchaser’s knowledge, none of (a) the Purchaser, (b) any person controlling or controlled by the Purchaser, (c) if the Purchaser is a privately-held entity, any person having a beneficial interest in the Purchaser or (d) any person for whom the Purchaser is acting as agent or nominee in connection with this investment is a senior foreign political figure1, or any immediate family member2 or close associate3 of a senior foreign political figure, as such terms are defined in the footnotes below.
(p) If the Purchaser is affiliated with a non-U.S. banking institution (a “Foreign Bank”), or if the Purchaser receives deposits from, makes payments on behalf of, or handles other financial transactions related to a Foreign Bank, the Purchaser represents and warrants to the Corporation that (a) the Foreign Bank has a fixed address, other than solely an electronic address, in a country in which the Foreign Bank is authorized to conduct banking activities, (b) the Foreign Bank maintains operating records related to its banking activities, (c) the Foreign Bank is subject to inspection by the banking authority that licensed the Foreign Bank to conduct banking activities and (d) the Foreign Bank does not provide banking services to any other Foreign Bank that does not have a physical presence in any country and that is not a regulated affiliate.
(q) The Purchaser acknowledges that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), the Corporation is required to obtain, verify and record information that identifies the Purchaser, which information includes the name and address of the Purchaser and other information that will allow the Corporation to identify the Purchaser in accordance with the Patriot Act. Accordingly, the Corporation may request information from the Purchaser that will help the Corporation to identify the Purchaser (and in the case of subscribers that are entities, the Purchaser’s beneficial owners, if and to the extent required by law), including without limitation the Corporation’s physical address, tax identification number, organizational documents, certificate of good standing, license to do business, or any other information that the Corporation deems necessary. The Purchaser agrees to provide to the Corporation any additional information regarding the Purchaser that the Corporation deems necessary or appropriate to ensure compliance with the Patriot Act, or any successor law, whether now or in the future.
| 1 | A “senior foreign political figure” is defined as a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a “senior foreign political figure” includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure. |
| 2 | “Immediate family” of a senior foreign political figure typically includes the figure’s parents, siblings, spouse, children and in-laws. |
| 3 | A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure. |
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(r) Except as set forth in this Agreement, no representations or warranties have been made to the Purchaser by the Corporation, or any director, officer, employee, agent or affiliate of any of them.
(s) The Purchaser is not an affiliate of the Corporation.
(t) The Purchaser, if a natural person, has accurately set forth his, her or its state or country of residence on the signature pages hereto where indicated. The Purchaser, if a corporation, partnership, trust or other entity, has accurately set forth the Purchaser’s jurisdiction of organization on the signature pages hereto where indicated.
(u) The Purchaser (a) has the ability to bear the economic risks of this investment and can afford a complete loss of such investment, and (b) understands the terms of and risks associated with the acquisition of their respective Notes, including, without limitation, a lack of liquidity, pricing availability and risks associated with the industry in which the Corporation operates.
5. MISCELLANEOUS
5.1. Survival of Representations and Warranties. All statements contained in any officers’ certificates delivered by or on behalf of the Corporation pursuant to this Agreement or in connection with the Transactions contemplated hereby will be deemed representations or warranties of the Corporation under this Agreement. All representations and warranties contained in this Agreement made by or on behalf of the Corporation or the Purchaser will survive the execution and delivery of this Agreement, any investigation at any time made by or on behalf of the Corporation or the Purchaser, and the sale and purchase of the Notes under this Agreement, and, except for representations and warranties set forth in Sections 4.1(d), (e) and (f), shall expire on the one year anniversary of the Closing Date.
5.2. Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Neither party shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto. Purchaser may assign some or all of its rights hereunder without the consent of the Corporation, in which event such assignee shall be deemed to be a Purchaser hereunder with respect to such assigned rights.
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5.3. Notices. All written communications provided for herein are required to be sent by registered or certified mail, postage prepaid or recognized overnight delivery service (with charges prepaid) and (i) if to a Purchaser, addressed to the Purchaser at the address as specified for such communications in the signature page, or at such other address as the Purchaser may have specified to the Corporation in writing, and with a copy (for informational purposes only) to counsel for the Purchaser at the address specified for such communication in the signature page or at such other address as the Purchaser may have specified to the Corporation in writing, and (ii) if to the Corporation, addressed to it at:
Saratoga Investment Corp.
535 Madison Avenue
New York, New York 10022
Attn: Christian Oberbeck
with a copy (for informational purposes only) to:
Eversheds Sutherland (US) LLP
700 6th St NW
Washington, DC 20001
Attn: Payam Siadatpour, Esq.
or at such other address as the Corporation may have specified to the Purchaser in writing. Notices under this Section 5.3 shall be deemed given only when actually received.
5.4. Governing Law; Dispute Resolution; Waiver of Jury Trial. The parties shall bear their own legal fees and costs for all Disputes. All questions, issues, disputes, demands, claims, causes of action or litigations concerning the construction, validity, enforcement, breach or interpretation of this Agreement or otherwise arising out of or relating to the Transaction Documents (“Disputes”) shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York and shall be submitted to binding arbitration before the American Arbitration Association (“AAA”) in New York County, City of New York, New York, in accordance with the AAA’s Commercial Arbitration Rules. The arbitration panel shall consist of three (3) arbitrators and shall have the power to rule upon its own jurisdiction and authority, including any objection to the initial or continuing existence, validity, effectiveness, or scope of this arbitration agreement. In the event that the parties’ agreement to arbitrate Disputes herein does not enjoy the protection they intend and is held to be unenforceable, each party hereto expressly consents and agrees that the state and federal courts located in New York County, City of New York, New York shall have exclusive jurdicition to hear and determine any Disputes. EACH PARTY HERETO EXPRESSLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO TRIAL BY JURY OF ANY DISPUTES.
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5.5. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
5.6. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.
5.7. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.
5.8. Expenses. Subject to Section 3.1(d), each of the Purchaser and the Corporation shall bear all expenses incurred by it in connection with the Agreement and the Transactions contemplated hereby.
5.9. Construction. Each agreement contained herein shall be construed (absent express provision to the contrary) as being independent of each other agreement contained herein, so that compliance with any one agreement shall not (absent such an express contrary provision) be deemed to excuse compliance with any other agreement. Where any provision herein refers to action to be taken by any person or entity, or which such person or entity is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such person or entity.
5.10. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Purchaser, the Corporation, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Corporation nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the parties hereto in accordance with any applicable law. No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Notes then outstanding. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents, including holders of the Notes. The Corporation has not, directly or indirectly, made any agreements with the Purchaser relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Corporation confirms that, except as set forth in this Agreement, the Purchaser has not made any commitment or promise or has any other obligation to provide any financing to the Corporation or otherwise.
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5.11. No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
5.12. Confidentiality.
(a) From time to time the Purchaser may provide the Corporation with information regarding the Purchaser, including the identity of the Purchaser and other documents and information concerning the affairs of the Purchaser (“Confidential Information”). The Corporation and its representatives shall not be entitled to reproduce any Confidential Information or portion thereof or make the contents thereof available to any non-affiliate third party (other than its advisors, attorneys and accountants), or disclose its receipt of Confidential Information or that Confidential Information has been made available to it, without the prior written consent of the Purchaser, except: (i) to the extent compelled to do so in accordance with applicable law, regulatory requirement, or examination by a regulatory authority, (ii) as required in connection with routine tax or ERISA filings, (iii) to the extent that such Confidential Information was already in the Corporation’s or its representatives’ possession, (iv) to the extent that such Confidential Information is independently developed by the Corporation or any of its representatives, (v) with respect to Confidential Information which otherwise becomes publicly available or generally available to participants in the Purchaser’s industry other than through breach of this provision by the Corporation or its agents, or (vi) as necessary to comply with the terms and conditions of this Agreement, the Notes or Indenture. All Confidential Information is and shall at all times remain the property of the Purchaser.
(b) If for any reason the Corporation is or may be required to disclose Confidential Information, the Corporation shall, to the fullest extent permitted by law, promptly notify the Purchaser in writing of the relevant facts of such requirement prior to any such disclosure and shall work with the Purchaser so that the Purchaser may seek at the Purchaser’s sole cost and expense a protective order or other appropriate remedy to protect from disclosure as much of the Confidential Information as can be protected from disclosure under applicable law.
5.13. Indemnification.
(a) In consideration of the Purchaser’s execution and delivery of the Transaction Documents and acquiring the Notes thereunder and in addition to all of the Corporation’s other obligations under the Transaction Documents, the Corporation shall defend, protect, indemnify and hold harmless the Purchaser and all of their stockholders, partners, members, officers, directors, employees, advisors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable and documented attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Corporation in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Corporation contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Corporation) arising out of or resulting from any misrepresentation or breach of any representation or warranty made by the Corporation in the Transaction Documents, any covenant, agreement or obligation of the Corporation contained in the Transaction Documents, or any other certificate, instrument or document contemplated hereby or thereby, except that the Corporation shall not defend, protect, indemnify or hold harmless any Inemnitee from any actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, or expenses caused by the the Indemnitee’s willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations and duties under this Agreement. To the extent that the foregoing undertaking by the Corporation may be unenforceable for any reason, the Corporation shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.
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(b) To the fullest extent permitted by applicable law, the Purchaser will indemnify and hold harmless the Corporation, each of its directors and officers, each person who controls the Corporation within the meaning of the Securities Act (if any), any underwriter (as defined in the Securities Act), any other person or entity selling securities of the Corporation and referenced in a registration statement filed by the Corporation, as applicable, and any controlling person of any such underwriter or other person or entity selling securities, against any any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act or other federal or state law, in each case only to the extent that such such loss, damage, claim or liability (or any action in respect thereof) arise out of or are based upon actions or omissions made in reliance upon and in conformity with representations and warranties made by the Purchaser (“Damages”); and each the Purchaser will pay to the Corporation and each other aforementioned person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred.
(c) Promptly after receipt by an Indemnitee under this Section 5.13 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving an Indemnified Liability, such Indemnitee shall, if a claim for indemnification in respect thereof is to be made against any indemnifying party under this Section 5.13, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnitee; provided, however, that an Indemnitee shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnitee to be paid by the indemnifying party, if, in the reasonable opinion of counsel to the Indemnitee, the representation by such counsel of the Indemnitee and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnitee and the indemnifying party. Legal counsel referred to in the immediately preceding sentence shall be selected by the Purchaser holding at least a majority of the Notes issued and issuable hereunder that are subject to such action or proceeding. The Indemnitee shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Indemnified Liabilities by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnitee that relates to such action or Indemnified Liabilities. The indemnifying party shall keep the Indemnitee fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld conditioned or delayed, consent to entry of any judgment or enter into any settlement or other compromise which (i) does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect to such Indemnified Liabilities or litigation, (ii) requires any admission of wrongdoing by such Indemnitee, or (iii) obligates or requires an Indemnitee to take, or refrain from taking, any action. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnitee with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnitee under this Section 5.13, except to the extent that the indemnifying party is materially prejudiced in its ability to defend such action.
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(d) The indemnification required by this Section 5.13 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, within a reasonable period of time as and when bills are received or Indemnified Liabilities are incurred.
(e) The indemnity agreements contained herein shall be in addition to (x) any cause of action or similar right of the Indemnitee against the indemnifying party or others, and (y) any liabilities the indemnifying party may be subject to pursuant to applicable law.
5.14. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
5.15. Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Corporation does not timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Corporation, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.
5.16. Payment Set Aside. To the extent that the Corporation makes a payment or payments to the Purchaser hereunder or pursuant to any of the other Transaction Documents or the Purchaser enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Corporation, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
[SIGNATURE PAGE FOLLOWS]
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If the foregoing correctly sets forth the agreement between the Corporation and the Purchaser, please indicate your acceptance in the space provided for that purpose below.
| Very truly yours, | ||
| SARATOGA INVESTMENT CORP. | ||
| By: | /s/ Henri J. Steenkamp | |
| Name: | Henri J. Steenkamp | |
| Title: | Chief Financial Officer, Chief | |
| Compliance Office and Secretary | ||
SIGNATURE PAGE
This Agreement is hereby accepted and agreed to as of the date hereof.
| Aggregate Amount of Principal to be Purchased: | |||
| $5,000,000 | |||
| Purchase Price: | |||
| $4,812,500 | |||
| By: | /s/ Erik Herzfeld | Date: July 9, 2020 | |
| Name: | Erik Herzfeld | ||
| Title: | Authorized Signatory | ||
Exhibit 10.14
SARATOGA
INVESTMENT CORP.
First SUPPLEMENTAL NOTES PURCHASE AGREEMENT
Dated as of January 28, 2021
To the Purchaser Listed in the signature page:
Ladies and Gentlemen:
Reference is made to that certain Note Purchase Agreement dated July 9, 2020 (the “Purchase Agreement”), by and between Saratoga Investment Corp., a Maryland corporation (the “Corporation”) and The HCM Master Fund Limited (the “Purchaser”). Each capitalized term used herein but not defined shall have the meaning ascribed to such term in the Purchase Agreement.
WHEREAS, Section 1.1 of the Purchase Agreement provides that upon the mutual agreement of the Corporation and the Purchaser, the Corporation may authorize Additional Notes or New Notes for sale to the Purchaser in a subsequent offering, in the aggregate, up to a maximum of $50,000,000; and
WHEREAS, the Company and the Purchaser desire to enter into this First Supplemental Notes Purchase Agreement (the “Agreement”) in connection with issuance and sale of $10,000,000 aggregate principal amount of its 6.25% Notes due 2027 (the “2027 Notes”) in a private offering, pursuant to an offering memorandum dated on or about the date hereof (the “Offering Memorandum”).
NOW THEREFORE, in consideration of the mutual promises contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement, intending to be legally bound, hereby update the following provisions of the Purchase Agreement and agree as follows:
| (1) | Section 1.2 of the Purchase Agreement is replaced in its entirety for purposes of this Agreement with the following: |
“Sale and Purchase of the Notes. Subject to the terms and conditions herein provided, the Corporation hereby agrees to sell to the purchaser listed in the signature page attached hereto (the “Purchaser”), and the Purchaser agrees to purchase from the Corporation, at the Closing provided for in Section 2 hereof, that aggregate principal amount of the 2027 Notes specified directly opposite its name in the signature page, at the purchase price of 97.25% of the principal amount thereof (the “Purchase Price”). The Purchaser understands and acknowledges that it has made its own review of the investment merits and risks of the 2027 Notes.”
| (2) | The reference to “fifth supplement indenture” in Section 1.3 of the Purchase Agreement shall be replaced with “seventh supplemental indenture” for purposes of this Agreement. |
| (3) | Section 2.1 is hereby revised to reflect 11:00 A.M., New York time, on January 28, 2021 as the Closing Date for purposes of this Agreement. |
| (4) | Section 3.1(d) is hereby replaced in its entirety for purposes of this Agreement with the following: |
The Corporation shall have delivered to counsel for Purchaser an amount equal to the legal fees, subject to a cap of $10,000, incurred in connection with the issuance of the 2027 Notes by wire transfer of immediately available funds pursuant to the wire instructions provided by the counsel to the Purchaser.
| (5) | The reference to “Second Amended and Restated Bylaws” in Section 4.1(g) of the Purchase Agreement shall be replaced with “Third Amended and Restated Bylaws”. |
Except as set forth above, no other changes to the terms of the Purchase Agreement are intended by the parties thereto, are made, or shall be deemed to be made, pursuant to this Agreement, and all provisions of the Purchase Agreement, including all exhibits thereto, unaffected by this Agreement shall remain in full force and effect.
For the avoidance of any doubt, the Purchase Agreement shall not be deemed to be amended (other than with respect to clause (5) above) and remains unchanged with respect to the Notes issued thereunder.
[SIGNATURE PAGE FOLLOWS]
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If the foregoing correctly sets forth the agreement between the Corporation and the Purchaser, please indicate your acceptance in the space provided for that purpose below.
Very truly yours, | ||
| SARATOGA INVESTMENT CORP. | ||
| By: | /s/ Henri J. Steenkamp | |
| Name: | Henri J. Steenkamp | |
| Title: | Chief
Financial Officer, Chief Compliance Office, Treasurer and Secretary | |
SIGNATURE PAGE
This Agreement is hereby accepted and agreed to as of the date hereof.
| Aggregate Amount of Principal to be Purchased: | |||
| $10,000,000 | |||
| Purchase Price: | |||
| $9,725,000 | |||
| By: | /s/ Erik Herzfeld | Date: January 28, 2021 | |
| Name: | Erik Herzfeld | ||
| Title: | Authorized Signatory |
Exhibit 10.15
SARATOGA INVESTMENT
CORP.
Second SUPPLEMENTAL NOTES PURCHASE AGREEMENT
Dated as of September 8, 2022
To the Purchaser Listed in the signature page:
Ladies and Gentlemen:
Reference is made to that certain Note Purchase Agreement dated July 9, 2020 (the “Purchase Agreement”), by and between Saratoga Investment Corp., a Maryland corporation (the “Corporation”) and The HCM Master Fund Limited (the “Purchaser”). Each capitalized term used herein but not defined shall have the meaning ascribed to such term in the Purchase Agreement.
WHEREAS, Section 1.1 of the Purchase Agreement provides that upon the mutual agreement of the Corporation and the Purchaser, the Corporation may authorize Additional Notes or New Notes for sale to the Purchaser in a subsequent offering, in the aggregate, up to a maximum of $50,000,000; and
WHEREAS, the Corporation and the Purchaser desire to enter into this Second Supplemental Notes Purchase Agreement (the “Agreement”) pursuant to which (i) $12,000,000 in aggregate principal amount of the Company’s 7.00% Notes due 2025 (the “2025 Notes”) will be sold and issued, and (ii) upon mutual agreement of the Corporation and the Purchaser, the Purchaser may purchase from the Corporation up to an additional $8,000,000 aggregate principal of the 2025 Notes by September 30, 2022 (the “Additional 2025 Notes”), each in a private offering, pursuant to an offering memorandum dated on or about the date hereof (the “Offering Memorandum”).
NOW THEREFORE, in consideration of the mutual promises contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement, intending to be legally bound, hereby update the following provisions of the Purchase Agreement and agree as follows:
| (1) | Section 1.2 of the Purchase Agreement is replaced in its entirety for purposes of this Agreement with the following: |
“Sale and Purchase of the Notes. Subject to the terms and conditions herein provided, the Corporation hereby agrees to sell to the purchaser listed in the signature page attached hereto (the “Purchaser”), and the Purchaser agrees to purchase from the Corporation, at the Closing provided for in Section 2 hereof, that aggregate principal amount of the 2025 Notes specified directly opposite its name in the signature page, at the purchase price of 97.000% of the principal amount thereof (the “Purchase Price”). The Purchaser understands and acknowledges that it has made its own review of the investment merits and risks of the 2025 Notes.”
| (2) | The reference to “fifth supplement indenture” in Section 1.3 of the Purchase Agreement shall be replaced with “eleventh supplemental indenture” for purposes of this Agreement. |
| (3) | Section 2.1 is hereby revised to reflect 11:00 A.M., New York time, on September 8, 2022 as the Closing Date for purposes of this Agreement. |
| (4) | Section 3.1(d) is hereby replaced in its entirety for purposes of this Agreement with the following: |
The Corporation shall have delivered to counsel for Purchaser an amount equal to the legal fees, subject to a cap of $10,000, incurred in connection with the issuance of the 2025 Notes and any Additional 2025 Notes by wire transfer of immediately available funds pursuant to the wire instructions provided by the counsel to the Purchaser.
| (5) | The reference to “Second Amended and Restated Bylaws” in Section 4.1(g) of the Purchase Agreement shall be replaced with “Third Amended and Restated Bylaws”. |
Except as set forth above, no other changes to the terms of the Purchase Agreement are intended by the parties thereto, are made, or shall be deemed to be made, pursuant to this Agreement, and all provisions of the Purchase Agreement, including all exhibits thereto, unaffected by this Agreement shall remain in full force and effect.
For the avoidance of any doubt, the Purchase Agreement shall not be deemed to be amended (other than with respect to clause (5) above) and remains unchanged with respect to the Notes issued thereunder.
[SIGNATURE PAGE FOLLOWS]
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If the foregoing correctly sets forth the agreement between the Corporation and the Purchaser, please indicate your acceptance in the space provided for that purpose below.
| Very truly yours, | ||
| SARATOGA INVESTMENT CORP. | ||
| By: | /s/ Henri J. Steenkamp | |
| Name: | Henri J. Steenkamp | |
| Title: | Chief Financial Officer, Chief Compliance Office, Treasurer and Secretary | |
SIGNATURE PAGE
This Agreement is hereby accepted and agreed to as of the date hereof.
| Aggregate Amount of Principal to be Purchased: | |||
| $12,000,000 | |||
| Purchase Price: | |||
| $11,640,000 | |||
| By: | /s/ Erik Herzfeld | Date: September 8, 2022 | |
| Name: | Erik Herzfeld | ||
| Title: | Authorized Signatory | ||
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Christian L. Oberbeck, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Saratoga Investment Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: October 4, 2022 | |
| /s/ CHRISTIAN L. OBERBECK | |
| Christian L. Oberbeck | |
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Henri J. Steenkamp, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Saratoga Investment Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the company’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: October 4, 2022 | |
| /s/ HENRI J. STEENKAMP | |
| Name: Henri J. Steenkamp | |
| Chief Financial Officer and Chief Compliance Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES
CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the accompanying Quarterly Report of Saratoga Investment Corp. on Form 10-Q (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Christian L. Oberbeck, the Chief Executive Officer, certifies that, to the best of his knowledge:
| 1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Saratoga Investment Corp. |
| Date: October 4, 2022 | |
| /s/ CHRISTIAN L. OBERBECK | |
| Christian L. Oberbeck | |
| Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the accompanying Quarterly Report of Saratoga Investment Corp. on Form 10-Q (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Henri J. Steenkamp, the Chief Financial Officer, Chief Compliance Officer and Secretary of Saratoga Investment Corp. certifies that, to the best of his knowledge:
| 1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Saratoga Investment Corp. |
| Date: October 4, 2022 | |
| /s/ HENRI J. STEENKAMP | |
| Name: Henri J. Steenkamp | |
| Chief Financial Officer and Chief Compliance Officer |