Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the Quarterly Period Ended August 31, 2016

 

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

Commission File Number: 001-33376

 

 

SARATOGA INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   20-8700615

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

535 Madison Avenue

New York, New York

  10022
(Address of principal executive office)   (Zip Code)

(212) 906-7800

(Registrant’s telephone number, including area code)

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large Accelerated Filer   ¨    Accelerated Filer   ¨
Non-Accelerated Filer   x    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of October 11, 2016 was 5,716,776.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

 

 

         Page  

PART I.

  FINANCIAL INFORMATION      3   

Item 1.

  Consolidated Financial Statements      3   
  Consolidated Statements of Assets and Liabilities as of August 31, 2016 (unaudited) and February 29, 2016      3   
  Consolidated Statements of Operations for the three and six months ended August 31, 2016 and August 31, 2015 (unaudited)      4   
  Consolidated Schedules of Investments as of August 31, 2016 (unaudited) and February 29, 2016      5   
  Consolidated Statements of Changes in Net Assets for the six months ended August 31, 2016 and August 31, 2015 (unaudited)      7   
  Consolidated Statements of Cash Flows for the six months ended August 31, 2016 and August 31, 2015 (unaudited)      8   
  Notes to Consolidated Financial Statements as of August 31, 2016 (unaudited)      9   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      33   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      56   

Item 4.

  Controls and Procedures      56   

PART II.

  OTHER INFORMATION      57   

Item 1.

  Legal Proceedings      57   

Item 1A.

  Risk Factors      57   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      57   

Item 3.

  Defaults Upon Senior Securities      57   

Item 4.

  Mine Safety Disclosures      57   

Item 5.

  Other Information      57   

Item 6.

  Exhibits      58   

Signatures

     59   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 

     As of  
     August 31, 2016     February 29, 2016  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Non-control/Non-affiliate investments (amortized cost of $267,658,535 and $268,145,090, respectively)

   $   260,887,373      $   271,168,186   

Control investments (cost of $10,948,369 and $13,030,751, respectively)

     11,917,076        12,827,980   
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $278,606,904 and $281,175,841, respectively)

     272,804,449        283,996,166   

Cash and cash equivalents

     12,707,273        2,440,277   

Cash and cash equivalents, reserve accounts

     10,173,549        4,594,506   

Interest receivable (net of reserve of $0 and $728,519, respectively)

     3,393,927        3,195,919   

Management fee receivable

     170,897        170,016   

Other assets

     312,184        350,368   

Receivable from unsettled trades

     284,903        300,000   
  

 

 

   

 

 

 

Total assets

   $ 299,847,182      $ 295,047,252   
  

 

 

   

 

 

 

LIABILITIES

    

Revolving credit facility

   $ —        $ —     

Deferred debt financing costs, revolving credit facility

     (476,221     (515,906

SBA debentures payable

     103,660,000        103,660,000   

Deferred debt financing costs, SBA debentures payable

     (2,527,859     (2,493,303

Notes payable

     61,793,125        61,793,125   

Deferred debt financing costs, notes payable

     (1,484,265     (1,694,586

Dividend payable

     1,151,061        875,599   

Base management and incentive fees payable

     6,283,519        5,593,956   

Accounts payable and accrued expenses

     631,840        855,873   

Interest and debt fees payable

     1,873,508        1,552,069   

Payable for repurchases of common stock

     —          20,957   

Directors fees payable

     45,000        31,500   

Due to manager

     333,852        218,093   
  

 

 

   

 

 

 

Total liabilities

   $ 171,283,560      $ 169,897,377   
  

 

 

   

 

 

 

Commitments and contingencies (See Note 7)

    

NET ASSETS

    

Common stock, par value $.001, 100,000,000 common shares authorized, 5,740,810 and 5,672,227 common shares issued and outstanding, respectively

   $ 5,741      $ 5,672   

Capital in excess of par value

     189,532,044        188,714,329   

Distribution in excess of net investment income

     (27,038,814     (26,217,902

Accumulated net realized loss from investments and derivatives

     (28,132,894     (40,172,549

Accumulated net unrealized appreciation (depreciation) on investments and derivatives

     (5,802,455     2,820,325   
  

 

 

   

 

 

 

Total net assets

     128,563,622        125,149,875   
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 299,847,182      $ 295,047,252   
  

 

 

   

 

 

 

NET ASSET VALUE PER SHARE

   $ 22.39      $ 22.06   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Operations

(unaudited)

 

     For the three months ended
August 31
    For the six months ended
August 31
 
     2016     2015     2016     2015  

INVESTMENT INCOME

        

Interest from investments

        

Non-control/Non-affiliate investments

   $ 6,561,838      $ 5,877,682      $ 13,181,951      $ 11,526,661   

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

     184,265        262,991        313,355        954,143   

Control investments

     557,200        678,706        1,089,326        1,269,696   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     7,303,303        6,819,379        14,584,632        13,750,500   

Interest from cash and cash equivalents

     6,401        731        10,187        1,467   

Management fee income

     374,657        373,152        748,341        751,898   

Other income

     763,633        565,055        1,013,229        815,619   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     8,447,994        7,758,317        16,356,389        15,319,484   
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Interest and debt financing expenses

     2,369,705        2,147,976        4,737,761        4,111,841   

Base management fees

     1,202,794        1,151,236        2,429,951        2,275,334   

Professional fees

     302,227        349,533        661,526        682,977   

Administrator expenses

     325,000        275,000        650,000        525,000   

Incentive management fees

     1,208,452        (41,279     1,936,732        1,756,554   

Insurance

     70,658        87,316        141,316        174,633   

Directors fees and expenses

     60,422        51,000        126,422        102,000   

General & administrative

     304,955        203,449        517,164        386,369   

Excise tax expense (credit)

     —          (123,338     —          (123,338

Other expense

     —          —          13,187        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     5,844,213        4,100,893        11,214,059        9,891,370   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME

     2,603,781        3,657,424        5,142,330        5,428,114   
  

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

        

Net realized gain from investments

     5,936,750        3,709,947        12,039,655        3,783,193   

Net unrealized depreciation on investments

     (3,268,913     (6,124,708     (8,622,780     (583,739
  

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss) on investments

     2,667,837        (2,414,761     3,416,875        3,199,454   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 5,271,618      $ 1,242,663      $ 8,559,205      $ 8,627,568   
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.92      $ 0.22      $ 1.49      $ 1.57   

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED

     5,740,816        5,583,795        5,739,157        5,492,491   

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

August 31, 2016

(unaudited)

 

Company

 

Industry

 

Investment Interest Rate /

Maturity

  Principal /
Number of

Shares
    Cost     Fair Value (c)     % of
Net Assets
 

Non-control/Non-affiliated investments - 202.9% (b)

       

CAMP International Systems (d)

  Aerospace and Defense   Second Lien Term Loan 8.25% Cash, 8/18/2024   $ 1,000,000        995,002        997,500        0.8
       

 

 

   

 

 

   

 

 

 
    Total Aerospace and Defense       995,002        997,500        0.8
       

 

 

   

 

 

   

 

 

 

Polar Holding Company, Ltd. (a), (d), (i)

  Building Products   First Lien Term Loan 10.00% Cash, 9/30/2016   $ 2,000,000        2,000,000        2,000,000        1.6
       

 

 

   

 

 

   

 

 

 
    Total Building Products       2,000,000        2,000,000        1.6
       

 

 

   

 

 

   

 

 

 

Avionte Holdings, LLC (g)

  Business Services   Common Stock     100,000        100,000        247,782        0.2

Avionte Holdings, LLC

  Business Services   First Lien Term Loan 9.75% Cash, 1/8/2019   $ 2,279,278        2,255,168        2,287,483        1.8

Avionte Holdings, LLC (j), (k)

  Business Services   Delayed Draw Term Loan A 9.75% Cash, 1/8/2019   $ —          —          —          0.0

BoardEffect, Inc.

  Business Services   First Lien Term Loan 10.00% Cash, 6/17/2021   $ 12,000,000        11,883,243        11,880,000        9.2

BoardEffect, Inc. (j), (k)

  Business Services   Delayed Draw Term Loan B 10.00% Cash, 6/17/2021   $ —          —          —          0.0

BMC Software, Inc. (d)

  Business Services   First Lien Term Loan 5.00% Cash, 9/10/2020   $ 5,641,667        5,607,859        5,379,329        4.2

Courion Corporation

  Business Services   Second Lien Term Loan 11.00% Cash, 6/1/2021   $ 15,000,000        14,866,381        14,529,000        11.3

Dispensing Dynamics International (d)

  Business Services   Senior Secured Note 12.50% Cash, 1/1/2018   $ 12,000,000        12,018,538        11,530,800        9.0

Easy Ice, LLC (d)

  Business Services   First Lien Term Loan 9.50% Cash, 1/15/2020   $ 16,000,000        15,868,493        16,057,493        12.5

Emily Street Enterprises, L.L.C.

  Business Services   Senior Secured Note 10.00% Cash, 1/23/2020   $ 3,300,000        3,272,264        3,355,372        2.6

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

  Business Services   Warrant Membership Interests     49,318        400,000        459,791        0.3

Help/Systems Holdings, Inc. (Help/Systems, LLC)

  Business Services   First Lien Term Loan 6.25% Cash, 10/8/2021   $ 4,975,000        4,887,402        4,919,031        3.8

Help/Systems Holdings, Inc. (Help/Systems, LLC)

  Business Services   Second Lien Term Loan 10.50% Cash, 10/8/2022   $ 3,000,000        2,917,626        2,850,000        2.2

Identity Automation Systems

  Business Services   Convertible Promissory Note 13.50% (6.75% Cash/6.75% PIK), 8/18/2018     611,517        611,517        611,517        0.5

Identity Automation Systems (g)

  Business Services   Common Stock Class A Units     232,616        232,616        495,686        0.4

Identity Automation Systems

  Business Services   First Lien Term Loan 12.00% (10.25% Cash/1.75% PIK) 12/18/2020   $ 10,203,683        10,121,194        10,171,110        7.9

Knowland Technology Holdings, L.L.C.

  Business Services   First Lien Term Loan 9.75% Cash, 11/29/2017   $ 17,777,730        17,637,107        17,652,317        13.7

Microsystems Company

  Business Services   Second Lien Term Loan 11.00% Cash, 7/1/2022   $ 8,000,000        7,922,051        7,920,000        6.2

PCF Number 4, Inc.

  Business Services   Second Lien Term Loan 13.50% (12.50% Cash/1.00% PIK), 8/28/2021   $ 13,044,083        12,918,979        13,044,083        10.1

Vector Controls Holding Co., LLC (d)

  Business Services   First Lien Term Loan, 14.00% (12.00% Cash/2.00% PIK), 3/6/2018   $ 8,967,996        8,905,587        8,967,996        7.0

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

  Business Services   Warrants to Purchase Limited Liability Company Interests     343        —          350,212        0.3
       

 

 

   

 

 

   

 

 

 
    Total Business Services       132,426,025        132,709,002        103.2
       

 

 

   

 

 

   

 

 

 

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

  Consumer Products   Common Stock     210,456        1,791,242        1,847        0.0

Targus Holdings, Inc. (d)

  Consumer Products   Second Lien Term Loan A-2 15.00% PIK, 12/31/2019   $ 220,644        220,644        220,644        0.2

Targus Holdings, Inc. (d)

  Consumer Products   Second Lien Term Loan B 15.00% PIK, 12/31/2019   $ 661,932        661,932        661,932        0.5
       

 

 

   

 

 

   

 

 

 
    Total Consumer Products       2,673,818        884,423        0.7
       

 

 

   

 

 

   

 

 

 

My Alarm Center, LLC

  Consumer Services   Second Lien Term Loan 12.00% Cash, 7/9/2019   $ 9,375,000        9,356,295        9,299,063        7.2

PrePaid Legal Services, Inc. (d)

  Consumer Services   First Lien Term Loan 6.50% Cash, 7/1/2019   $ 1,489,199        1,481,070        1,482,051        1.1

PrePaid Legal Services, Inc. (d)

  Consumer Services   Second Lien Term Loan 10.25% Cash, 7/1/2020   $ 10,000,000        9,966,163        9,846,000        7.7

Prime Security Services, LLC

  Consumer Services   Second Lien Term Loan 9.75% Cash, 7/1/2022   $ 6,230,769        6,138,694        6,268,416        4.9
       

 

 

   

 

 

   

 

 

 
    Total Consumer Services       26,942,222        26,895,530        20.9
       

 

 

   

 

 

   

 

 

 

M/C Acquisition Corp., L.L.C. (d), (g)

  Education   Class A Common Stock     544,761        30,241        —          0.0

M/C Acquisition Corp., L.L.C. (d)

  Education   First Lien Term Loan 1.00% Cash, 3/31/2016   $ 2,321,073        1,193,791        8,087        0.0

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

  Education   Common Stock     750,000        750,000        933,960        0.7

Texas Teachers of Tomorrow, LLC

  Education   Second Lien Term Loan 10.75% Cash, 6/2/2021   $ 10,000,000        9,910,300        10,000,000        7.8
       

 

 

   

 

 

   

 

 

 
    Total Education       11,884,332        10,942,047        8.5
       

 

 

   

 

 

   

 

 

 

TM Restaurant Group L.L.C.

  Food and Beverage   First Lien Term Loan 9.75% Cash, 7/16/2017   $ 9,490,507        9,428,277        9,276,541        7.2
       

 

 

   

 

 

   

 

 

 
    Total Food and Beverage       9,428,277        9,276,541        7.2
       

 

 

   

 

 

   

 

 

 

Censis Technologies, Inc.

  Healthcare Services   First Lien Term Loan B 11.00% Cash, 7/24/2019   $ 11,400,000        11,251,423        10,962,652        8.5

Censis Technologies, Inc. (g), (h)

  Healthcare Services   Limited Partner Interests     999        999,000        704,187        0.5

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

  Healthcare Services   Common Stock     5,081        508,077        598,710        0.5

Roscoe Medical, Inc.

  Healthcare Services   Second Lien Term Loan 11.25% Cash, 9/26/2019   $ 4,200,000        4,148,231        4,113,761        3.2

Ohio Medical, LLC (g)

  Healthcare Services   Common Stock     5,000        500,000        459,409        0.4

Ohio Medical, LLC

  Healthcare Services   Senior Subordinated Note 12.00%, 7/15/2021   $ 7,300,000        7,233,876        7,273,756        5.7

Zest Holdings, LLC (d)

  Healthcare Services   First Lien Term Loan 5.25% Cash, 8/16/2020   $ 4,136,911        4,078,941        4,136,911        3.2
       

 

 

   

 

 

   

 

 

 
    Total Healthcare Services       28,719,548        28,249,386        22.0
       

 

 

   

 

 

   

 

 

 

HMN Holdco, LLC

  Media   First Lien Term Loan 10.00% Cash, 5/16/2019   $ 8,700,232        8,594,607        8,700,232        6.8

HMN Holdco, LLC

  Media   Delayed Draw First Lien Term Loan 10.00% Cash, 5/16/2019   $ 4,800,000        4,744,654        4,800,000        3.7

HMN Holdco, LLC

  Media   Class A Series     4,264        61,647        283,044        0.2

HMN Holdco, LLC

  Media   Class A Warrant     30,320        438,353        1,623,030        1.3

HMN Holdco, LLC (g)

  Media   Warrants to Purchase Limited Liability Company Interests (Common)     57,872        —          2,802,162        2.2

HMN Holdco, LLC (g)

  Media   Warrants to Purchase Limited Liability Company Interests (Preferred)     8,139        —          451,308        0.3
       

 

 

   

 

 

   

 

 

 
    Total Media       13,839,261        18,659,776        14.5
       

 

 

   

 

 

   

 

 

 

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

  Metals   Common Stock     35,000        9,217,564        314,300        0.2

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

  Metals   Revolver 10.00% Cash, 3/31/2017   $ 8,500,000        8,500,000        8,500,000        6.6
       

 

 

   

 

 

   

 

 

 
    Total Metals       17,717,564        8,814,300        6.8
       

 

 

   

 

 

   

 

 

 

Mercury Network, LLC

  Real Estate   First Lien Term Loan 10.50% Cash, 8/24/2021   $ 20,808,696        20,619,443        20,724,932        16.1

Mercury Network, LLC (g)

  Real Estate   Common Stock     413,043        413,043        733,936        0.6
       

 

 

   

 

 

   

 

 

 
    Total Real Estate       21,032,486        21,458,868        16.7
       

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliated investments

        267,658,535        260,887,373        202.9
       

 

 

   

 

 

   

 

 

 

Control investments - 9.3% (b)

           

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

  Structured Finance Securities   Other/Structured Finance Securities 21.13%, 10/17/2023   $ 30,000,000        10,948,369        11,917,076        9.3
       

 

 

   

 

 

   

 

 

 

Sub Total Control investments

          10,948,369        11,917,076        9.3
       

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS - 212.2% (b)

        $   278,606,904      $   272,804,449        212.2
       

 

 

   

 

 

   

 

 

 
            Principal     Cost     Fair Value     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 17.8%

       

U.S. Bank Money Market (l)

      $ 22,880,822      $ 22,880,822      $ 22,880,822        17.8
     

 

 

   

 

 

   

 

 

   

 

 

 

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

  $   22,880,822      $ 22,880,822      $ 22,880,822        17.8
     

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Represents a non-qualifying investment as defined under Section 55 (a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 5.1% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.
(b) Percentages are based on net assets of $128,563,622 as of August 31, 2016.
(c) Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors (see Note 3 to the consolidated financial statements).
(d) These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).
(e) This investment does not have a stated interest rate that is payable thereon. As a result, the 21.13% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.
(f) As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

                   Sales      Interest      Management      Net Realized      Net Unrealized  

Company

   Purchases      Redemptions      (Cost)      Income      Fee Income      Gains (Losses)      Appreciation  

Saratoga Investment Corp. CLO 2013-1, Ltd.

   $ —         $ —         $ —         $ 1,089,326       $ 748,341       $ —         $ 1,171,478   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g) Non-income producing at August 31, 2016.
(h) Includes securities issued by an affiliate of the company.
(i) Non-U.S. company. The principal place of business for Polar Holding Company, Ltd. is Canada.
(j) The investment has an unfunded commitment as of August 31, 2016 (see Note 7 to the consolidated financial statements).
(k) The entire commitment was unfunded at August 31, 2016. As such, no interest is being earned on this investment.
(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, 2016.

 

5


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

February 29, 2016

 

Company

 

Industry

 

Investment Interest Rate /

Maturity

  Principal /
Number

of Shares
    Cost     Fair Value (c)     % of
Net Assets
 

Non-control/Non-affiliated investments - 216.6% (b)

  

     

National Truck Protection Co., Inc. (d), (g)

  Automotive Aftermarket   Common Stock     1,116      $ 1,000,000      $ 1,695,303        1.4

National Truck Protection Co., Inc. (d)

  Automotive Aftermarket   First Lien Term Loan 15.50% Cash, 9/13/2018   $ 6,776,770        6,776,770        6,776,770        5.4

Take 5 Oil Change, L.L.C. (d), (g)

  Automotive Aftermarket   Common Stock     7,128        480,535        6,235,209        5.0
       

 

 

   

 

 

   

 

 

 
    Total Automotive Aftermarket       8,257,305        14,707,282        11.8
       

 

 

   

 

 

   

 

 

 

Legacy Cabinets Holdings (d), (g)

  Building Products   Common Stock Voting A-1     2,535        220,900        2,676,909        2.1

Legacy Cabinets Holdings (d), (g)

  Building Products   Common Stock Voting B-1     1,600        139,424        1,689,568        1.3

Polar Holding Company, Ltd. (a), (d), (i)

  Building Products   First Lien Term Loan 10.00% Cash, 9/30/2016   $ 2,000,000        2,000,000        2,000,000        1.6
       

 

 

   

 

 

   

 

 

 
    Total Building Products       2,360,324        6,366,477        5.0
       

 

 

   

 

 

   

 

 

 

Avionte Holdings, LLC (g)

  Business Services   Common Stock     100,000        100,000        169,850        0.1

Avionte Holdings, LLC

  Business Services   First Lien Term Loan 9.75% Cash, 1/8/2019   $ 2,406,342        2,376,045        2,382,844        1.9

Avionte Holdings, LLC (j), (k)

  Business Services   Delayed Draw Term Loan A 9.75% Cash, 1/8/2019   $ —          —          —          0.0

BMC Software, Inc. (d)

  Business Services   Syndicated Loan 5.00% Cash, 9/10/2020   $ 5,671,667        5,633,920        4,520,318        3.6

Courion Corporation

  Business Services   Second Lien Term Loan 11.00% Cash, 6/1/2021   $ 15,000,000        14,856,720        14,850,000        11.9

Dispensing Dynamics International (d)

  Business Services   Senior Secured Note 12.50% Cash, 1/1/2018   $ 12,000,000        12,025,101        10,950,000        8.8

Easy Ice, LLC (d)

  Business Services   First Lien Term Loan 9.50% Cash, 1/15/2020   $ 14,000,000        13,873,485        13,806,098        11.0

Emily Street Enterprises, L.L.C.

  Business Services   Senior Secured Note 10.00% Cash, 1/23/2020   $ 8,400,000        8,305,033        8,568,000        6.8

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

  Business Services   Warrant Membership Interests     49,318        400,000        577,020        0.5

Finalsite Holdings, Inc.

  Business Services   Second Lien Term Loan 10.25% Cash, 5/21/2020   $ 7,500,000        7,440,729        7,500,000        6.0

Help/Systems Holdings, Inc. (Help/Systems, LLC)

  Business Services   First Lien Term Loan 6.25% Cash, 10/8/2021   $ 5,000,000        4,904,573        4,895,000        3.9

Help/Systems Holdings, Inc. (Help/Systems, LLC)

  Business Services   Second Lien Term Loan 10.50% Cash, 10/8/2022   $ 3,000,000        2,912,784        2,910,000        2.3

Identity Automation Systems (g)

  Business Services   Common Stock Class A Units     232,616        232,616        427,409        0.3

Identity Automation Systems

  Business Services   First Lien Term Loan 10.25% Cash, 12/18/2020   $ 6,900,000        6,842,573        6,900,000        5.5

Identity Automation Systems (j), (k)

  Business Services   Delayed Draw Term Loan 10.25% Cash, 12/18/2020   $ —          —          —          0.0

Knowland Technology Holdings, L.L.C.

  Business Services   First Lien Term Loan 8.00% Cash, 11/29/2017   $ 5,259,171        5,224,422        5,259,171        4.2

PCF Number 4, Inc.

  Business Services   Second Lien Term Loan 13.50% (12.50% Cash/1.00% PIK), 8/28/2021   $ 13,000,000        12,870,023        12,870,000        10.3

Vector Controls Holding Co., LLC (d)

  Business Services   First Lien Term Loan, 14.00% (12.00% Cash/2.00% PIK), 3/6/2018   $ 9,035,515        8,952,442        9,035,515        7.2

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

  Business Services   Warrants to Purchase Limited Liability Company Interests     343        —          354,819        0.3
       

 

 

   

 

 

   

 

 

 
    Total Business Services       106,950,466        105,976,044        84.6
       

 

 

   

 

 

   

 

 

 

Advanced Air & Heat of Florida, LLC

  Consumer Products   First Lien Term Loan 9.50% Cash, 7/17/2020   $ 6,800,000        6,733,661        6,800,000        5.4

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

  Consumer Products   Common Stock     210,456        1,791,242        —          0.0

Targus Holdings, Inc. (d)

  Consumer Products   Second Lien Term Loan A-2 15.00% PIK, 12/31/2019   $ 210,456        210,456        210,456        0.2

Targus Holdings, Inc. (d)

  Consumer Products   Second Lien Term Loan B 15.00% PIK, 12/31/2019   $ 631,369        631,369        631,369        0.5
       

 

 

   

 

 

   

 

 

 
    Total Consumer Products       9,366,728        7,641,825        6.1
       

 

 

   

 

 

   

 

 

 

Expedited Travel L.L.C. (g)

  Consumer Services   Common Stock     1,000,000        1,000,000        1,647,767        1.3

Expedited Travel L.L.C.

  Consumer Services   First Lien Term Loan 10.00% Cash, 10/10/2019   $ 11,475,490        11,401,380        11,647,623        9.3

My Alarm Center, LLC

  Consumer Services   Second Lien Term Loan 12.00% Cash, 7/9/2019   $ 7,500,000        7,500,000        7,450,500        6.0

PrePaid Legal Services, Inc. (d)

  Consumer Services   First Lien Term Loan 6.50% Cash, 7/1/2019   $ 1,572,921        1,562,787        1,556,248        1.2

PrePaid Legal Services, Inc. (d)

  Consumer Services   Second Lien Term Loan 10.25% Cash, 7/1/2020   $ 10,000,000        9,962,104        9,827,000        7.9

Prime Security Services, LLC

  Consumer Services   Second Lien Term Loan 9.75% Cash, 7/1/2022   $ 12,000,000        11,829,030        10,980,000        8.8
       

 

 

   

 

 

   

 

 

 
    Total Consumer Services       43,255,301        43,109,138        34.5
       

 

 

   

 

 

   

 

 

 

M/C Acquisition Corp., L.L.C. (d), (g)

  Education   Class A Common Stock     544,761        30,241        —          0.0

M/C Acquisition Corp., L.L.C. (d)

  Education   First Lien Term Loan 1.00% Cash, 3/31/2016   $ 2,321,073        1,193,790        8,087        0.0

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

  Education   Common Stock     750        750,000        785,475        0.6

Texas Teachers of Tomorrow, LLC

  Education   Second Lien Term Loan 10.75% Cash, 6/2/2021   $ 10,000,000       9,902,816        9,900,000        7.9
       

 

 

   

 

 

   

 

 

 
    Total Education       11,876,847        10,693,562        8.5
       

 

 

   

 

 

   

 

 

 

TM Restaurant Group L.L.C.

  Food and Beverage   First Lien Term Loan 9.75% Cash, 7/16/2017   $ 9,622,319        9,527,041        9,131,048        7.3
       

 

 

   

 

 

   

 

 

 
    Total Food and Beverage       9,527,041        9,131,048        7.3
       

 

 

   

 

 

   

 

 

 

Bristol Hospice, LLC

  Healthcare Services   Senior Secured Note 11.00% (10.00% Cash/1.00% PIK), 11/29/2018   $ 5,404,747        5,339,820        5,404,747        4.3

Censis Technologies, Inc.

  Healthcare Services   First Lien Term Loan B 11.00% Cash, 7/24/2019   $ 11,550,000        11,377,810        11,459,418        9.2

Censis Technologies, Inc. (g), (h)

  Healthcare Services   Limited Partner Interests     999        999,000        810,642        0.7

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

  Healthcare Services   Common Stock     5,000        500,000        334,000        0.3

Roscoe Medical, Inc.

  Healthcare Services   Second Lien Term Loan 11.25% Cash, 9/26/2019   $ 4,200,000        4,141,519        3,822,000        3.0

Ohio Medical, LLC (g)

  Healthcare Services   Common Stock     5,000        500,000        500,000        0.4

Ohio Medical, LLC

  Healthcare Services   Senior Subordinated Note 12.00%, 7/15/2021   $ 7,300,000        7,228,452        7,227,000        5.8

Smile Brands Group Inc. (d)

  Healthcare Services   Syndicated Loan 10.50% (9.00% Cash/1.50% PIK), 8/16/2019   $ 4,420,900        4,362,266        3,216,647        2.6

Zest Holdings, LLC (d)

  Healthcare Services   Syndicated Loan 5.25% Cash, 8/16/2020   $ 4,207,821        4,142,093        4,130,692        3.3
       

 

 

   

 

 

   

 

 

 
    Total Healthcare Services       38,590,960        36,905,146        29.6
       

 

 

   

 

 

   

 

 

 

HMN Holdco, LLC

  Media   First Lien Term Loan 10.00% Cash, 5/16/2019   $ 8,937,982        8,812,479        8,937,983        7.1

HMN Holdco, LLC

  Media   First Lien Term Loan 10.00% Cash, 5/16/2019   $ 1,600,000        1,572,821        1,600,000        1.3

HMN Holdco, LLC

  Media   Class A Series     4,264        61,647        314,683        0.3

HMN Holdco, LLC

  Media   Class A Warrant     30,320        438,353        1,889,542        1.5

HMN Holdco, LLC (g)

  Media   Warrants to Purchase Limited Liability Company Interests (Common)     57,872        —          3,309,121        2.6

HMN Holdco, LLC (g)

  Media   Warrants to Purchase Limited Liability Company Interests     8,139        —          523,012        0.4
       

 

 

   

 

 

   

 

 

 
    Total Media       10,885,300        16,574,341        13.2
       

 

 

   

 

 

   

 

 

 

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

  Metals   Common Stock     35,000        9,217,564        2,026,150        1.6

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

  Metals   Revolver 10.00% Cash, 3/31/2017   $ 8,500,000        8,500,000        8,500,000        6.8
       

 

 

   

 

 

   

 

 

 
    Total Metals       17,717,564        10,526,150        8.4
       

 

 

   

 

 

   

 

 

 

Mercury Network, LLC

  Real Estate   First Lien Term Loan 9.75% Cash, 4/24/2020   $ 9,025,000        8,944,211        9,025,000        7.2

Mercury Network, LLC (g)

  Real Estate   Common Stock     413,043        413,043        512,173        0.4
       

 

 

   

 

 

   

 

 

 
    Total Real Estate       9,357,254        9,537,173        7.6
       

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliated investments

  

    268,145,090        271,168,186        216.6
       

 

 

   

 

 

   

 

 

 

Control investments - 10.3% (b)

           

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

  Structured Finance Securities   Other/Structured Finance Securities 16.14%, 10/17/2023   $ 30,000,000        13,030,751        12,827,980        10.3
       

 

 

   

 

 

   

 

 

 

Sub Total Control investments

      13,030,751        12,827,980        10.3
       

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS - 226.9% (b)

    $   281,175,841      $ 283,996,166        226.9
       

 

 

   

 

 

   

 

 

 

 

     Principal      Cost      Fair Value      % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 5.6%

           

U.S. Bank Money Market (l)

   $ 7,034,783       $ 7,034,783       $ 7,034,783         5.6
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 7,034,783       $ 7,034,783       $ 7,034,783         5.6
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Represents a non-qualifying investment as defined under Section 55 (a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 5.2% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.
(b) Percentages are based on net assets of $125,149,875 as of February 29, 2016.
(c) Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors (see Note 3 to the consolidated financial statements).
(d) These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).
(e) This investment does not have a stated interest rate that is payable thereon. As a result, the 16.14% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.
(f) As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

Company

   Purchases      Redemptions      Sales
(Cost)
     Interest
Income
     Management
Fee Income
     Net Realized
Gains(Losses)
     Net Unrealized
Depreciation
 

Saratoga Investment Corp. CLO 2013-1, Ltd.

   $ —         $ —         $ —         $ 2,665,648       $ 1,494,779       $ —         $ (1,280,916
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g) Non-income producing at February 29, 2016.
(h) Includes securities issued by an affiliate of the company.
(i) Non-U.S. company. The principal place of business for Polar Holding Company, Ltd. is Canada.
(j) The investment has an unfunded commitment as of February 29, 2016 (see Note 7 to the consolidated financial statements).
(k) The entire commitment was unfunded at February 29, 2016. As such, no interest is being earned on this investment.
(l) Included within cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s Consolidated Statements of Assets and Liabilities as of February 29, 2016.

 

6


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Changes in Net Assets

(unaudited)

 

     For the six months ended
August 31, 2016
    For the six months ended
August 31, 2015
 

INCREASE FROM OPERATIONS:

    

Net investment income

   $ 5,142,330      $ 5,428,114   

Net realized gain from investments

     12,039,655        3,783,193   

Net unrealized depreciation on investments

     (8,622,780     (583,739
  

 

 

   

 

 

 

Net increase in net assets from operations

     8,559,205        8,627,568   
  

 

 

   

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

    

Distributions declared

     (5,963,242     (8,738,812
  

 

 

   

 

 

 

Net decrease in net assets from shareholder distributions

     (5,963,242     (8,738,812
  

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS:

    

Stock dividend distribution

     2,700,351        3,047,190   

Repurchases of common stock

     (1,882,567     (38,981

Offering costs

     —          (237,287
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     817,784        2,770,922   
  

 

 

   

 

 

 

Total increase in net assets

     3,413,747        2,659,678   

Net assets at beginning of period

     125,149,875        122,598,742   
  

 

 

   

 

 

 

Net assets at end of period

   $ 128,563,622      $ 125,258,420   
  

 

 

   

 

 

 

Net asset value per common share

   $ 22.39      $ 22.42   

Common shares outstanding at end of period

     5,740,810        5,586,254   

Distribution in excess of net investment income

   $ (27,038,814   $ (27,216,301

See accompanying notes to consolidated financial statements.

 

7


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

     For the six months ended
August 31, 2016
    For the six months ended
August 31, 2015
 

Operating activities

    

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 8,559,205      $ 8,627,568   

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

    

Payment-in-kind interest income

     (276,597     (828,420

Net accretion of discount on investments

     (254,323     (273,250

Amortization of deferred debt financing costs

     528,850        442,921   

Amortization of premium on notes

     —          (1,040

Net realized gain from investments

     (12,039,655     (3,783,193

Net unrealized depreciation on investments

     8,622,780        583,739   

Proceeds from sales and redemptions of investments

     70,867,907        34,772,774   

Purchase of investments

     (55,728,395     (42,118,806

(Increase) decrease in operating assets:

    

Cash and cash equivalents, reserve accounts

     (5,579,043     6,086,197   

Interest receivable

     (198,008     (220,056

Management fee receivable

     (881     (2,519

Other assets

     38,184        (228,717

Receivable from unsettled trades

     15,097        (100,000

Increase (decrease) in operating liabilities:

    

Base management and incentive fees payable

     689,563        201,285   

Accounts payable and accrued expenses

     (224,033     (260,729

Interest and debt fees payable

     321,439        139,806   

Payable for repurchases of common stock

     (20,957     —     

Directors fees payable

     13,500        (1,500

Due to manager

     115,759        (13,141
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

     15,450,392        3,022,919   
  

 

 

   

 

 

 

Financing activities

    

Borrowings on debt

     —          10,600,000   

Paydowns on debt

     —          (18,200,000

Issuance of notes

     —          8,945,175   

Payments of deferred debt financing costs

     (313,400     (350,607

Repurchases of common stock

     (1,882,567     (38,981

Payments of cash dividends

     (2,987,429     (5,362,381
  

 

 

   

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

     (5,183,396     (4,406,794
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     10,266,996        (1,383,875

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     2,440,277        1,888,158   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 12,707,273      $ 504,283   
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid during the period

   $ 3,887,472      $ 3,529,114   

Supplemental non-cash information:

    

Payment-in-kind interest income

   $ 276,597      $ 828,420   

Net accretion of discount on investments

   $ 254,323      $ 273,250   

Amortization of deferred debt financing costs

   $ 528,850      $ 442,921   

Stock dividend distribution

   $ 2,700,351      $ 3,047,190   

See accompanying notes to consolidated financial statements.

 

8


Table of Contents

SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2016

(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 (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 to be treated as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code (the “Code”). The Company expects to continue to qualify and to elect to be treated, for tax purposes, as a RIC. The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation from its investments.

GSC Investment, LLC (the “LLC”) was organized in May 2006 as a Maryland limited liability company. As of February 28, 2007, the LLC had not yet commenced its operations and investment activities.

On March 21, 2007, the Company was incorporated and concurrently therewith the LLC was merged with and into the Company, with the Company as the surviving entity, in accordance with the procedure for such merger in the LLC’s limited liability company agreement and Maryland law. In connection with such merger, each outstanding limited liability company interest of the LLC was converted into a share of common stock of the Company.

On July 30, 2010, the Company changed its name from “GSC Investment Corp.” to “Saratoga Investment Corp.” in connection with the consummation of a recapitalization transaction.

The Company is externally managed and advised by the investment adviser, Saratoga Investment Advisors, LLC (the “Manager”), pursuant to a management agreement (the “Management Agreement”). Prior to July 30, 2010, the Company was managed and advised by GSCP (NJ), L.P.

The Company has established wholly-owned subsidiaries, SIA Avionte, Inc., SIA Mercury, Inc., SIA TT, Inc., and SIA Vector, Inc., which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass through entities). Tax blockers are consolidated for accounting purposes, but are not consolidated for income tax purposes and may incur income tax expense 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 April 2, 2015, the SBA issued a “green light” letter inviting the Company to continue the application process to obtain a license to form and operate its second SBIC subsidiary. On September 27, 2016, the SBA informed us that as part of their continued review of our application for a second license, and in order to ensure that they were reviewing the most current information available, we would need to update all previously submitted materials and invited us to reapply. As a result of this request, with which we are in the process of complying, the existing “green light” letter that the SBA issued to us will expire. If approved in the future, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue up to $150.0 million of additional SBA-guaranteed debentures in addition to the $150.0 million already approved under the first license.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), are stated in U.S. Dollars and include the accounts of the Company and its special purpose financing subsidiary, Saratoga Investment Funding, LLC (previously known as GSC Investment Funding LLC). 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.

 

9


Table of Contents

The Company and SBIC LP are both 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 Topic 946”). There have been no changes to the Company or SBIC LP’s status as investment companies during the six months ended August 31, 2016.

Use of Estimates in the Preparation of Financial Statements

The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and income, gains (losses) and expenses during the period reported. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value. Per section 12(d)(1)(A) of the 1940 Act, the Company may not invest in another registered investment company such as a money market fund if such investment would cause the Company to exceed any of the following limitations:

 

    we were to own more than 3.0% of the total outstanding voting stock of the money market fund;

 

    we were to hold securities in the money market fund having an aggregate value in excess of 5.0% of the value of our total assets; or

 

    we were to hold securities in money market funds and other registered investment companies and BDCs having an aggregate value in excess of 10.0% of the value of our total assets.

As of August 31, 2016, the Company did not exceed any of these limitations.

Cash and Cash Equivalents, Reserve Accounts

Cash and cash equivalents, reserve accounts include amounts held in designated bank accounts, in the form of cash and short-term liquid investments in money market funds, representing payments received on secured investments or other reserved amounts associated with our $45.0 million senior secured revolving credit facility with Madison Capital Funding LLC. The Company is required to use these amounts to pay interest expense, reduce borrowings, or pay other amounts in accordance with the terms of the senior secured revolving credit facility.

In addition, cash and cash equivalents, reserve accounts also include amounts held in designated bank accounts, in the form of cash and short-term liquid investments in money market funds, within our wholly-owned subsidiary, SBIC LP.

Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which we own more than 25.0% of the voting securities or maintain greater than 50.0% of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which we own between 5.0% and 25.0% of the voting securities. Under the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.

Investment Valuation

The Company accounts for its investments at fair value in accordance with the FASB ASC Topic 820, Fair Value 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 at the balance sheet date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

 

10


Table of Contents

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from our Manager, the audit committee of our board of directors and a third party independent valuation firm. Determinations of fair value may involve subjective judgments and estimates. The types of factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow and other relevant factors.

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 our Manager and preliminary valuation conclusions are documented and discussed with the senior management of our Manager; and

 

    An independent valuation firm, engaged by our board of directors, reviews a selection of these preliminary valuations each quarter so that the valuation of each investment for which market quotes are not readily available is reviewed by the independent valuation firm at least once each fiscal year.

In addition, all our investments are subject to the following valuation process:

 

    The audit committee of our board of directors reviews and approves each preliminary valuation and our Manager and independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee; and

 

    Our board of directors discusses the valuations and approves the fair value of each investment, in good faith, based on the input of our Manager, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

Our investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”) is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by our Manager and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. 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.

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. Our 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.

Derivative Financial Instruments

We account for derivative financial instruments in accordance with 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 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.

 

11


Table of Contents

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.

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.

Other Income

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

Payment-in-Kind Interest

The Company holds debt 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.

Deferred Debt Financing Costs

Financing costs incurred in connection with our credit facility and notes are deferred and amortized using the straight line method over the life of the respective facility and debt securities. Financing costs incurred in connection with our SBA debentures are deferred and amortized using the effective yield method over the life of the debentures.

Accounting Standards Update (“ASU”) 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company has adopted the provisions of ASU 2015-03 as of February 28, 2015, by reclassifying deferred debt financing costs from within total assets to within total liabilities as a contra-liability. Prior period amounts were reclassified to conform to the current period presentation.

Contingencies

In the ordinary course of business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote. Therefore, the Company has not accrued any liabilities in connection with such indemnifications.

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 filed an election to be treated, for tax purposes, as a RIC under Subchapter M of the Code and, among other things, intends to make the requisite distributions to its stockholders which will relieve the Company from federal income taxes. Therefore, no provision has been recorded for federal income taxes.

In order to qualify as a RIC, among other requirements, the Company is required to timely distribute to its stockholders at least 90.0% of its investment company taxable income, as defined by the Code, for each fiscal tax year. The Company will be subject to a nondeductible U.S. federal excise tax of 4.0% on undistributed income if it does not distribute at least 98.0% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31.

 

12


Table of Contents

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4.0% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.

In accordance with certain applicable U.S. Treasury regulations and private letter rulings issued by the Internal Revenue Service (“IRS”), a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC subject to a limitation on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20.0% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash will receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20.0% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock.

ASC 740, Income Taxes, (“ASC 740”), provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense on the consolidated statements of operations. During the fiscal year ended February 29, 2016, the Company did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. The 2013, 2014 and 2015 federal tax years for the Company remain subject to examination by the IRS. As of August 31, 2016 and February 29, 2016, there were no uncertain tax positions. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change significantly in the next 12 months.

Dividends

Dividends to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the board of directors. Net realized capital gains, if any, are generally distributed at least annually, although we may decide to retain such capital gains for reinvestment.

We have adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of our dividend distributions on behalf of our stockholders unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare a cash dividend, then our stockholders who have not “opted out” of the DRIP by the dividend record date will have their cash dividends automatically reinvested into additional shares of our common stock, rather than receiving the cash dividends. We have the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator.

Capital Gains Incentive Fee

The Company records an expense accrual on the consolidated statements of operations, relating to the capital gains incentive fee payable on the consolidated statements of assets and liabilities, by the Company to its investment adviser when the net realized and unrealized gain on its investments exceed all net realized and unrealized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the investment adviser if the Company were to liquidate its investment portfolio at such time. The actual incentive fee payable to the Company’s investment adviser 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, net of realized and unrealized losses for the period.

New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Amendments to the Leases (“ASC Topic 842”), which will require for all operating leases the recognition of a right-of-use asset and a lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. This guidance is effective for annual and interim periods beginning after December 15, 2018. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (1) the

 

13


Table of Contents

classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management is currently evaluating the impact the adoption of this standard has on the Company’s consolidated financial statements and disclosures.

In August 2014, the FASB issued new accounting guidance that requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments provide a definition of the term “substantial doubt” and include principles for considering the mitigating effect of management’s plans. The amendments also require an evaluation every reporting period, including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued), and certain disclosures when substantial doubt is alleviated or not alleviated. The amendments in this update are effective for reporting periods ending after December 15, 2016. Management does not believe these changes will have a material impact on the Company’s consolidated financial statements and disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In May 2016, ASU 2016-12 amended ASU 2014-09 and deferred the effective period to December 15, 2017. Management is currently evaluating the impact these changes will have 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. ASC 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

 

    Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

    Level 2—Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.

 

   

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs used in the determination of fair value may require significant management judgment or estimation. Such

 

14


Table of Contents
 

information may be the result of consensus pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by a disclaimer would result in classification as a Level 3 asset, assuming no additional corroborating evidence.

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, 2016 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

Syndicated loans

   $ —         $ —         $ 9,516       $ 9,516   

First lien term loans

     —           —           153,276         153,276   

Second lien term loans

     —           —           87,024         87,024   

Structured finance securities

     —           —           11,917         11,917   

Equity interests

     —           —           11,071         11,071   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ 272,804       $ 272,804   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents fair value measurements of investments, by major class, as of February 29, 2016 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

Syndicated loans

   $ —         $ —         $ 11,868       $ 11,868   

First lien term loans

     —           —           144,643         144,643   

Second lien term loans

     —           —           88,178         88,178   

Structured finance securities

     —           —           12,828         12,828   

Equity interests

     —           —           26,479         26,479   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ 283,996       $ 283,996   
  

 

 

    

 

 

    

 

 

    

 

 

 

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, 2016 (dollars in thousands):

 

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

Balance as of February 29, 2016

   $ 11,868      $ 144,643      $ 88,178      $ 12,828      $ 26,479      $ 283,996   

Net unrealized appreciation (depreciation) on investments

     2,100        217        1,076        1,171        (13,187     (8,623

Purchases and other adjustments to cost

     51        44,689        10,899        —          620        56,259   

Sales and redemptions

     (4,556     (36,518     (13,269     (2,082     (14,443     (70,868

Net realized gain from investments

     53        245        140        —          11,602        12,040   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of August 31, 2016

   $ 9,516      $ 153,276      $ 87,024      $ 11,917      $ 11,071      $ 272,804   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK.

Sales and redemptions 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.

 

15


Table of Contents

The net change in unrealized appreciation (depreciation) for the six months ended August 31, 2016 on investments still held as of August 31, 2016 was $1,772,281 and is included in net unrealized depreciation on investments in the consolidated statements of operations.

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, 2015 (dollars in thousands):

 

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

Balance as of February 28, 2015

   $ 18,302      $ 145,207      $ 35,603      $ 4,230      $ 17,031      $ 20,165      $ 240,538   

Net unrealized appreciation (depreciation) on investments

     (1,400     (726     76        656        1,372        (562     (584

Purchases and other adjustments to cost

     20        25,217        16,901        668        —          413        43,219   

Sales and redemptions

     (356     (13,050     (10,673     (5,784     (1,649     (3,260     (34,772

Net realized gain from investments

     5        94        164        261        —          3,260        3,784   

Restructures in

     —          —          —          101        —          —          101   

Restructures out

     —          —          —          —          —          (101     (101
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of August 31, 2015

   $ 16,571      $ 156,742      $ 42,071      $ 132      $ 16,754      $ 19,915      $ 252,185   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK.

Sales and redemptions 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.

The net change in unrealized appreciation (depreciation) for the six months ended August 31, 2015 on investments still held as of August 31, 2015 was $(955,584) and was included in net unrealized depreciation on investments in the consolidated statements of operations.

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of August 31, 2016 were as follows (dollars in thousands):

 

     Fair Value      Valuation Technique    Unobservable Input    Range

Syndicated loans

     9,516       Market Comparables    Third-Party Bid (%)    0.0% - 100.0%

First lien term loans

     153,276       Market Comparables    Market Yield (%)    6.3% - 15.8%
         EBITDA Multiples (x)    1.0x - 9.8x
         Third-Party Bid (%)    95.0% - 99.9%

Second lien term loans

     87,024       Market Comparables    Market Yield (%)    8.3% - 15.0%
         Third-Party Bid (%)    95.0% - 101.4%

Structured finance securities

     11,917       Discounted Cash Flow    Discount Rate (%)    18.0%

Equity interests

     11,071       Market Comparables    EBITDA Multiples (x)

Revenue Multiples (x)

   2.5x - 11.4x

0.2x - 3.4x

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of February 29, 2016 were as follows (dollars in thousands):

 

     Fair Value      Valuation Technique    Unobservable Input    Range

Syndicated loans

     11,868       Market Comparables    Third-Party Bid (%)    72.5% - 98.2%

First lien term loans

     144,643       Market Comparables    Market Yield (%)    6.8% - 15.5%
         EBITDA Multiples (x)    1.0x
         Revenue Multiples

Third-Party Bid (%)

   91.3% - 98.9%

Second lien term loans

     88,178       Market Comparables    Market Yield (%)    0.0% - 15.0%
         Third-Party Bid (%)    91.5% - 98.6%

Structured finance securities

     12,828       Discounted Cash Flow    Discount Rate (%)    20.0%

Equity interests

     26,479       Market Comparables    EBITDA Multiples (x)

Revenue Multiples

   6.8x - 16.4x

 

16


Table of Contents

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 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, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing a market quote in deriving a value, a significant increase (decrease) in the market quote, in isolation, would result in a significantly higher (lower) fair value measurement.

The composition of our investments as of August 31, 2016, at amortized cost and fair value were 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
 

Syndicated loans

   $ 9,687         3.5   $ 9,516         3.5

First lien term loans

     154,662         55.5        153,276         56.2   

Second lien term loans

     87,256         31.3        87,024         31.9   

Structured finance securities

     10,948         3.9        11,917         4.4   

Equity interests

     16,054         5.8        11,071         4.0   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 278,607         100.0   $ 272,804         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The composition of our investments as of February 29, 2016, at amortized cost and fair value were 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
 

Syndicated loans

   $ 14,138         5.0   $ 11,868         4.2

First lien term loans

     146,246         52.0        144,643         50.9   

Second lien term loans

     89,486         31.9        88,178         31.1   

Structured finance securities

     13,031         4.6        12,828         4.5   

Equity interests

     18,275         6.5        26,479         9.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 281,176         100.0   $ 283,996         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

For loans and debt securities for which market quotations are not available, we determine their fair value based on third party indicative broker quotes, where available, or the assumptions that a hypothetical market participant would use to value the security in a current hypothetical sale using a market yield valuation methodology. In applying the market yield valuation methodology, we determine the fair value based on such factors as market participant assumptions including synthetic credit ratings, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date. If, in our judgment, the market yield methodology is not sufficient or appropriate, we may use additional methodologies such as an asset liquidation or expected recovery model.

For equity securities of portfolio companies and partnership interests, we determine the fair value based on the market approach with value then attributed to equity or equity like securities using the enterprise value waterfall valuation methodology. Under the enterprise value waterfall valuation methodology, we determine the enterprise fair value of the portfolio company and then waterfall the enterprise value over the portfolio company’s securities in order of their preference relative to one another. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio

 

17


Table of Contents

company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities. We also take into account historical and anticipated financial results.

Our investment in Saratoga CLO is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by our Manager and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rate and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. For the quarter ended November 30, 2013, in connection with the refinancing of the Saratoga CLO liabilities, we ran Intex models based on assumptions about the refinanced Saratoga CLO’s structure, including capital structure, cost of liabilities and reinvestment period. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flow analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO at August 31, 2016. The significant inputs for the valuation model include:

 

    Default rates: 2.0%

 

    Recovery rates: 35-70%

 

    Prepayment rate: 20.0%

 

    Reinvestment rate / price: L+375bps / $99.50

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

On January 22, 2008, we invested $30.0 million in all of the outstanding subordinated notes of GSC Investment Corp. CLO 2007, Ltd., a collateralized loan obligation fund managed by us that invests primarily in senior secured loans. Additionally, we entered into a collateral management agreement with GSC Investment Corp. CLO 2007, Ltd. pursuant to which we act as collateral manager to it. The Saratoga CLO was refinanced in October 2013 and its reinvestment period ends in October 2016. The Saratoga CLO remains 100% owned and managed by Saratoga Investment Corp. We receive a base management fee of 0.25% and a subordinated management fee of 0.25% of the fee basis amount at the beginning of the collection period, paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20.0% of the remaining interest proceeds and principal proceeds, if any, after the subordinated notes have realized the incentive management fee target return of 12.0%, in accordance with the priority of payments after making the prior distributions on the relevant payment date. For the three months ended August 31, 2016 and August 31, 2015, we accrued $0.4 million and $0.4 million in management fee income, respectively, and $0.6 million and $0.7 million in interest income, respectively, from Saratoga CLO. For the six months ended August 31, 2016 and August 31, 2015, we accrued $0.7 million and $0.8 million in management fee income, respectively, and $1.1 million and $1.3 million in interest income, respectively, from Saratoga CLO. We did not accrue any amounts related to the incentive management fee from Saratoga CLO as the 12.0% hurdle rate has not yet been achieved.

At August 31, 2016, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $11.9 million. The Company determines the fair value of its investment in the subordinated notes of Saratoga CLO based on the present value of the projected future cash flows of the subordinated notes over the life of Saratoga CLO. At August 31, 2016, Saratoga CLO had investments with a principal balance of $299.5 million and a weighted average spread over LIBOR of 4.41%, and had debt with a principal balance of $282.4 million with a weighted average spread over LIBOR of 1.84%. As a result, Saratoga CLO earns a “spread” between the interest income it receives on its investments and the interest expense it pays on its debt and other operating expenses, which is distributed quarterly to the Company as the holder of its subordinated notes. At August 31, 2016, the present value of the projected future cash flows of the subordinated notes was approximately $11.9 million, using an 18.0% discount rate. Saratoga Investment Corp. invested $32.8 million into the CLO since January 2008, and to date has since received distributions of $47.9 million and management fees of $15.7 million.

 

18


Table of Contents

Below is certain financial information from the separate financial statements of Saratoga CLO as of August 31, 2016 (unaudited) and February 29, 2016 and for the three and six months ended August 31, 2016 and August 31, 2015 (unaudited).

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities

 

     As of  
     August 31, 2016     February 29, 2016  
     (unaudited)        

ASSETS

    

Investments

    

Fair Value Loans (amortized cost of $296,436,508 and $300,112,538, respectively)

   $ 290,944,255      $ 284,652,926   

Fair Value Other/Structured finance securities (amortized cost of $3,531,218 and $3,531,218, respectively)

     12,901        191,863   
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $299,967,726 and $303,643,756, respectively)

     290,957,156        284,844,789   

Cash and cash equivalents

     5,172,517        2,349,633   

Receivable from open trades

     2,242,500        2,691,831   

Interest receivable

     1,782,055        1,698,562   
  

 

 

   

 

 

 

Total assets

   $ 300,154,228      $ 291,584,815   
  

 

 

   

 

 

 

LIABILITIES

    

Interest payable

   $ 836,806      $ 626,040   

Payable from open trades

     4,983,454        7,123,854   

Accrued base management fee

     85,448        85,008   

Accrued subordinated management fee

     85,448        85,008   

Class A-1 Notes - SIC CLO 2013-1, Ltd.

     170,000,000        170,000,000   

Discount on Class A-1 Notes - SIC CLO 2013-1, Ltd.

     (1,230,503     (1,319,258

Class A-2 Notes - SIC CLO 2013-1, Ltd.

     20,000,000        20,000,000   

Discount on Class A-2 Notes - SIC CLO 2013-1, Ltd.

     (127,550     (136,750

Class B Notes - SIC CLO 2013-1, Ltd.

     44,800,000        44,800,000   

Discount on Class B Notes - SIC CLO 2013-1, Ltd.

     (828,565     (888,328

Class C Notes - SIC CLO 2013-1, Ltd.

     16,000,000        16,000,000   

Discount on Class C Notes - SIC CLO 2013-1, Ltd.

     (515,869     (553,078

Class D Notes - SIC CLO 2013-1, Ltd.

     14,000,000        14,000,000   

Discount on Class D Notes - SIC CLO 2013-1, Ltd.

     (669,638     (717,938

Class E Notes - SIC CLO 2013-1, Ltd.

     13,100,000        13,100,000   

Discount on Class E Notes - SIC CLO 2013-1, Ltd.

     (1,262,461     (1,353,521

Class F Notes - SIC CLO 2013-1, Ltd.

     4,500,000        4,500,000   

Discount on Class F Notes - SIC CLO 2013-1, Ltd.

     (459,180     (492,300

Deferred debt financing costs, SIC CLO 2013-1, Ltd. Notes

     (1,604,034     (1,716,554

Subordinated Notes

     30,000,000        30,000,000   
  

 

 

   

 

 

 

Total liabilities

   $ 311,693,356      $ 313,142,183   
  

 

 

   

 

 

 

Commitments and contingencies

    

NET ASSETS

    

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

   $ 250      $ 250   

Accumulated loss

     (21,557,623     (5,803,406

Net gain (loss)

     10,018,245        (15,754,212
  

 

 

   

 

 

 

Total net assets

     (11,539,128     (21,557,368
  

 

 

   

 

 

 

Total liabilities and net assets

   $   300,154,228      $  291,584,815   
  

 

 

   

 

 

 

 

19


Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Operations

(unaudited)

 

     For the three months ended
August 31
    For the six months ended
August 31
 
     2016     2015     2016      2015  

INVESTMENT INCOME

         

Interest from investments

   $ 4,028,665      $ 3,638,587      $ 7,817,001       $ 7,151,174   

Interest from cash and cash equivalents

     1,938        215        2,709         505   

Other income

     189,836        69,878        433,137         233,993   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total investment income

     4,220,439        3,708,680        8,252,847         7,385,672   
  

 

 

   

 

 

   

 

 

    

 

 

 

EXPENSES

         

Interest expense

     3,608,788        3,013,007        6,889,803         5,859,643   

Professional fees

     20,944        53,177        39,426         112,399   

Miscellaneous fee expense

     14,147        5,763        22,391         10,688   

Base management fee

     187,329        186,576        374,171         375,949   

Subordinated management fee

     187,329        186,576        374,171         375,949   

Trustee expenses

     37,839        36,737        64,527         68,021   

Amortization expense

     239,963        239,963        479,926         479,926   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total expenses

     4,296,339        3,721,799        8,244,415         7,282,575   
  

 

 

   

 

 

   

 

 

    

 

 

 

NET INVESTMENT INCOME (LOSS)

     (75,900     (13,119     8,432         103,097   
  

 

 

   

 

 

   

 

 

    

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

         

Net realized gain on investments

     165,854        89,084        221,416         131,645   

Net unrealized appreciation (depreciation) on investments

     467,724        (3,624,214     9,788,397         (3,710,046
  

 

 

   

 

 

   

 

 

    

 

 

 

Net gain (loss) on investments

     633,578        (3,535,130     10,009,813         (3,578,401
  

 

 

   

 

 

   

 

 

    

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ 557,678      $ (3,548,249   $ 10,018,245       $ (3,475,304
  

 

 

   

 

 

   

 

 

    

 

 

 

 

20


Table of Contents

Saratoga Investment Corp. CLO 2013-1 Ltd.

Schedule of Investments

August 31, 2016

(unaudited)

 

Issuer Name

 

Industry

 

Asset Name

  Asset
Type
  Current
Rate
    Maturity
Date
    Principal/
Number
of Shares
    Cost     Fair Value  

Education Management II, LLC

  Leisure Goods/Activities/Movies   A-1 Preferred Shares   Equity     0.00       6,692      $ 669,214      $ 1,673   

Education Management II, LLC

  Leisure Goods/Activities/Movies   A-2 Preferred Shares   Equity     0.00       18,975        1,897,538        —     

New Millennium Holdco, Inc.

  Healthcare & Pharmaceuticals   Common Stock   Equity     0.00       14,813        964,466        11,228   

24 Hour Holdings III, LLC

  Leisure Goods/Activities/Movies   Term Loan   Loan     4.75     5/28/2021      $ 490,000        486,449        475,912   

ABB Con-Cise Optical Group, LLC

  Healthcare & Pharmaceuticals   Term Loan B   Loan     6.00     5/28/2021      $ 2,000,000        1,987,793        2,006,260   

Acosta Holdco, Inc.

  Media   Term Loan B1   Loan     4.25     9/26/2021      $ 1,965,125        1,953,132        1,910,259   

Aspen Dental Management, Inc.

  Healthcare & Pharmaceuticals   Term Loan Initial   Loan     5.50     4/29/2022      $ 1,492,481        1,488,165        1,502,749   

Advantage Sales & Marketing, Inc.

  Services: Business   Delayed Draw Term Loan   Loan     4.25     7/25/2021      $ 2,458,719        2,455,834        2,438,434   

Aegis Toxicology Science Corporation

  Healthcare & Pharmaceuticals   Term B Loan   Loan     5.50     2/24/2021      $ 2,476,183        2,336,688        2,228,565   

Agrofresh, Inc.

  Food Services   Term Loan   Loan     5.75     7/30/2021      $ 1,980,000        1,971,495        1,950,300   

Akorn, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     5.25     4/16/2021      $ 398,056        396,816        401,539   

Albertson’s LLC

  Retailers (Except Food and Drugs)   Term Loan B-4   Loan     4.50     8/25/2021      $ 2,903,452        2,893,319        2,915,327   

Alere Inc. (fka IM US Holdings, LLC)

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.25     6/20/2022      $ 922,606        920,608        911,073   

Alion Science and Technology Corporation

  High Tech Industries   Term Loan B (First Lien)   Loan     5.50     8/19/2021      $ 2,970,000        2,957,287        2,821,500   

Alliance Healthcare Services, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.25     6/3/2019      $ 989,713        985,285        942,701   

APCO Holdings, Inc.

  Automotive   Term Loan   Loan     7.00     1/31/2022      $ 1,987,500        1,934,566        1,937,813   

American Beacon Advisors, Inc.

  Financial Intermediaries   Term Loan (First Lien)   Loan     5.50     4/30/2022      $ 242,065        241,040        239,192   

Aramark Corporation

  Food Products   U.S. Term F Loan   Loan     3.25     2/24/2021      $ 3,134,390        3,134,390        3,143,198   

Asurion, LLC (fka Asurion Corporation)

  Insurance   Incremental Tranche B-1 Term Loan   Loan     5.00     5/24/2019      $ 2,583,471        2,563,499        2,585,487   

Asurion, LLC (fka Asurion Corporation)

  Insurance   Term Loan B4 (First Lien)   Loan     5.00     8/4/2022      $ 2,446,875        2,436,006        2,445,994   

Auction.com, LLC

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     6.00     5/13/2019      $ 2,732,469        2,732,115        2,725,638   

Avantor Performance Materials Holdings, Inc.

  Chemicals/Plastics   Term Loan   Loan     6.00     6/21/2022      $ 2,000,000        1,993,354        1,996,260   

Bass Pro Group, LLC

  Retailers (Except Food and Drugs)   Term Loan   Loan     4.00     6/5/2020      $ 1,481,250        1,478,758        1,473,222   

Belmond Interfin Ltd.

  Lodging & Casinos   Term Loan   Loan     4.00     3/19/2021      $ 488,750        487,005        484,781   

BJ’s Wholesale Club, Inc.

  Food/Drug Retailers   New 2013 (November) Replacement Loan (First Lien)   Loan     4.50     9/26/2019      $ 1,435,957        1,435,270        1,434,564   

BMC Software

  Technology   Term Loan   Loan     5.00     9/10/2020      $ 1,969,697        1,921,390        1,874,501   

Brickman Group Holdings, Inc.

  Brokers/Dealers/Investment Houses   Initial Term Loan (First Lien)   Loan     4.00     12/18/2020      $ 1,468,699        1,457,999        1,459,667   

Brock Holdings III, Inc.

  Industrial Equipment   Term Loan (First Lien)   Loan     6.00     3/16/2017      $ 1,896,531        1,899,778        1,844,376   

BWAY Holding Company

  Leisure Goods/Activities/Movies   Term Loan B   Loan     5.50     8/14/2020      $ 953,811        946,297        956,797   

Camp International Holding Company

  Aerospace and Defense   2013 Replacement Term Loan (First Lien)   Loan     4.75     5/31/2019      $ 1,930,151        1,930,675        1,915,675   

Candy Intermediate Holdings, Inc.

  Beverage, Food & Tobacco   Term Loan   Loan     5.50     6/15/2023      $ 500,000        497,577        499,065   

Capital Automotive L.P.

  Conglomerate   Tranche B-1 Term Loan Facility   Loan     4.00     4/10/2019      $ 1,495,079        1,497,110        1,498,503   

Catalent Pharma Solutions, Inc

  Drugs   Initial Term B Loan   Loan     4.25     5/20/2021      $ 490,001        488,239        492,540   

Cengage Learning Acquisitions, Inc.

  Publishing   Term Loan   Loan     5.25     6/7/2023      $ 1,500,000        1,485,661        1,497,195   

Charter Communications Operating, LLC

  Cable and Satellite Television   Term F Loan   Loan     3.00     12/31/2020      $ 1,617,873        1,613,777        1,618,989   

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term G Loan   Loan     3.75     12/31/2019      $ 1,017,431        993,225        976,520   

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term H Loan   Loan     4.00     1/27/2021      $ 1,872,045        1,824,244        1,793,813   

Cinedigm Digital Funding I, LLC

  Services: Business   Term Loan   Loan     3.75     2/28/2018      $ 160,337        159,733        159,536   

CITGO Petroleum Corporation

  Oil & Gas   Term Loan B   Loan     4.50     7/29/2021      $ 1,974,924        1,954,351        1,939,869   

Communications Sales & Leasing, Inc.

  Telecommunications   Term Loan B (First Lien)   Loan     5.00     10/24/2022      $ 1,980,000        1,969,384        1,980,000   

Consolidated Aerospace Manufacturing, LLC

  Aerospace and Defense   Term Loan (First Lien)   Loan     4.75     8/11/2022      $ 1,437,500        1,430,957        1,336,875   

Concordia Healthcare Corporation

  Healthcare & Pharmaceuticals   Term Loan B   Loan     5.25     10/21/2021      $ 1,990,000        1,892,925        1,881,485   

CPI Acquisition Inc.

  Technology   Term Loan B (First Lien)   Loan     5.50     8/17/2022      $ 1,436,782        1,417,341        1,396,667   

CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)

  Electronics/Electric   Term B Loan   Loan     4.25     11/17/2017      $ 1,556,222        1,556,222        1,536,769   

Crosby US Acquisition Corporation

  Industrial Equipment   Initial Term Loan (First Lien)   Loan     4.00     11/23/2020      $ 731,250        730,594        597,343   

CT Technologies Intermediate Hldgs, Inc

  Healthcare & Pharmaceuticals   Term Loan   Loan     5.25     12/1/2021      $ 1,477,575        1,465,276        1,448,024   

Culligan International Company

  Conglomerate   Dollar Loan (First Lien)   Loan     6.25     12/19/2017      $ 3,767,616        3,716,501        3,692,264   

Culligan International Company

  Conglomerate   Dollar Loan (Second Lien)   Loan     9.50     6/19/2018      $ 783,162        759,653        752,814   

Cumulus Media Holdings Inc.

  Broadcast Radio and Television   Term Loan   Loan     4.25     12/23/2020      $ 470,093        467,008        326,324   

DAE Aviation (StandardAero)

  Aerospace and Defense   Term Loan   Loan     5.25     7/7/2022      $ 1,985,000        1,976,439        1,990,459   

DCS Business Services, Inc.

  Financial Intermediaries   Term B Loan   Loan     8.75     3/19/2018      $ 2,393,304        2,383,863        2,393,304   

Dell International, LLC

  Technology   Term Loan B2   Loan     4.00     4/29/2020      $ 2,880,793        2,869,784        2,889,435   

Delta 2 (Lux) S.a.r.l.

  Lodging & Casinos   Term Loan B-3   Loan     4.75     7/30/2021      $ 1,000,000        996,178        994,250   

Deluxe Entertainment Service Group, Inc.

  Leisure Goods/Activities/Movies   Term Loan (First Lien)   Loan     6.50     2/28/2020      $ 1,882,982        1,884,133        1,835,908   

Diamond Resorts International

  Lodging & Casinos   Term Loan   Loan     5.50     5/7/2021      $ 926,971        923,536        925,210   

Diamond Resorts International

  Lodging & Casinos   Term Loan (Add-On)   Loan     5.50     5/7/2021      $ 1,000,000        982,323        996,250   

Diebold, Inc.

  High Tech Industries   Term Loan B   Loan     5.25     11/6/2023      $ 500,000        495,193        501,875   

DJO Finance, LLC

  Healthcare & Pharmaceuticals   Term Loan   Loan     4.25     6/8/2020      $ 495,000        493,182        477,056   

DPX Holdings B.V.

  Healthcare & Pharmaceuticals   Term Loan 2015 Incr Dollar   Loan     4.25     3/11/2021      $ 2,940,000        2,934,157        2,927,152   

Drew Marine Group, Inc.

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.25     11/19/2020      $ 2,456,135        2,432,203        2,400,872   

DTZ U.S. Borrower, LLC

  Construction & Building   Term Loan B Add-on   Loan     4.25     11/4/2021      $ 1,972,519        1,963,587        1,962,045   

Edelman Financial Group, Inc.

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     6.50     12/19/2022      $ 1,492,500        1,464,947        1,495,306   

Education Management II, LLC

  Leisure Goods/Activities/Movies   Term Loan A   Loan     5.50     7/2/2020      $ 501,970        487,043        126,331   

Education Management II, LLC

  Leisure Goods/Activities/Movies   Term Loan B (2.00% Cash/6.50% PIK)   Loan     8.50     7/2/2020      $ 923,048        900,098        38,463   

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.50     8/1/2021      $ 482,159        480,366        482,964   

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     7.75     8/1/2022      $ 500,000        497,983        489,165   

Emerald 2 Limited

  Chemicals/Plastics   Term Loan B1A   Loan     5.00     5/14/2021      $ 1,000,000        992,962        906,670   

Endo International plc

  Healthcare & Pharmaceuticals   Term Loan B   Loan     3.75     9/26/2022      $ 995,000        992,780        989,090   

EnergySolutions, LLC

  Environmental Industries   Term Loan B   Loan     6.75     5/29/2020      $ 795,000        784,320        787,050   

Engility Corporation

  Aerospace and Defense   Term Loan B-1   Loan     4.88     8/12/2020      $ 250,000        248,757        251,408   

Evergreen Acqco 1 LP

  Retailers (Except Food and Drugs)   New Term Loan   Loan     5.00     7/9/2019      $ 960,094        958,777        834,321   

EWT Holdings III Corp. (fka WTG Holdings III Corp.)

  Industrial Equipment   Term Loan (First Lien)   Loan     4.75     1/15/2021      $ 1,957,368        1,953,440        1,962,261   

EWT Holdings III Corp.

  Capital Equipment   Term Loan   Loan     5.50     1/15/2021      $ 997,500        988,228        1,002,488   

Extreme Reach, Inc.

  Media   Term Loan B   Loan     7.25     2/7/2020      $ 3,000,000        2,986,651        3,018,750   

Federal-Mogul Corporation

  Automotive   Tranche C Term Loan   Loan     4.75     4/15/2021      $ 2,940,000        2,929,732        2,799,527   

First Data Corporation

  Financial Intermediaries   First Data T/L Ext (2021)   Loan     4.52     3/24/2021      $ 2,021,537        1,954,630        2,030,149   

First Eagle Investment Management

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     4.75     12/1/2022      $ 1,492,500        1,465,494        1,481,306   

Fitness International, LLC

  Leisure Goods/Activities/Movies   Term Loan B   Loan     5.50     7/1/2020      $ 1,934,146        1,907,268        1,927,376   

FMG Resources (August 2006) Pty LTD (FMG America Finance, Inc.)

  Nonferrous Metals/Minerals   Loan   Loan     3.75     6/28/2019      $ 1,490,966        1,491,981        1,482,109   

Garda World Security Corporation

  Services: Business   Term B Delayed Draw Loan   Loan     4.00     11/6/2020      $ 198,102        197,448        194,883   

Garda World Security Corporation

  Services: Business   Term B Loan   Loan     4.00     11/6/2020      $ 774,398        771,902        761,814   

Gardner Denver, Inc.

  High Tech Industries   Initial Dollar Term Loan   Loan     4.25     7/30/2020      $ 2,438,599        2,433,122        2,312,475   

Gates Global LLC

  Leisure Goods/Activities/Movies   Term Loan (First Lien)   Loan     4.25     7/5/2021      $ 484,156        479,314        476,288   

General Nutrition Centers, Inc.

  Retailers (Except Food and Drugs)   Amended Tranche B Term Loan   Loan     3.25     3/4/2019      $ 2,125,219        2,120,837        2,100,417   

Global Tel*Link Corporation

  Services: Business   Term Loan (First Lien)   Loan     5.00     5/26/2020      $ 2,682,732        2,675,684        2,557,529   

Goodyear Tire & Rubber Company, The

  Chemicals/Plastics   Loan (Second Lien)   Loan     3.75     4/30/2019      $ 2,000,000        1,976,471        2,001,500   

Grosvenor Capital Management Holdings, LP

  Brokers/Dealers/Investment Houses   Initial Term Loan   Loan     3.75     1/4/2021      $ 1,014,560        1,011,209        1,003,572   

GTCR Valor Companies, Inc.

  Services: Business   Term Loan B   Loan     7.00     5/17/2023      $ 1,500,000        1,440,274        1,423,125   

Harland Clarke Holdings Corp. (fka Clarke American Corp.)

  Publishing   Tranche B-4 Term Loan   Loan     6.99     8/2/2019      $ 2,468,750        2,378,555        2,414,758   

Headwaters Incorporated

  Building & Development   Term Loan   Loan     4.50     3/24/2022      $ 247,500        246,448        247,500   

Help/Systems Holdings, Inc.

  High Tech Industries   Term Loan   Loan     6.25     10/8/2021      $ 1,492,500        1,436,471        1,475,709   

Hemisphere Media Holdings, LLC

  Media   Term Loan B   Loan     5.00     7/30/2020      $ 2,500,000        2,506,310        2,493,750   

Hercules Achievement Holdings, Inc.

  Retailers (Except Food and Drugs)   Term Loan B   Loan     5.00     12/10/2021      $ 248,111        245,876        248,731   

Hoffmaster Group, Inc.

  Containers/Glass Products   Term Loan   Loan     5.25     5/8/2020      $ 1,960,000        1,947,036        1,953,885   

Hostess Brand, LLC

  Beverage, Food & Tobacco   Term Loan B (First Lien)   Loan     4.50     8/3/2022      $ 992,500        990,343        997,214   

Huntsman International LLC

  Chemicals/Plastics   Term Loan B (First Lien)   Loan     3.52     4/19/2019      $ 3,305,591        3,286,001        3,308,334   

Husky Injection Molding Systems Ltd.

  Services: Business   Term Loan B   Loan     4.25     6/30/2021      $ 488,709        486,969        486,646   

Imagine! Print Solutions, Inc.

  Media   Term Loan B   Loan     7.00     3/30/2022      $ 498,750        491,671        500,620   

Infor (US), Inc. (fka Lawson Software Inc.)

  Services: Business   Tranche B-5 Term Loan   Loan     3.75     6/3/2020      $ 2,139,810        2,127,549        2,114,667   

Insight Global

  Services: Business   Term Loan   Loan     6.00     10/29/2021      $ 2,468,096        2,456,476        2,471,798   

Informatica Corporation

  High Tech Industries   Term Loan B   Loan     4.50     8/5/2022      $ 496,250        495,133        478,881   

J. Crew Group, Inc.

  Retailers (Except Food and Drugs)   Term B-1 Loan Retired 03/05/2014   Loan     4.00     3/5/2021      $ 950,619        950,619        749,563   

Jazz Acquisition, Inc

  Aerospace and Defense   First Lien 6/14   Loan     4.50     6/19/2021      $ 490,303        489,370        442,253   

J.Jill Group, Inc.

  Retailers (Except Food and Drugs)   Term Loan (First Lien)   Loan     6.00     5/9/2022      $ 990,003        985,698        970,203   

Kinetic Concepts, Inc.

  Healthcare & Pharmaceuticals   Term Loan F-1   Loan     5.00     11/4/2020      $ 2,440,214        2,432,629        2,449,365   

Koosharem, LLC

  Services: Business   Term Loan   Loan     7.50     5/15/2020      $ 2,950,075        2,930,014        2,522,314   

Kraton Polymers, LLC

  Chemicals/Plastics   Term Loan (Initial)   Loan     6.00     1/6/2022      $ 2,500,000        2,268,983        2,501,575   

Lannett Company, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     6.38     11/25/2022      $ 1,950,000        1,887,295        1,908,563   

LPL Holdings

  Banking, Finance, Insurance & Real Estate   Term Loan B (2022)   Loan     4.75     11/21/2022      $ 1,990,000        1,971,963        2,001,204   

McGraw-Hill Global Education Holdings, LLC

  Publishing   Term Loan   Loan     5.00     5/4/2022      $ 1,000,000        995,280        1,004,380   

Mauser Holdings, Inc.

  Containers/Glass Products   Term Loan   Loan     4.50     7/31/2021      $ 491,250        489,428        489,201   

Michaels Stores, Inc.

  Retailers (Except Food and Drugs)   Term B Loan   Loan     3.75     1/28/2020      $ 483,750        483,750        485,496   

Michaels Stores, Inc.

  Retailers (Except Food and Drugs)   Term Loan B-2   Loan     4.00     1/28/2020      $ 1,205,294        1,201,088        1,212,610   

Micro Holding Corporation

  High Tech Industries   Term Loan   Loan     4.75     7/8/2021      $ 987,411        983,240        983,708   

Microsemi Corporation

  Electronics/Electric   Term Loan B   Loan     3.75     1/17/2023      $ 979,015        951,794        985,026   

Midas Intermediate Holdco II, LLC

  Automotive   Term Loan (Initial)   Loan     4.50     8/18/2021      $ 245,625        244,644        246,239   

Milk Specialties Company

  Beverage, Food & Tobacco   Term Loan   Loan     6.00     8/16/2023      $ 1,000,000        990,047        1,001,250   

MSC Software Corporation

  Services: Business   Term Loan   Loan     5.00     5/29/2020      $ 1,980,000        1,937,888        1,960,200   

MWI Holdings, Inc.

  Capital Equipment   Term Loan (First Lien)   Loan     6.50     6/29/2020      $ 3,000,000        2,976,771        2,992,500   

National Veterinary Associates, Inc

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.75     8/14/2021      $ 982,534        979,601        980,893   

National Vision, Inc.

  Retailers (Except Food and Drugs)   Term Loan (Second Lien)   Loan     6.75     3/11/2022      $ 250,000        249,761        232,033   

Neptune Finco (CSC Holdings)

  Cable and Satellite Television   Term Loan   Loan     5.00     10/7/2022      $ 997,500        984,211        1,005,191   

New Millennium Holdco, Inc.

  Healthcare & Pharmaceuticals   Term Loan   Loan     7.50     12/21/2020      $ 1,997,007        1,822,451        948,578   

NorthStar Asset Management Group, Inc.

  Banking, Finance, Insurance & Real Estate   Term Loan B   Loan     4.63     1/30/2023      $ 1,995,000        1,929,403        1,986,681   

Novelis, Inc.

  Conglomerate   Term Loan B   Loan     4.00     6/2/2022      $ 4,747,083        4,726,799        4,755,248   

Novetta Solutions

  Aerospace and Defense   Term Loan (200MM)   Loan     6.00     10/16/2022      $ 1,990,000        1,971,971        1,885,525   

Novetta Solutions

  Aerospace and Defense   Term Loan (2nd Lien)   Loan     9.50     9/29/2023      $ 1,000,000        990,712        920,000   

NPC International, Inc.

  Food Services   Term Loan (2013)   Loan     4.75     12/28/2018      $ 477,298        477,298        477,097   

Numericable U.S., LLC

  Broadcast Radio and Television   Term Loan B-5   Loan     4.56     7/31/2022      $ 992,500        990,344        992,679   

NuSil Technology, LLC

  Chemicals/Plastics   Term Loan   Loan     6.00     4/5/2019      $ 2,782,343        2,767,725        2,776,556   

NVA Holdings, Inc.

  Services: Consumer   Term Loan B1   Loan     4.75     8/14/2021      $ 249,375        248,759        249,375   

Om Group

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     7.00     10/28/2021      $ 997,494        901,636        980,038   

ON Semiconductor Corporation

  High Tech Industries   Term Loan B   Loan     5.25     3/31/2023      $ 500,000        492,859        506,160   

Onex Carestream Finance LP

  Healthcare & Pharmaceuticals   Term Loan (First Lien 2013)   Loan     5.00     6/7/2019      $ 3,723,057        3,713,318        3,534,596   

OnexYork Acquisition Co

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.75     10/1/2021      $ 491,250        488,417        435,984   

OpenLink International, LLC

  Services: Business   Term B Loan   Loan     7.75     7/29/2019      $ 2,929,160        2,928,277        2,912,083   

P.F. Chang’s China Bistro, Inc. (Wok Acquisition Corp.)

  Food/Drug Retailers   Term Borrowing   Loan     4.25     6/24/2019      $ 1,425,174        1,420,371        1,389,545   

P2 Upstream Acquisition Co. (P2 Upstream Canada BC ULC)

  Services: Business   Term Loan (First Lien)   Loan     5.00     10/30/2020      $ 975,000        971,514        909,188   

Petsmart, Inc. (Argos Merger Sub, Inc.)

  Retailers (Except Food and Drugs)   Term Loan B1   Loan     4.25     3/11/2022      $ 987,500        983,257        988,734   

PGX Holdings, Inc.

  Financial Intermediaries   Term Loan   Loan     5.75     9/29/2020      $ 949,643        942,884        946,481   

Phillips-Medisize Corporation

  Healthcare & Pharmaceuticals   Term Loan   Loan     4.75     6/16/2021      $ 490,000        488,213        489,182   

Planet Fitness Holdings LLC

  Leisure Goods/Activities/Movies   Term Loan   Loan     4.50     3/31/2021      $ 2,404,597        2,396,951        2,419,626   

PrePaid Legal Services, Inc.

  Services: Business   Term Loan B   Loan     6.50     7/1/2019      $ 3,393,480        3,397,685        3,389,239   

Presidio, Inc.

  Services: Business   Term Loan   Loan     5.25     2/2/2022      $ 2,391,444        2,335,704        2,384,605   

Prime Security Services (Protection One)

  Services: Business   Term Loan   Loan     4.75     7/1/2021      $ 1,990,000        1,981,620        2,006,915   

Ranpak Holdings, Inc.

  Services: Business   Term Loan   Loan     4.25     10/1/2021      $ 933,627        931,293        920,398   

Ranpak Holdings, Inc.

  Services: Business   Term Loan (Second Lien)   Loan     8.25     10/3/2022      $ 500,000        497,992        460,000   

Redtop Acquisitions Limited

  Electronics/Electric   Initial Dollar Term Loan (First Lien)   Loan     4.50     12/3/2020      $ 487,500        485,218        486,891   

Regal Cinemas Corporation

  Services: Consumer   Term Loan   Loan     3.50     4/1/2022      $ 496,250        495,132        497,987   

Research Now Group, Inc

  Media   Term Loan B   Loan     5.50     3/18/2021      $ 2,048,075        2,039,131        1,986,633   

Rexnord LLC/RBS Global, Inc.

  Industrial Equipment   Term B Loan   Loan     4.00     8/21/2020      $ 1,540,540        1,541,679        1,539,970   

Reynolds Group Holdings Inc.

  Industrial Equipment   Incremental U.S. Term Loan   Loan     4.25     2/6/2023      $ 1,765,548        1,765,548        1,767,208   

Rocket Software, Inc.

  Services: Business   Term Loan (First Lien)   Loan     5.75     2/8/2018      $ 1,891,942        1,883,013        1,894,307   

Rovi Solutions Corporation / Rovi Guides, Inc.

  Electronics/Electric   Tranche B-3 Term Loan   Loan     3.75     7/2/2021      $ 1,470,000        1,464,686        1,460,195   

Royal Adhesives and Sealants

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.50     6/20/2022      $ 495,000        492,827        496,084   

Royal Adhesives and Sealants

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     8.50     6/19/2023      $ 500,000        496,533        492,500   

RPI Finance Trust

  Financial Intermediaries   Term B-4 Term Loan   Loan     3.50     11/9/2020      $ 3,134,220        3,134,220        3,151,207   

Russell Investment Management T/L B

  Banking, Finance, Insurance & Real Estate   Term Loan B   Loan     6.75     6/1/2023      $ 2,000,000        1,880,801        1,883,340   

Sable International Finance Ltd

  Telecommunications   Term Loan B1   Loan     5.50     12/2/2022      $ 825,000        809,076        829,472   

Sable International Finance Ltd

  Telecommunications   Term Loan B2   Loan     5.50     12/2/2022      $ 675,000        661,971        678,659   

SBP Holdings LP

  Industrial Equipment   Term Loan (First Lien)   Loan     5.00     3/27/2021      $ 977,500        974,042        762,450   

Scientific Games International, Inc.

  Electronics/Electric   Term Loan B2   Loan     6.00     10/1/2021      $ 985,000        975,913        984,320   

SCS Holdings (Sirius Computer)

  High Tech Industries   Term Loan (First Lien)   Loan     6.00     10/30/2022      $ 1,977,528        1,941,664        1,988,246   

Seadrill Operating LP

  Oil & Gas   Term Loan B   Loan     4.00     2/21/2021      $ 982,368        921,146        470,721   

Sensus USA Inc.

  Utilities   Term Loan   Loan     6.50     4/5/2023      $ 1,900,135        1,894,785        1,904,885   

ServiceMaster Company, The

  Conglomerate   Tranche B Term Loan   Loan     4.25     7/1/2021      $ 1,965,000        1,950,684        1,976,790   

Shearers Foods LLC

  Food Services   Term Loan (First Lien)   Loan     4.94     6/30/2021      $ 982,500        980,621        976,359   

Sitel Worldwide

  Telecommunications   Term Loan   Loan     6.50     9/18/2021      $ 1,985,000        1,967,812        1,971,760   

Sonneborn, LLC

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.75     12/10/2020      $ 209,075        208,675        209,075   

Sonneborn, LLC

  Chemicals/Plastics   Initial US Term Loan   Loan     4.75     12/10/2020      $ 1,184,756        1,182,493        1,184,757   

Sophia, L.P.

  Electronics/Electric   Term Loan (Closing Date)   Loan     4.75     9/30/2022      $ 1,985,000        1,976,164        1,984,166   

SourceHOV LLC

  Services: Business   Term Loan B (First Lien)   Loan     7.75     10/31/2019      $ 1,887,500        1,848,187        1,506,848   

SRAM, LLC

  Industrial Equipment   Term Loan (First Lien)   Loan     4.00     4/10/2020      $ 2,833,435        2,826,700        2,713,014   

Steak ‘n Shake Operations, Inc.

  Food Services   Term Loan   Loan     4.75     3/19/2021      $ 928,173        921,737        914,250   

SuperMedia Inc. (fka Idearc Inc.)

  Publishing   Loan   Loan     11.60     12/30/2016      $ 200,478        200,451        77,812   

Survey Sampling International

  Services: Business   Term Loan B   Loan     6.00     12/16/2020      $ 2,735,604        2,719,614        2,715,087   

Sybil Finance BV

  High Tech Industries   Term Loan B   Loan     5.00     8/3/2022      $ 1,000,000        995,000        1,000,940   

Sybil Finance BV

  High Tech Industries   Term Loan   Loan     4.25     3/20/2020      $ 1,239,524        1,238,443        1,241,073   

Syniverse Holdings, Inc.

  Telecommunications   Initial Term Loan   Loan     4.00     4/23/2019      $ 468,977        466,513        415,927   

TaxACT, Inc.

  Services: Business   Term Loan B   Loan     7.00     1/3/2023      $ 1,475,000        1,433,967        1,482,375   

Tectum Holdings, Inc.

  Transportation   Delayed Draw Term Loan (Initial)   Loan     5.75     8/24/2023      $ 780,952        770,952        779,702   

Texas Competitive Electric Holdings Company, LLC

  Utilities   Term Loan B   Loan     5.00     10/31/2017      $ 814,286        806,539        817,543   

Texas Competitive Electric Holdings Company, LLC

  Utilities   Term Loan C   Loan     5.00     10/31/2017      $ 185,714        183,948        186,528   

TGI Friday’s, Inc.

  Food Services   Term Loan B   Loan     5.25     7/15/2020      $ 1,651,816        1,648,391        1,643,557   

Townsquare Media, Inc.

  Media   Term Loan B   Loan     4.25     4/1/2022      $ 932,522        928,672        932,522   

TPF II Power LLC and TPF II Covert Midco LLC

  Utilities   Term Loan B   Loan     5.00     10/2/2021      $ 1,423,645        1,369,789        1,429,581   

TransDigm, Inc.

  Aerospace and Defense   Tranche C Term Loan   Loan     3.75     2/28/2020      $ 4,255,246        4,265,475        4,245,076   

Travel Leaders Group, LLC

  Hotel, Gaming and Leisure   Term Loan B   Loan     7.00     12/7/2020      $ 2,667,187        2,652,367        2,647,183   

Tricorbraun, Inc. (fka Kranson Industries, Inc.)

  Containers/Glass Products   Term Loan   Loan     4.00     5/3/2018      $ 2,831,864        2,830,158        2,826,569   

Trugreen Limited Partnership

  Services: Business   Term Loan B   Loan     6.50     4/13/2023      $ 500,000        492,927        503,125   

Twin River Management Group, Inc.

  Lodging & Casinos   Term Loan B   Loan     5.25     7/10/2020      $ 866,521        867,991        869,233   

Univar Inc.

  Chemicals/Plastics   Term B Loan   Loan     4.25     7/1/2022      $ 2,977,500        2,964,666        2,972,170   

Univision Communications Inc.

  Telecommunications   Replacement First-Lien Term Loan   Loan     4.00     3/1/2020      $ 2,901,111        2,890,101        2,899,806   

Valeant Pharmaceuticals International, Inc.

  Drugs   Series D2 Term Loan B   Loan     5.00     2/13/2019      $ 2,468,720        2,459,768        2,464,598   

Verint Systems Inc.

  Services: Business   Term Loan   Loan     3.50     9/6/2019      $ 1,011,464        1,009,003        1,011,717   

Vizient Inc.

  Healthcare & Pharmaceuticals   Term Loan   Loan     6.25     2/13/2023      $ 997,500        969,696        1,008,103   

Vouvray US Finance

  Industrial Equipment   Term Loan   Loan     4.75     6/27/2021      $ 490,000        488,186        488,368   

Washington Inventory Service

  Services: Business   U.S. Term Loan (First Lien)   Loan     5.75     12/20/2018      $ 1,736,393        1,747,098        1,085,246   

Western Digital Corporation

  High Tech Industries   Term Loan B (USD)   Loan     4.50     5/1/2023      $ 1,600,000        1,568,172        1,608,288   

Windstream Services, LLC

  Telecommunications   Term Loan B6   Loan     5.75     3/29/2021      $ 249,375        243,569        250,856   

ZEP, Inc.

  Chemicals/Plastics   Term Loan B   Loan     5.50     6/27/2022      $ 2,970,000        2,957,142        2,971,871   
             

 

 

   

 

 

 
              $ 299,967,726      $ 290,957,156   
             

 

 

   

 

 

 
                            Principal     Cost     Fair Value  

Cash and cash equivalents

               

U.S. Bank Money Market (a)

            $ 5,172,517      $ 5,172,517      $ 5,172,517   
           

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

            $ 5,172,517      $ 5,172,517      $ 5,172,517   
           

 

 

   

 

 

   

 

 

 

 

(a) Included within cash and cash equivalents in Saratoga CLO’s Statements of Assets and Liabilities as of August 31, 2016.

 

 

21


Table of Contents

Saratoga Investment Corp. CLO 2013-1 Ltd.

Schedule of Investments

February 29, 2016

 

Issuer Name

 

Industry

 

Asset

Name

  Asset
Type
  Current
Rate
    Maturity
Date
    Principal /
Number
of Shares
    Cost     Fair Value  

Education Management II, LLC

  Leisure Goods/Activities/Movies   A-1 Preferred Shares   Equity     0.00       6,692      $ 669,214      $ 1,673   

Education Management II, LLC

  Leisure Goods/Activities/Movies   A-2 Preferred Shares   Equity     0.00       18,975        1,897,538        95   

New Millennium Holdco, Inc.

  Healthcare & Pharmaceuticals   Common Stock   Equity     0.00       14,813        964,466        190,095   

24 Hour Holdings III, LLC

  Leisure Goods/Activities/Movies   Term Loan   Loan     4.75     5/28/2021      $ 492,500        488,586        455,154   

Acosta Holdco, Inc.

  Media   Term Loan B1   Loan     4.25     9/26/2021      $ 1,972,936        1,959,834        1,855,389   

Aspen Dental Management, Inc.

  Healthcare & Pharmaceuticals   Term Loan Initial   Loan     5.50     4/29/2022      $ 497,500        495,228        495,221   

Advantage Sales & Marketing, Inc.

  Services: Business   Delayed Draw Term Loan   Loan     4.25     7/25/2021      $ 2,471,231        2,468,039        2,342,826   

Agrofresh, Inc.

  Food Services   Term Loan   Loan     5.75     7/30/2021      $ 1,990,000        1,980,704        1,935,275   

Aegis Toxicology Science Corporation

  Healthcare & Pharmaceuticals   Term B Loan   Loan     5.50     2/24/2021      $ 985,000        985,000        797,850   

Akorn, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     6.00     4/16/2021      $ 398,056        396,681        396,066   

Albertson’s LLC

  Retailers (Except Food and Drugs)   Term Loan B-4   Loan     5.50     8/25/2021      $ 3,384,425        3,367,410        3,302,623   

Alere Inc. (fka IM US Holdings, LLC)

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.25     6/20/2022      $ 927,265        925,091        925,365   

Alion Science and Technology Corporation

  High Tech Industries   Term Loan B (First Lien)   Loan     5.50     8/19/2021      $ 2,985,000        2,971,074        2,824,555   

Alliance Healthcare Services, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.25     6/3/2019      $ 994,856        990,161        906,981   

Alliant Holdings I, LLC

  Banking, Finance, Insurance & Real Estate   Term Loan B (First Lien)   Loan     4.50     8/12/2022      $ 995,000        992,679        960,921   

Alvogen Pharma US, Inc

  Healthcare & Pharmaceuticals   Term Loan   Loan     6.00     4/4/2022      $ 480,447        478,240        456,425   

American Beacon Advisors, Inc.

  Financial Intermediaries   Term Loan (First Lien)   Loan     5.50     4/30/2022      $ 248,749        247,612        244,190   

Aramark Corporation

  Food Products   LC-2 Facility   Loan     0.29     7/26/2016      $ 9,447        9,445        9,305   

Aramark Corporation

  Food Products   LC-3 Facility   Loan     0.29     7/26/2016      $ 5,244        5,244        5,166   

Aramark Corporation

  Food Products   U.S. Term F Loan   Loan     3.25     2/24/2021      $ 3,150,423        3,150,423        3,126,133   

Asurion, LLC (fka Asurion Corporation)

  Insurance   Incremental Tranche B-1 Term Loan   Loan     5.00     5/24/2019      $ 2,596,480        2,573,245        2,441,237   

Asurion, LLC (fka Asurion Corporation)

  Insurance   Term Loan B4 (First Lien)   Loan     5.00     8/4/2022      $ 2,478,125        2,466,303        2,270,582   

Auction.com, LLC

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     6.00     5/13/2019      $ 2,522,992        2,522,722        2,491,455   

Avantor Performance Materials Holdings, Inc.

  Chemicals/Plastics   Term Loan   Loan     5.25     6/24/2017      $ 2,156,953        2,153,896        2,135,384   

Bass Pro Group, LLC

  Retailers (Except Food and Drugs)   Term Loan   Loan     4.00     6/5/2020      $ 1,488,750        1,485,895        1,397,564   

Belmond Interfin Ltd.

  Lodging & Casinos   Term Loan   Loan     4.00     3/19/2021      $ 491,249        489,361        477,127   

Berry Plastics Corporation

  Chemicals/Plastics   Term E Loan   Loan     3.75     1/6/2021      $ 1,314,499        1,305,069        1,291,903   

BJ’s Wholesale Club, Inc.

  Food/Drug Retailers   New 2013 (November) Replacement Loan (First Lien)   Loan     4.50     9/26/2019      $ 1,476,196        1,475,409        1,401,161   

Blue Coat Systems

  Technology   Term Loan B   Loan     4.50     5/20/2022      $ 997,500        995,159        945,131   

BMC Software

  Technology   Term Loan   Loan     5.00     9/10/2020      $ 1,979,798        1,926,080        1,571,821   

Brickman Group Holdings, Inc.

  Brokers/Dealers/Investment Houses   Initial Term Loan (First Lien)   Loan     4.00     12/18/2020      $ 1,476,212        1,464,327        1,426,390   

Brock Holdings III, Inc.

  Industrial Equipment   Term Loan (First Lien)   Loan     6.00     3/16/2017      $ 1,917,168        1,924,101        1,802,138   

Burlington Coat Factory Warehouse Corporation

  Retailers (Except Food and Drugs)   Term B-2 Loan   Loan     4.25     8/13/2021      $ 1,861,667        1,853,426        1,845,843   

BWAY Holding Company

  Leisure Goods/Activities/Movies   Term Loan B   Loan     5.50     8/14/2020      $ 985,000        976,335        930,826   

Caesars Entertainment Corp.

  Lodging & Casinos   Term B-7 Loan   Loan     13.25     3/1/2017      $ 995,000        991,037        814,656   

Camp International Holding Company

  Aerospace and Defense   2013 Replacement Term Loan (First Lien)   Loan     4.75     5/31/2019      $ 1,940,113        1,940,984        1,806,730   

Capital Automotive L.P.

  Conglomerate   Tranche B-1 Term Loan Facility   Loan     4.00     4/10/2019      $ 2,051,828        2,055,060        2,044,564   

Catalent Pharma Solutions, Inc

  Drugs   Initial Term B Loan   Loan     4.25     5/20/2021      $ 492,501        490,549        487,271   

Cengage Learning Acquisitions, Inc.

  Publishing   Term Loan   Loan     7.00     3/31/2020      $ 2,647,871        2,670,807        2,539,758   

Charter Communications Operating, LLC

  Cable and Satellite Television   Term F Loan   Loan     3.00     12/31/2020      $ 2,628,783        2,621,343        2,566,823   

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term G Loan   Loan     3.75     12/31/2019      $ 1,022,569        994,876        974,212   

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term H Loan   Loan     4.00     1/27/2021      $ 1,881,500        1,828,566        1,785,920   

Cinedigm Digital Funding I, LLC

  Services: Business   Term Loan   Loan     3.75     2/28/2018      $ 298,828        297,362        295,840   

CITGO Petroleum Corporation

  Oil & Gas   Term Loan B   Loan     4.50     7/29/2021      $ 1,984,975        1,962,423        1,865,876   

Communications Sales & Leasing, Inc.

  Telecommunications   Term Loan B (First Lien)   Loan     5.00     10/24/2022      $ 1,990,000        1,978,594        1,847,596   

CommScope, Inc.

  Telecommunications   Term Loan B   Loan     3.75     12/29/2022      $ 498,750        497,568        494,176   

Consolidated Aerospace Manufacturing, LLC

  Aerospace and Defense   Term Loan (First Lien)   Loan     4.75     8/11/2022      $ 1,437,500        1,430,556        1,329,688   

Concordia Healthcare Corp

  Healthcare & Pharmaceuticals   Term Loan B   Loan     5.25     10/21/2021      $ 2,000,000        1,894,483        1,920,000   

CPI Acquisition Inc.

  Technology   Term Loan B (First Lien)   Loan     5.50     8/17/2022      $ 1,436,782        1,415,977        1,396,667   

CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)

  Electronics/Electric   Term B Loan   Loan     4.25     11/17/2017      $ 1,564,182        1,564,182        1,501,615   

Crosby US Acquisition Corp.

  Industrial Equipment   Initial Term Loan (First Lien)   Loan     4.00     11/23/2020      $ 735,000        734,245        536,550   

CT Technologies Intermediate Hldgs, Inc

  Healthcare & Pharmaceuticals   Term Loan   Loan     5.25     12/1/2021      $ 1,485,038        1,471,665        1,433,061   

Culligan International Company

  Conglomerate   Dollar Loan (First Lien)   Loan     6.25     12/19/2017      $ 771,625        742,910        721,469   

Culligan International Company

  Conglomerate   Dollar Loan (Second Lien)   Loan     9.50     6/19/2018      $ 783,162        754,065        734,214   

Cumulus Media Holdings Inc.

  Broadcast Radio and Television   Term Loan   Loan     4.25     12/23/2020      $ 470,093        466,690        304,973   

DAE Aviation (StandardAero)

  Aerospace and Defense   Term Loan   Loan     5.25     7/7/2022      $ 1,995,000        1,985,759        1,970,063   

DCS Business Services, Inc.

  Financial Intermediaries   Term B Loan   Loan     8.75     3/19/2018      $ 2,409,739        2,397,948        2,409,739   

Dell International LLC

  Technology   Term Loan B2   Loan     4.00     4/29/2020      $ 2,904,989        2,892,348        2,889,854   

Delta 2 (Lux) S.a.r.l.

  Lodging & Casinos   Term Loan B-3   Loan     4.75     7/30/2021      $ 1,000,000        995,870        925,000   

Deluxe Entertainment Service Group, Inc.

  Leisure Goods/Activities/Movies   Term Loan (First Lien)   Loan     6.50     2/28/2020      $ 1,882,983        1,884,279        1,751,174   

Diamond Resorts International

  Lodging & Casinos   Term Loan   Loan     5.50     5/7/2021      $ 926,971        923,222        897,614   

Diamond Resorts International

  Lodging & Casinos   Term Loan (Add-On)   Loan     5.50     5/7/2021      $ 1,000,000        980,687        968,330   

DJO Finance, LLC

  Healthcare & Pharmaceuticals   Term Loan   Loan     4.25     6/8/2020      $ 497,500        495,435        478,222   

DPX Holdings B.V.

  Healthcare & Pharmaceuticals   Term Loan 2015 Incr Dollar   Loan     4.25     3/11/2021      $ 2,955,000        2,948,456        2,799,863   

Drew Marine Group, Inc.

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.25     11/19/2020      $ 2,472,161        2,445,601        2,299,110   

DTZ U.S. Borrower, LLC

  Construction & Building   Term Loan B Add-on   Loan     4.25     11/4/2021      $ 2,985,000        2,970,317        2,869,331   

Edelman Financial Group, Inc.

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     6.50     12/19/2022      $ 1,500,000        1,470,617        1,459,695   

Education Management II, LLC

  Leisure Goods/Activities/Movies   Term Loan A   Loan     5.50     7/2/2020      $ 501,970        485,313        160,630   

Education Management II, LLC

  Leisure Goods/Activities/Movies   Term Loan B (2.00% Cash/6.50% PIK)   Loan     8.50     7/2/2020      $ 893,447        867,647        56,582   

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.50     8/1/2021      $ 484,659        482,690        473,148   

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     7.75     8/1/2022      $ 500,000        497,844        468,750   

Emerald 2 Limited

  Chemicals/Plastics   Term Loan B1A   Loan     5.00     5/14/2021      $ 1,000,000        991,762        866,670   

Endo International plc

  Healthcare & Pharmaceuticals   Term Loan B   Loan     3.75     9/26/2022      $ 1,000,000        997,602        987,780   

EnergySolutions, LLC

  Environmental Industries   Term Loan B   Loan     6.75     5/29/2020      $ 937,857        923,660        731,528   

Evergreen Acqco 1 LP

  Retailers (Except Food and Drugs)   New Term Loan   Loan     5.00     7/9/2019      $ 965,081        963,406        719,951   

EWT Holdings III Corp. (fka WTG Holdings III Corp.)

  Industrial Equipment   Term Loan (First Lien)   Loan     4.75     1/15/2021      $ 1,967,406        1,962,950        1,908,383   

Federal-Mogul Corporation

  Automotive   Tranche C Term Loan   Loan     4.75     4/15/2021      $ 2,955,000        2,943,580        2,345,530   

First Data Corporation

  Financial Intermediaries   First Data Corp T/L (2018 New Dollar)   Loan     3.93     3/23/2018      $ 2,790,451        2,748,229        2,752,780   

First Data Corporation

  Financial Intermediaries   First Data T/L Ext (2021)   Loan     4.43     3/24/2021      $ 2,111,028        2,034,284        2,077,779   

First Eagle Investment Management

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     4.75     12/1/2022      $ 1,500,000        1,470,946        1,412,504   

Fitness International, LLC

  Leisure Goods/Activities/Movies   Term Loan B   Loan     5.50     7/1/2020      $ 1,976,234        1,945,935        1,850,249   

FMG Resources (August 2006) Pty LTD (FMG America Finance, Inc.)

  Nonferrous Metals/Minerals   Loan   Loan     4.25     6/28/2019      $ 1,962,387        1,962,515        1,504,738   

Garda World Security Corporation

  Services: Business   Term B Delayed Draw Loan   Loan     4.00     11/6/2020      $ 199,120        198,391        187,344   

Garda World Security Corporation

  Services: Business   Term B Loan   Loan     4.00     11/6/2020      $ 778,380        775,586        732,346   

Gardner Denver, Inc.

  High Tech Industries   Initial Dollar Term Loan   Loan     4.25     7/30/2020      $ 2,451,137        2,445,005        2,016,452   

Gates Global LLC

  Leisure Goods/Activities/Movies   Term Loan (First Lien)   Loan     4.25     7/5/2021      $ 493,750        488,813        433,883   

Generac Power Systems, Inc.

  Industrial Equipment   Term Loan B   Loan     3.50     5/31/2020      $ 693,858        684,537        676,511   

General Nutrition Centers, Inc.

  Retailers (Except Food and Drugs)   Amended Tranche B Term Loan   Loan     3.25     3/4/2019      $ 4,131,271        4,121,165        4,012,497   

Global Tel*Link Corporation

  Services: Business   Term Loan (First Lien)   Loan     5.00     5/26/2020      $ 2,725,318        2,717,647        2,237,023   

Goodyear Tire & Rubber Company, The

  Chemicals/Plastics   Loan (Second Lien)   Loan     3.75     4/30/2019      $ 2,000,000        1,974,077        2,005,000   

Grosvenor Capital Management Holdings, LP

  Brokers/Dealers/Investment Houses   Initial Term Loan   Loan     3.75     1/4/2021      $ 1,264,036        1,259,418        1,191,354   

GTCR Valor Companies, Inc.

  Services: Business   Term Loan (First Lien)   Loan     6.00     6/1/2021      $ 1,974,982        1,941,456        1,959,340   

Harland Clarke Holdings Corp. (fka Clarke American Corp.)

  Publishing   Tranche B-4 Term Loan   Loan     6.00     8/2/2019      $ 475,000        473,378        421,561   

HCA Inc.

  Healthcare & Pharmaceuticals   Tranche B-4 Term Loan   Loan     3.36     5/1/2018      $ 2,119,664        2,053,127        2,116,294   

Headwaters Incorporated

  Building & Development   Term Loan   Loan     4.50     3/24/2022      $ 248,750        247,628        248,285   

Hercules Achievement Holdings, Inc.

  Retailers (Except Food and Drugs)   Term Loan B   Loan     5.00     12/10/2021      $ 249,370        246,940        244,929   

Hertz Corporation, The

  Automotive   Tranche B-1 Term Loan   Loan     3.75     3/12/2018      $ 2,910,000        2,933,230        2,879,998   

Hoffmaster Group, Inc.

  Containers/Glass Products   Term Loan   Loan     5.25     5/8/2020      $ 1,970,000        1,955,325        1,915,825   

Hostess Brand, LLC

  Beverage, Food & Tobacco   Term Loan B (First Lien)   Loan     4.50     8/3/2022      $ 997,500        995,241        983,784   

Huntsman International LLC

  Chemicals/Plastics   Term Loan B (First Lien)   Loan     3.52     4/19/2019      $ 3,840,541        3,814,577        3,727,245   

Husky Injection Molding Systems Ltd.

  Services: Business   Term Loan B   Loan     4.25     6/30/2021      $ 491,196        489,277        465,757   

Infor (US), Inc. (fka Lawson Software Inc.)

  Services: Business   Tranche B-5 Term Loan   Loan     3.75     6/3/2020      $ 2,188,296        2,174,333        2,015,049   

Insight Global

  Services: Business   Term Loan   Loan     6.00     10/29/2021      $ 1,979,592        1,971,967        1,961,439   

Informatica Corporation

  High Tech Industries   Term Loan B   Loan     4.50     8/5/2022      $ 498,750        497,554        468,411   

J. Crew Group, Inc.

  Retailers (Except Food and Drugs)   Term B-1 Loan Retired 03/05/2014   Loan     4.00     3/5/2021      $ 955,481        955,481        639,379   

Jazz Acquisition, Inc

  Aerospace and Defense   First Lien 6/14   Loan     4.50     6/19/2021      $ 492,727        491,745        434,832   

J.Jill Group, Inc.

  Retailers (Except Food and Drugs)   Term Loan (First Lien)   Loan     6.00     5/9/2022      $ 995,000        990,362        925,350   

Kinetic Concepts, Inc.

  Healthcare & Pharmaceuticals   Dollar Term D-1 Loan   Loan     4.50     5/4/2018      $ 2,452,586        2,436,004        2,392,645   

Koosharem, LLC

  Services: Business   Term Loan   Loan     7.50     5/15/2020      $ 2,965,050        2,942,458        2,683,370   

Kraton Polymers, LLC

  Chemicals/Plastics   Term Loan (Initial)   Loan     6.00     1/6/2022      $ 2,500,000        2,252,500        2,250,000   

LPL Holdings

  Banking, Finance, Insurance & Real Estate   Term Loan B (2022)   Loan     4.75     11/21/2022      $ 2,000,000        1,980,543        1,900,000   

Mauser Holdings, Inc.

  Containers/Glass Products   Term Loan   Loan     4.50     7/31/2021      $ 493,750        491,750        475,234   

Michaels Stores, Inc.

  Retailers (Except Food and Drugs)   Term B Loan   Loan     3.75     1/28/2020      $ 486,250        486,250        479,792   

Michaels Stores, Inc.

  Retailers (Except Food and Drugs)   Term Loan B-2   Loan     4.00     1/28/2020      $ 1,212,794        1,208,220        1,201,042   

Micro Holding Corp.

  High Tech Industries   Term Loan   Loan     4.75     7/8/2021      $ 992,447        987,851        950,268   

Microsemi Corporation

  Electronics/Electric   Term Loan B   Loan     5.25     1/15/2023      $ 2,183,824        2,119,162        2,180,177   

Midas Intermediate Holdco II, LLC

  Automotive   Term Loan (Initial)   Loan     4.50     8/18/2021      $ 246,875        245,802        244,098   

MPH Acquisition Holdings, LLC

  Healthcare & Pharmaceuticals   Term Loan   Loan     3.75     3/31/2021      $ 376,136        375,400        366,500   

MSC Software Corporation

  Services: Business   Term Loan   Loan     5.00     5/29/2020      $ 985,000        977,601        886,500   

National Veterinary Associates, Inc

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.75     8/14/2021      $ 987,526        984,296        959,549   

National Vision, Inc.

  Retailers (Except Food and Drugs)   Term Loan (Second Lien)   Loan     6.75     3/11/2022      $ 250,000        249,729        218,750   

Neptune Finco (CSC Holdings)

  Cable and Satellite Television   Term Loan   Loan     5.00     10/7/2022      $ 1,000,000        985,784        989,750   

New Millennium Holdco

  Healthcare & Pharmaceuticals   Term Loan   Loan     7.50     12/21/2020      $ 2,007,042        1,811,375        1,822,655   

Nortek, Inc.

  Electronics/Electric   Term Loan B   Loan     3.50     10/30/2020      $ 985,022        974,747        939,464   

NorthStar Asset Management Group Inc.

  Banking, Finance, Insurance & Real Estate   Term Loan B   Loan     4.63     1/30/2023      $ 2,000,000        1,930,000        1,950,000   

Novelis, Inc.

  Conglomerate   Term Loan B   Loan     4.00     6/2/2022      $ 4,771,058        4,749,389        4,440,090   

Novetta Solutions

  Aerospace and Defense   Term Loan (200MM)   Loan     6.00     10/16/2022      $ 2,000,000        1,980,636        1,940,000   

Novetta Solutions

  Aerospace and Defense   Term Loan (2nd Lien)   Loan     9.50     9/29/2023      $ 1,000,000        990,269        950,000   

NPC International, Inc.

  Food Services   Term Loan (2013)   Loan     4.75     12/28/2018      $ 481,250        481,250        472,829   

NRG Energy, Inc.

  Utilities   Term Loan (2013)   Loan     2.75     7/2/2018      $ 3,821,925        3,808,282        3,751,449   

Numericable

  Broadcast Radio and Television   Term Loan B-5   Loan     4.56     7/31/2022      $ 997,500        995,164        953,171   

NuSil Technology LLC.

  Chemicals/Plastics   Term Loan   Loan     5.25     4/7/2017      $ 789,045        789,045        774,645   

Onex Carestream Finance LP

  Healthcare & Pharmaceuticals   Term Loan (First Lien 2013)   Loan     5.00     6/7/2019      $ 3,832,558        3,821,232        3,244,912   

OnexYork Acquisition Co

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.75     10/1/2021      $ 493,749        490,644        459,435   

OpenLink International, LLC

  Services: Business   Term B Loan   Loan     6.25     10/30/2017      $ 2,944,496        2,943,282        2,811,994   

P.F. Chang’s China Bistro, Inc. (Wok Acquisition Corp.)

  Food/Drug Retailers   Term Borrowing   Loan     4.25     6/24/2019      $ 1,432,750        1,427,110        1,336,039   

P2 Upstream Acquisition Co. (P2 Upstream Canada BC ULC)

  Services: Business   Term Loan (First Lien)   Loan     5.00     10/30/2020      $ 980,000        976,133        774,200   

Penn Products Terminal, LLC

  Chemicals/Plastics   Term Loan B   Loan     4.75     4/13/2022      $ 248,125        246,994        218,350   

PetCo Animal Supplies Stores, Inc.

  Retailers (Except Food and Drugs)   Term Loan B-1   Loan     5.75     1/15/2023      $ 1,000,000        980,217        978,590   

PetCo Animal Supplies Stores, Inc.

  Retailers (Except Food and Drugs)   Term Loan B-2   Loan     5.62     1/15/2023      $ 1,000,000        980,216        978,960   

Petsmart, Inc. (Argos Merger Sub, Inc.)

  Retailers (Except Food and Drugs)   Term Loan B1   Loan     4.25     3/11/2022      $ 992,500        987,862        961,176   

PGX Holdings, Inc.

  Financial Intermediaries   Term Loan   Loan     5.75     9/29/2020      $ 954,643        947,123        941,917   

Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)

  Conglomerate   Term Loan   Loan     4.25     8/18/2022      $ 1,920,848        1,911,850        1,872,346   

Phillips-Medisize Corporation

  Healthcare & Pharmaceuticals   Term Loan   Loan     4.75     6/16/2021      $ 492,500        490,535        458,025   

Physio-Control International, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     5.50     6/6/2022      $ 498,750        496,371        498,127   

Pinnacle Foods Finance LLC

  Food Products   New Term Loan G   Loan     3.00     4/29/2020      $ 2,581,332        2,577,286        2,553,737   

Planet Fitness Holdings LLC

  Leisure Goods/Activities/Movies   Term Loan   Loan     4.75     3/31/2021      $ 2,417,118        2,410,079        2,368,776   

PrePaid Legal Services, Inc.

  Services: Business   Term Loan B   Loan     6.50     7/1/2019      $ 724,167        721,080        716,020   

Presidio, Inc.

  Services: Business   Term Loan   Loan     5.25     2/2/2022      $ 1,902,292        1,846,615        1,816,688   

Prime Security Services (Protection One)

  Services: Business   Term Loan   Loan     5.00     7/1/2021      $ 1,995,000        1,985,640        1,924,178   

Ranpak Holdings, Inc.

  Services: Business   Term Loan   Loan     4.25     10/1/2021      $ 938,354        936,008        886,745   

Ranpak Holdings, Inc.

  Services: Business   Term Loan (Second Lien)   Loan     8.25     10/3/2022      $ 500,000        497,866        400,000   

Redtop Acquisitions Limited

  Electronics/Electric   Initial Dollar Term Loan (First Lien)   Loan     4.50     12/3/2020      $ 490,000        487,461        482,444   

Regal Cinemas Corporation

  Services: Consumer   Term Loan   Loan     3.75     4/1/2022      $ 497,500        496,320        496,256   

Research Now Group, Inc

  Media   Term Loan B   Loan     5.50     3/18/2021      $ 2,058,445        2,048,627        1,996,692   

Rexnord LLC/RBS Global, Inc.

  Industrial Equipment   Term B Loan   Loan     4.00     8/21/2020      $ 1,630,123        1,631,387        1,557,647   

Reynolds Group Holdings Inc.

  Industrial Equipment   Incremental U.S. Term Loan   Loan     4.50     12/1/2018      $ 1,910,551        1,910,551        1,902,946   

Riverbed Technology, Inc.

  Technology   Term Loan B   Loan     6.00     2/25/2022      $ 992,500        988,224        970,873   

Rocket Software, Inc.

  Services: Business   Term Loan (First Lien)   Loan     5.75     2/8/2018      $ 1,901,835        1,889,759        1,889,150   

Rovi Solutions Corporation / Rovi Guides, Inc.

  Electronics/Electric   Tranche B-3 Term Loan   Loan     3.75     7/2/2021      $ 1,477,500        1,471,640        1,422,094   

Royal Adhesives and Sealants

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.50     6/20/2022      $ 497,500        495,187        479,675   

Royal Adhesives and Sealants

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     8.50     6/19/2023      $ 500,000        496,388        478,335   

RPI Finance Trust

  Financial Intermediaries   Term B-4 Term Loan   Loan     3.50     11/9/2020      $ 5,155,193        5,155,193        5,132,665   

Sable International Finance Ltd

  Telecommunications   Term Loan B1   Loan     5.50     12/2/2022      $ 825,000        808,500        800,770   

Sable International Finance Ltd

  Telecommunications   Term Loan B2   Loan     5.50     12/2/2022      $ 675,000        661,500        655,175   

SBP Holdings LP

  Industrial Equipment   Term Loan (First Lien)   Loan     5.00     3/27/2021      $ 982,500        978,645        707,400   

Scientific Games International, Inc.

  Electronics/Electric   Term Loan B2   Loan     6.00     10/1/2021      $ 990,000        981,872        904,613   

SCS Holdings (Sirius Computer)

  High Tech Industries   Term Loan (First Lien)   Loan     6.00     10/30/2022      $ 1,977,528        1,939,305        1,937,978   

Seadrill Operating LP

  Oil & Gas   Term Loan B   Loan     4.00     2/21/2021      $ 987,406        919,799        407,305   

Sensus USA Inc. (fka Sensus Metering Systems)

  Utilities   Term Loan (First Lien)   Loan     4.50     5/9/2017      $ 1,905,121        1,902,477        1,826,534   

ServiceMaster Company, The

  Conglomerate   Tranche B Term Loan   Loan     4.25     7/1/2021      $ 1,975,000        1,959,254        1,956,889   

Shearers Foods LLC

  Food Services   Term Loan (First Lien)   Loan     4.94     6/30/2021      $ 987,500        985,421        952,938   

Sitel Worldwide

  Telecommunications   Term Loan   Loan     6.50     9/18/2021      $ 1,995,000        1,976,131        1,931,160   

Sonneborn, LLC

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.75     12/10/2020      $ 222,750        222,282        220,801   

Sonneborn, LLC

  Chemicals/Plastics   Initial US Term Loan   Loan     4.75     12/10/2020      $ 1,262,250        1,259,600        1,251,205   

Sophia, L.P.

  Electronics/Electric   Term Loan (Closing Date)   Loan     4.75     9/30/2022      $ 1,995,000        1,985,507        1,911,469   

SourceHOV LLC

  Services: Business   Term Loan B (First Lien)   Loan     7.75     10/31/2019      $ 1,937,500        1,891,680        1,541,281   

SRAM, LLC

  Industrial Equipment   Term Loan (First Lien)   Loan     4.00     4/10/2020      $ 2,904,577        2,896,630        2,207,479   

Staples, Inc.

  Retailers (Except Food and Drugs)   Term Loan 1/16   Loan     4.75     4/23/2021      $ 1,000,000        990,308        992,130   

Steak ‘n Shake Operations, Inc.

  Food Services   Term Loan   Loan     4.75     3/19/2021      $ 965,341        957,952        946,034   

SuperMedia Inc. (fka Idearc Inc.)

  Publishing   Loan   Loan     11.60     12/30/2016      $ 222,900        220,105        67,520   

Survey Sampling International

  Services: Business   Term Loan B   Loan     6.00     12/16/2020      $ 992,500        990,554        970,169   

Sybil Finance BV

  High Tech Industries   Term Loan   Loan     4.25     3/20/2020      $ 1,272,143        1,270,803        1,253,061   

Syniverse Holdings, Inc.

  Telecommunications   Initial Term Loan   Loan     4.00     4/23/2019      $ 479,913        476,927        311,944   

TaxACT, Inc.

  Services: Business   Term Loan B   Loan     7.00     1/3/2023      $ 1,860,000        1,805,035        1,804,200   

TGI Friday’s, Inc.

  Food Services   Term Loan B   Loan     5.25     7/15/2020      $ 1,651,816        1,647,936        1,636,669   

Townsquare Media, Inc.

  Media   Term Loan B   Loan     4.25     4/1/2022      $ 932,522        928,333        915,624   

TPF II Power LLC and TPF II Covert Midco LLC

  Utilities   Term Loan B   Loan     5.50     10/2/2021      $ 1,491,826        1,433,943        1,396,722   

TransDigm, Inc.

  Aerospace and Defense   Tranche C Term Loan   Loan     3.75     2/28/2020      $ 4,277,294        4,283,815        4,148,975   

Travel Leaders Group, LLC

  Hotel, Gaming and Leisure   Term Loan B   Loan     7.00     12/7/2020      $ 1,946,300        1,939,729        1,917,107   

Tricorbraun, Inc. (fka Kranson Industries, Inc.)

  Containers/Glass Products   Term Loan   Loan     4.00     5/3/2018      $ 1,836,625        1,831,636        1,776,935   

Truven Health Analytics Inc. (fka Thomson Reuters (Healthcare) Inc.)

  Healthcare & Pharmaceuticals   New Tranche B Term Loan   Loan     4.50     6/6/2019      $ 482,603        476,598        480,494   

Twin River Management Group, Inc.

  Lodging & Casinos   Term Loan B   Loan     5.25     7/10/2020      $ 886,192        887,853        875,673   

U.S. Security Associates Holdings, Inc.

  Services: Business   Delayed Draw Loan   Loan     6.25     7/28/2017      $ 156,888        156,328        155,973   

U.S. Security Associates Holdings, Inc.

  Services: Business   Term B Loan   Loan     6.25     7/28/2017      $ 921,426        918,393        916,054   

Univar Inc.

  Chemicals/Plastics   Term B Loan   Loan     4.25     7/1/2022      $ 2,992,500        2,978,573        2,840,810   

Univision Communications Inc.

  Telecommunications   Replacement First-Lien Term Loan   Loan     4.00     3/1/2020      $ 2,916,556        2,903,859        2,832,705   

Valeant Pharmaceuticals International, Inc.

  Drugs   Series D2 Term Loan B   Loan     3.50     2/13/2019      $ 2,545,588        2,539,315        2,385,700   

Verint Systems Inc.

  Services: Business   Term Loan   Loan     3.50     9/6/2019      $ 1,014,058        1,011,203        1,005,692   

Vertafore, Inc.

  Services: Business   Term Loan (2013)   Loan     4.25     10/3/2019      $ 2,484,603        2,484,603        2,452,775   

Vizient Inc.

  Healthcare & Pharmaceuticals   Term Loan   Loan     6.25     2/13/2023      $ 1,000,000        970,144        993,750   

Vouvray US Finance

  Industrial Equipment   Term Loan   Loan     4.75     6/27/2021      $ 492,500        490,508        478,134   

Washington Inventory Service

  Services: Business   U.S. Term Loan (First Lien)   Loan     5.75     12/20/2018      $ 1,736,392        1,749,291        1,475,934   

West Corporation

  Telecommunications   Term B-10 Loan   Loan     3.25     6/30/2018      $ 2,534,892        2,558,782        2,490,861   

ZEP Inc.

  Chemicals/Plastics   Term Loan B   Loan     5.50     6/27/2022      $ 2,985,000        2,971,139        2,932,763   
             

 

 

   

 

 

 
              $ 303,643,756      $ 284,844,789   
             

 

 

   

 

 

 
                            Principal     Cost     Fair Value  

Cash and cash equivalents

             

U.S. Bank Money Market (a)

          $ 2,349,633      $ 2,349,633      $ 2,349,633   
           

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

          $ 2,349,633      $ 2,349,633      $ 2,349,633   
           

 

 

   

 

 

   

 

 

 

 

(a) Included within cash and cash equivalents in Saratoga CLO’s Statements of Assets and Liabilities as of February 29, 2016.

 

22


Table of Contents

Note 5. Agreements and Related Party Transactions

On July 30, 2010, the Company entered into the Management Agreement with our Manager. The initial term of the Management Agreement was two years, with automatic, one-year renewals at the end of each year, subject to certain approvals by our board of directors and/or the Company’s stockholders. On July 7, 2016, 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 fee.

The base management fee of 1.75% is calculated based on the average value of our gross 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.

The incentive 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 (7.5% annualized) hurdle rate measured as of the end of each fiscal quarter, subject to a “catch-up” provision. Under this provision, in any fiscal quarter, our Manager receives no incentive fee unless our pre-incentive fee net investment income exceeds the hurdle rate of 1.875%. Our Manager will receive 100.0% of pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than or equal to 2.344% in any fiscal quarter (9.376% annualized); and 20.0% of the amount of the our pre-incentive fee net investment income, if any, that exceeds 2.344% in any fiscal quarter (9.376% annualized).

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 20.0% of our “incentive fee capital gains,” which equals our realized capital gains on a cumulative basis from May 31, 2010 through the end of the year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee. Importantly, the capital gains portion of the incentive fee is based on realized gains and realized and unrealized losses from May 31, 2010. Therefore, realized and unrealized losses incurred prior to such time will not be taken into account when calculating the capital gains portion of the incentive fee, and our Manager will be entitled to 20.0% of incentive fee capital gains that arise after May 31, 2010. In addition, for the purpose of the “incentive fee capital gains” calculations, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 will equal the fair value of such investments as of such date.

For the three months ended August 31, 2016 and August 31, 2015, the Company incurred $1.2 million and $1.2 million in base management fees, respectively. For the three months ended August 31, 2016 and August 31, 2015, the Company incurred $0.8 million and $0.7 million in incentive fees related to pre-incentive fee net investment income, respectively. For the three months ended August 31, 2016, we accrued $0.4 million in incentive fees related to capital gains. For the three months ended August 31, 2015, we reduced the incentive fees related to capital gains by $0.8 million. For the six months ended August 31, 2016 and August 31, 2015, the Company incurred $2.4 million and $2.3 million in base management fees, respectively. For the six months ended August 31, 2016 and August 31, 2015, the Company incurred $1.4 million and $1.4 million in incentive fees related to pre-incentive fee net investment income, respectively. For the six months ended August 31, 2016 and August 31, 2015, we accrued $0.5 million and $0.3 million in incentive fees related to capital gains, respectively. 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, 2016, the base management fees accrual was $1.2 million and the incentive fees accrual was $5.1 million and is included in base management and incentive fees payable in the accompanying consolidated statements of assets and liabilities. As of February 29, 2016, the base management fees accrual was $1.2 million and the incentive fees accrual was $4.4 million and is included in base management and incentive fees payable in the accompanying consolidated statements of assets and liabilities.

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, with automatic, one-year renewals at the end of each year 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 $1.0 million for the initial two year term of the Administration Agreement and subsequent renewals. On July 8, 2015, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company thereunder, which had not been increased since the inception of the agreement, to $1.3 million. On July 7, 2016, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to keep the cap on the

 

23


Table of Contents

payment or reimbursement of expenses by the Company thereunder, unchanged at $1.3 million. In addition, our board of directors intends to review the cap in the next three to six months to determine whether it should be further adjusted in light of differences between our projected and actual expenses and other similar factors.

For the three months ended August 31, 2016 and August 31, 2015, we recognized $0.3 million and $0.3 million, in administrator expenses for the periods, respectively, pertaining to bookkeeping, record keeping and other administrative services provided to us in addition to our allocable portion of rent and other overhead related expenses. For the six months ended August 31, 2016 and August 31, 2015, we recognized $0.7 million and $0.5 million, in administrator expenses for the periods, respectively, pertaining to bookkeeping, record keeping and other administrative services provided to us in addition to our allocable portion of rent and other overhead related expenses. As of August 31, 2016, $0.3 million of administrator expenses and other expenses payable to the Manager were accrued and included in due to manager in the accompanying consolidated statements of assets and liabilities. As of February 29, 2016, $0.2 million of administrator expenses and other expenses payable to the Manager were accrued and included in due to manager in the accompanying consolidated statements of assets and liabilities. For the six months ended August 31, 2016 and August 31, 2015, the Company neither bought nor sold any investments from the Saratoga CLO.

Note 6. Borrowings

Credit Facility

As a BDC, we are only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200.0% after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.

On April 11, 2007, we entered into a $100.0 million revolving securitized credit facility (the “Revolving Facility”). On May 1, 2007, we entered into a $25.7 million term securitized credit facility (the “Term Facility” and, together with the Revolving Facility, the “Facilities”), which was fully drawn at closing. In December 2007, we consolidated the Facilities by using a draw under the Revolving Facility to repay the Term Facility. In response to the market wide decline in financial asset prices, which negatively affected the value of our portfolio, we terminated the revolving period of the Revolving Facility effective January 14, 2009 and commenced a two-year amortization period during which all principal proceeds from the collateral was used to repay outstanding borrowings. A significant percentage of our total assets had been pledged under the Revolving Facility to secure our obligations thereunder. Under the Revolving Facility, funds were borrowed from or through certain lenders and interest was payable monthly at the greater of the commercial paper rate and our lender’s prime rate plus 4.00% plus a default rate of 2.00% or, if the commercial paper market was unavailable, the greater of the prevailing LIBOR rates and our lender’s prime rate plus 6.00% plus a default rate of 3.00%.

In March 2009, we amended the Revolving Facility to increase the portion of the portfolio that could be invested in “CCC” rated investments in return for an increased interest rate and expedited amortization. As a result of these transactions, we expected to have additional cushion under our borrowing base under the Revolving Facility that would allow us to better manage our capital in times of declining asset prices and market dislocation.

On July 30, 2009, we exceeded the permissible borrowing limit under the Revolving Facility for 30 consecutive days, resulting in an event of default under the Revolving Facility. As a result of this event of default, our lender had the right to accelerate repayment of the outstanding indebtedness under the Revolving Facility and to foreclose and liquidate the collateral pledged thereunder. Acceleration of the outstanding indebtedness and/or liquidation of the collateral could have had a material adverse effect on our liquidity, financial condition and operations.

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 $45.0 million senior secured revolving credit facility (the “Credit Facility”) with Madison Capital Funding LLC, in each case, to pay the full amount of principal and accrued interest, including default interest, outstanding under the Revolving Facility. As a result, the Revolving Facility was terminated in connection therewith. Substantially all of our total assets, other than those held by SBIC LP, have been pledged under the Credit Facility to secure our obligations thereunder.

On February 24, 2012, we amended our senior secured revolving credit facility with Madison Capital Funding LLC to, among other things:

 

    expand the borrowing capacity under the Credit Facility from $40.0 million to $45.0 million;

 

    extend the period during which we may make and repay borrowings under the 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 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.

 

24


Table of Contents

On September 17, 2014, we entered into a second amendment to the Credit Facility with Madison Capital Funding LLC to, among other things:

 

    extend the commitment termination date from February 24, 2015 to September 17, 2017;

 

    extend the maturity date of the 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%.

As of August 31, 2016 and February 29, 2016, there were no outstanding borrowings under the Credit Facility and the Company was in compliance with all of the limitations and requirements of the Credit Facility. Financing costs of $2.7 million related to the Credit Facility have been capitalized and are being amortized over the term of the facility. For the three months ended August 31, 2016 and August 31, 2015, we recorded $0.1 million and $0.2 million of interest expense, respectively. For the six months ended August 31, 2016 and August 31, 2015, we recorded $0.2 million and $0.4 million of interest expense, respectively. For the three months ended August 31, 2016 and August 31, 2015, we recorded $0.02 million and $0.02 million of amortization of deferred financing costs related to the Credit Facility and Revolving Facility, respectively. For the six months ended August 31, 2016 and August 31, 2015, we recorded $0.04 million and $0.04 million of amortization of deferred financing costs related to the Credit Facility and Revolving Facility, respectively. During the three and six months ended August 31, 2016, there were no outstanding borrowings under the Credit Facility. The interest rates during the three and six months ended August 31, 2015 on the outstanding borrowings under the Credit Facility were 6.00%. During the three and six months ended August 31, 2015, the average dollar amount of outstanding borrowings under the Credit Facility was $6.8 million and $8.2 million, respectively.

The 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 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. The Credit Facility has an eight year term, consisting of a three year period (the “Revolving Period”), under which the Company may make and repay borrowings, and a final maturity five years from the end of the Revolving Period. Availability on the Credit Facility will be subject to a borrowing base calculation, based on, among other things, applicable advance rates (which vary from 50.0% to 75.0% of par or fair value depending on the type of loan asset) and the value of certain “eligible” loan assets included as part of the Borrowing Base. Funds may be borrowed at the greater of the prevailing LIBOR rate and 2.00%, plus an applicable margin of 5.50%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 3.00%, and the applicable margin over such alternative base rate is 4.50%. In addition, the Company will pay the lenders a commitment fee of 0.75% per year on the unused amount of the Credit Facility for the duration of the Revolving Period.

Our borrowing base under the Credit Facility was $24.0 million subject to the Credit Facility cap of $45.0 million at August 31, 2016. For purposes of determining the borrowing base, most assets are assigned the values set forth in our most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”). Accordingly, the August 31, 2016 borrowing base relies upon the valuations set forth in the Quarterly Report on Form 10-Q for the period ended May 31, 2016, as filed with the SEC on July 13, 2016. The valuations presented in this Quarterly Report on Form 10-Q will not be incorporated into the borrowing base until after this Quarterly Report on Form 10-Q is filed with the SEC.

SBA Debentures

SBIC LP is able to borrow funds from the SBA against regulatory capital (which approximates equity capital) that is paid in and is subject to customary regulatory requirements including but not limited to an examination by the SBA. As of August 31, 2016, we have funded SBIC LP with $75.0 million of equity capital, and have $103.7 million of SBA-guaranteed debentures outstanding. SBA debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven spread over 10-year U.S. Treasury Notes. SBA current regulations limit the amount that SBIC LP may borrow to a maximum of $150.0 million, which is up to twice its potential regulatory capital.

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 $19.5 million and have average annual fully

 

25


Table of Contents

taxed net income not exceeding $6.5 million for the two most recent fiscal years. In addition, an SBIC must devote 25.0% of its investment activity to ‘‘smaller’’ concerns as defined by the SBA. A smaller concern is one that has a tangible net worth not exceeding $6.0 million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services.

SBIC LP is 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 LP will receive SBA-guaranteed debenture funding, which is dependent upon SBIC LP continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to SBIC LP’s assets over our stockholders and debtholders in the event we liquidate SBIC LP or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC LP upon an event of default.

The Company received exemptive relief from the SEC to permit it to exclude the debt of SBIC LP guaranteed by the SBA from the definition of senior securities in the 200.0% asset coverage test under the 1940 Act. This allows the Company increased flexibility under the 200.0% asset coverage test by permitting it to borrow up to $150.0 million more than it would otherwise be able to absent the receipt of this exemptive relief.

As of August 31, 2016 and February 29, 2016, there was $103.7 million and $103.7 million outstanding of SBA debentures, respectively. 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. $3.9 million of financing costs related to the SBA debentures have been capitalized and are being amortized over the term of the commitment and drawdown.

For the three months ended August 31, 2016 and August 31, 2015, we recorded $0.8 million and $0.6 million of interest expense related to the SBA debentures, respectively. For the three months ended August 31, 2016 and August 31, 2015, we recorded $0.1 million and $0.1 million of amortization of deferred financing costs related to the SBA debentures, respectively. The weighted average interest rate during the three months ended August 31, 2016 and August 31, 2015 on the outstanding borrowings of the SBA debentures was 3.19% and 3.25%, respectively.

For the six months ended August 31, 2016 and August 31, 2015, we recorded $1.7 million and $1.2 million of interest expense related to the SBA debentures, respectively. For the six months ended August 31, 2016 and August 31, 2015, we recorded $0.3 million and $0.2 million of amortization of deferred financing costs related to the SBA debentures, respectively. The weighted average interest rate during the six months ended August 31, 2016 and August 31, 2015 on the outstanding borrowings of the SBA debentures was 3.14% and 3.20%, respectively. During the three and six months ended August 31, 2016, the average dollar amount of SBA debentures outstanding was $103.7 million. During the three and six months ended August 31, 2015, the average dollar amount of SBA debentures outstanding was $79.0 million.

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 currently limit 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. 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.

On April 2, 2015, the SBA issued a “green light” letter inviting the Company to continue the application process to obtain a license to form and operate its second SBIC subsidiary. On September 27, 2016, the SBA informed us that as part of their continued review of our application for a second license, and in order to ensure that they were reviewing the most current information available, we would need to update all previously submitted materials and invited us to reapply. As a result of this request, with which we are in the process of complying, the existing “green light” letter that the SBA issued to us will expire. If approved in the future, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue up to $150.0 million of additional SBA-guaranteed debentures in addition to the $150.0 million already approved under the first license.

Notes

On May 10, 2013, the Company issued $42.0 million in aggregate principal amount of 7.50% fixed-rate notes due 2020 (the “Notes”). The Notes will mature on May 31, 2020, and since May 31, 2016, may be redeemed in whole or in part at any time or from time to time at the Company’s option. Interest will be payable quarterly beginning August 15, 2013.

 

26


Table of Contents

On May 17, 2013, the Company closed an additional $6.3 million in aggregate principal amount of the Notes, pursuant to the full exercise of the underwriters’ option to purchase additional Notes. On May 29, 2015, the Company entered into a Debt Distribution Agreement with Ladenburg Thalmann & Co. through which the Company may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the Notes through an At-the-Market (“ATM”) offering. As of August 31, 2016, the Company sold 539,725 bonds with a principal of $13,493,125 at an average price of $25.31 for aggregate net proceeds of $13,385,766 (net of transaction costs).

As of August 31, 2016, the carrying amount and fair value of the Notes was $61.8 million and $63.3 million, respectively. The fair value of the Notes, which are publicly traded, is based upon closing market quotes as of the measurement date and would be classified as a Level 1 liability within the fair value hierarchy. As of August 31, 2016, $2.7 million of financing costs related to the Notes (including underwriting commissions and net of issuance premiums) have been capitalized and are being amortized over the term of the Notes. For the three and six months ended August 31, 2016, we recorded $1.2 million and $2.3 million, respectively, of interest expense and $0.1 million and $0.2 million, respectively, of amortization of deferred financing costs related to the Notes. For the three and six months ended August 31, 2015, we recorded $1.1 million and $2.0 million, respectively, of interest expense and $0.1 million and $0.2 million, respectively, of amortization of deferred financing costs related to the Notes. During the three and six months ended August 31, 2016, the average dollar amount of Notes outstanding was $61.8 million. During the three and six months ended August 31, 2015, the average dollar amount of Notes outstanding was $54.4 million and $51.3 million, respectively.

Note 7. Commitments and contingencies

Contractual obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at August 31, 2016:

 

            Payment Due by Period  
     Total      Less Than
1 Year
     1 - 3
Years
     3 - 5
Years
     More Than
5 Years
 
     ($ in thousands)  

Long-Term Debt Obligations

   $ 165,453       $ —        $ —        $ 61,793       $ 103,660  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Off-balance sheet arrangements

The Company’s off-balance sheet arrangements consisted of $8.0 million and $2.0 million of unfunded commitments to provide debt financing to its portfolio companies or to fund limited partnership interests as of August 31, 2016 and February 29, 2016, respectively. 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 composition of the unfunded commitments as of August 31, 2016 and February 29, 2016 is shown in the table below (dollars in thousands):

 

     As of  
     August 31, 2016      February 29, 2016  

Avionte Holdings, LLC

   $ 1,000       $ 1,000   

BoardEffect, Inc.

     7,000         —     

Identity Automation Systems

     —           1,000   
  

 

 

    

 

 

 

Total

   $ 8,000       $ 2,000   
  

 

 

    

 

 

 

Note 8. Directors Fees

The independent directors receive an annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting. In addition, the chairman of the Audit Committee receives an annual fee of $5,000 and the chairman of each other committee receives an annual fee of $2,000 for their additional services in these capacities. In addition, we have purchased directors’ and officers’ liability insurance on behalf of our directors and officers. Independent directors have the option to receive their directors’ fees in the form of our common stock issued at a price per

 

27


Table of Contents

share equal to the greater of net asset value or the market price at the time of payment. No compensation is paid to directors who are “interested persons” of the Company (as such term is defined in the 1940 Act). For the three months ended August 31, 2016 and August 31, 2015, we incurred $0.06 million and $0.05 million for directors’ fees and expenses, respectively. For the six months ended August 31, 2016 and August 31, 2015, we incurred $0.1 million and $0.1 million for directors’ fees and expenses, respectively. As of August 31, 2016 and February 29, 2016, $0.05 million and $0.03 million in directors’ fees and expenses were accrued and unpaid, respectively. As of August 31, 2016, we had not issued any common stock to our directors as compensation for their services.

Note 9. Stockholders’ Equity

On May 16, 2006, GSC Group, Inc. capitalized the LLC, by contributing $1,000 in exchange for 67 shares, constituting all of the issued and outstanding shares of the LLC.

On March 20, 2007, the Company issued 95,995.5 and 8,136.2 shares of common stock, priced at $150.00 per share, to GSC Group and certain individual employees of GSC Group, respectively, in exchange for the general partnership interest and a limited partnership interest in GSC Partners CDO III GP, LP, collectively valued at $15.6 million. At this time, the 6.7 shares owned by GSC Group in the LLC were exchanged for 6.7 shares of the Company.

On March 28, 2007, the Company completed its IPO of 725,000 shares of common stock, priced at $150.00 per share, before underwriting discounts and commissions. Total proceeds received from the IPO, net of $7.1 million in underwriter’s discount and commissions, and $1.0 million in offering costs, were $100.7 million.

On November 13, 2009, we declared a dividend of $18.25 per share payable on December 31, 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 $2.50 per share. Based on shareholder elections, the dividend consisted of $2.1 million in cash and 864,872.5 of newly issued shares of common stock.

On July 30, 2010, our Manager and its affiliates purchased 986,842 shares of common stock at $15.20 per share. Total proceeds received from this sale were $15.0 million.

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.

On November 12, 2010, we declared a dividend of $4.40 per share payable on December 29, 2010. 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 $1.2 million or $0.44 per share. Based on shareholder elections, the dividend consisted of approximately $1.2 million in cash and 596,235 shares of common stock.

On November 15, 2011, we declared a dividend of $3.00 per share payable on December 30, 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 approximately $2.0 million or $0.60 per share. Based on shareholder elections, the dividend consisted of approximately $2.0 million in cash and 599,584 shares of common stock.

On November 9, 2012, the Company declared a dividend of $4.25 per share payable on December 31, 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 approximately $3.3 million in cash and 853,455 shares of common stock.

On October 30, 2013, the Company declared a dividend of $2.65 per share payable on December 27, 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. Based on shareholder elections, the dividend consisted of approximately $2.5 million in cash and 649,500 shares of common stock.

On September 24, 2014, the Company declared a dividend of $0.18 per share payable on November 28, 2014. 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 $0.6 million in cash and 22,283 newly issued shares of common stock.

 

28


Table of Contents

On September 24, 2014, the Company declared a dividend of $0.22 per share payable on February 27, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.8 million in cash and 26,858 newly issued shares of common stock.

On April 9, 2015, the Company declared a dividend of $0.27 per share payable on May 29, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.9 million in cash and 33,766 newly issued shares of common stock.

On May 14, 2015, the Company declared a special dividend of $1.00 per share payable on June 5, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $3.4 million in cash and 126,230 newly issued shares of common stock.

On July 8, 2015, the Company declared a dividend of $0.33 per share payable on August 31, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 47,861 newly issued shares of common stock.

On October 7, 2015, the Company declared a dividend of $0.36 per share payable on November 30, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 61,029 newly issued shares of common stock.

On January 12, 2016, the Company declared a dividend of $0.40 per share payable on February 29, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.4 million in cash and 66,765 newly issued shares of common stock.

On March 31, 2016, the Company declared a dividend of $0.41 per share payable on April 27, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 56,728 newly issued shares of common stock.

On July 7, 2016, the Company declared a dividend of $0.43 per share payable on August 9, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.5 million in cash and 58,167 newly issued shares of common stock.

On August 8, 2016, the Company declared a special dividend of $0.20 per share payable on September 5, 2016. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.7 million in cash and 24,786 newly issued shares of common stock.

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. On October 7, 2015, the Company’s board of directors extended the open market 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. As of August 31, 2016, the Company purchased 138,494 shares of common stock, at the average price of $16.16 for approximately $2.2 million pursuant to this repurchase plan. On October 5, 2016, the Company’s board of directors extended the open market 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.

Note 10. Earnings Per Share

In accordance with the provisions of FASB ASC 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.

 

29


Table of Contents

The following information sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations for the three and six months ended August 31, 2016 and August 31, 2015 (dollars in thousands except share and per share amounts):

 

     For the three months ended      For the six months ended  

Basic and diluted

   August 31,
2016
     August 31,
2015
     August 31,
2016
     August 31,
2015
 

Net increase in net assets from operations

   $ 5,272       $ 1,243       $ 8,559       $ 8,628   

Weighted average common shares outstanding

     5,740,816         5,583,795         5,739,157         5,492,491   

Weighted average earnings per common share-basic and diluted

   $ 0.92       $ 0.22       $ 1.49       $ 1.57   

Note 11. Dividend

On August 8, 2016, the Company 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 our 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 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, the Company 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 our 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 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, the Company 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 our 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 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.

The following table summarizes dividends declared during the six months ended August 31, 2016 (dollars in thousands except per share amounts):

 

Date Declared

   Record Date      Payment Date      Amount
Per Share*
     Total
Amount
 

August 8, 2016

     August 24, 2016         September 5, 2016       $ 0.20       $ 1,151   

July 7, 2016

     July 29, 2016         August 9, 2016       $ 0.43       $ 2,466   

March 31, 2016

     April 15, 2016         April 27, 2016       $ 0.41       $ 2,346   
        

 

 

    

 

 

 

Total dividends declared

         $ 1.04       $ 5,963   
        

 

 

    

 

 

 

 

* Amount per share is calculated based on the number of shares outstanding at the date of declaration.

The following table summarizes dividends declared during the six months ended August 31, 2015 (dollars in thousands except per share amounts):

 

Date Declared

   Record Date      Payment Date      Amount
Per Share*
     Total
Amount
 

July 8, 2015

     August 3, 2015         August 31, 2015       $ 0.33       $ 1,844   

May 14, 2015

     May 26, 2015         June 5, 2015       $ 1.00       $ 5,429   

April 9, 2015

     May 4, 2015         May 29, 2015       $ 0.27       $ 1,466   
        

 

 

    

 

 

 

Total dividends declared

         $ 1.60       $ 8,739   
        

 

 

    

 

 

 

 

* Amount per share is calculated based on the number of shares outstanding at the date of declaration.

 

30


Table of Contents

Note 12. Financial Highlights

The following is a schedule of financial highlights for the six months ended August 31, 2016 and August 31, 2015:

 

    August 31, 2016     August 31, 2015  

Per share data:

 

Net asset value at beginning of period

  $ 22.06      $ 22.70   

Net investment income(1)

    0.90        0.99   

Net realized and unrealized gains and losses on investments

    0.59        0.58   
 

 

 

   

 

 

 

Net increase in net assets from operations

    1.49        1.57   

Distributions declared from net investment income

    (1.04     (1.60
 

 

 

   

 

 

 

Total distributions to stockholders

    (1.04     (1.60

Dilution(4)

    (0.12     (0.25

Net asset value at end of period

  $ 22.39      $ 22.42   

Net assets at end of period

  $ 128,563,622      $ 125,258,420   

Shares outstanding at end of period

    5,740,810        5,586,254   

Per share market value at end of period

  $ 17.93      $ 16.32   

Total return based on market value(2)

    34.41     13.63

Total return based on net asset value(3)

    8.19     8.38

Ratio/Supplemental data:

 

Ratio of net investment income to average net assets(8)

    9.53     10.19

Ratio of operating expenses to average net assets(7)

    7.09     6.50

Ratio of incentive management fees to average net assets(6)

    1.52     1.43

Ratio of interest and debt financing expenses to average net assets(7)

    7.40     6.65

Ratio of total expenses to average net assets(8)

    16.01     14.58

Portfolio turnover rate(5)

    20.98     13.96

 

(1) Net investment income per share is calculated using the weighted average shares outstanding during the period.
(2) Total investment return is calculated assuming a purchase of common shares at the current market value on the first day and a sale at the current market value on the last day of the periods reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s DRIP. Total investment return does not reflect brokerage commissions. Total investment returns covering less than a full period are not annualized.
(3) Total investment return is calculated assuming a purchase of common shares at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s DRIP. Total investment return does not reflect brokerage commissions.
(4) Represents the dilutive effect of issuing common stock below net asset value per share during the period in connection with the satisfaction of the Company’s annual RIC distribution requirement. See Note 11, Dividend.
(5) Portfolio turnover rate is calculated using the lesser of year-to-date sales or year-to-date purchases over the average of the invested assets at fair value.
(6) Ratios are not annualized.
(7) Ratios are annualized.
(8) Ratios are annualized. Incentive management fees included within the ratio are not annualized.

 

31


Table of Contents

Note 13. Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-Q and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the consolidated financial statements except for the following:

On October 5, 2016, the Company declared a dividend of $0.44 per share payable for the fiscal quarter ended August 31, 2016 to all stockholders of record at the close of business on October 31, 2016, with a payment date on November 9, 2016. Shareholders will have the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company’s DRIP.

On October 5, 2016, the Company’s board of directors determined to increase the cap on the payment or reimbursement of expenses by the Company under the Administration Agreement, from $1.3 million to $1.5 million, effective November 1, 2016.

 

32


Table of Contents

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 Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended February 29, 2016.

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;

 

    our business prospects and the prospects of our portfolio companies;

 

    the impact of investments that we expect to make;

 

    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;

 

    the ability of our portfolio companies to achieve their objectives;

 

    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”) subsidiary, 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 ability of our investment adviser to locate suitable investments for us and to monitor and effectively administer our investments.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

OVERVIEW

We are a Maryland corporation that has elected to be treated as a BDC under the Investment Company Act of 1940 (the “1940 Act”). Our investment objective is to generate current income and, to a lesser extent, capital appreciation from our investments. We invest primarily in leveraged loans and mezzanine debt issued by private U.S. middle market companies, which we define as companies having 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. We have elected and qualified to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

 

33


Table of Contents

Corporate History and Recent Developments

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 (“SIA”) 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 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 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.

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”).

In May 2013, we issued $48.3 million in aggregate principal amount of our 7.50% unsecured notes due 2020 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. Interest on these notes is paid quarterly in arrears on February 15, May 15, August 15 and November 15, at a rate of 7.50% per year, beginning August 15, 2013. The notes mature on May 31, 2020 and since May 31, 2016, may be redeemed in whole or in part at any time or from time to time at our option. The notes are listed on the NYSE under the trading symbol “SAQ” with a par value of $25.00 per share.

On April 2, 2015, the SBA issued a “green light” letter inviting the Company to continue the application process to obtain a license to form and operate its second SBIC subsidiary. On September 27, 2016, the SBA informed us that as part of their continued review of our application for a second license, and in order to ensure that they were reviewing the most current information available, we would need to update all previously submitted materials and invited us to reapply. As a result of this request, with which we are in the process of complying, the existing “green light” letter that the SBA issued to us will expire. If approved in the future, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue up to $150.0 million of additional SBA-guaranteed debentures in addition to the $150.0 million already approved under the first license.

 

34


Table of Contents

On May 29, 2015, we entered into a Debt Distribution Agreement with Ladenburg Thalmann & Co. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the Notes through an At-the-Market (“ATM”) offering. As of August 31, 2016, the Company sold 539,725 bonds with a principal of $13,493,125 at an average price of $25.31 for aggregate net proceeds of $13,385,766 (net of transaction costs).

Critical Accounting Policies

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 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 at the balance sheet date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from Saratoga Investment Advisers, the audit committee of our board of directors and a third party independent valuation firm. Determinations of fair value may involve subjective judgments and estimates. The types of factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow and other relevant factors.

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 reviews a selection of these preliminary valuations each quarter so that the valuation of each investment for which market quotes are not readily available is reviewed by the independent valuation firm at least once each fiscal year.

In addition, all our investments are subject to the following valuation process:

 

    The audit committee of our board of directors reviews and approves each preliminary valuation and 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 Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”) is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by SIA and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our

 

35


Table of Contents

investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rate and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. 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.

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.

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, 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 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.

Capital Gains Incentive Fee

The Company records an expense accrual relating to the capital gains incentive fee payable by the Company to its investment adviser 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 investment adviser if the Company were to liquidate its investment portfolio at such time. The actual incentive fee payable to the Company’s investment adviser 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.

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 investments may provide for a portion of the interest to be PIK. To the extent interest is paid-in-kind, 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 securities that pay dividends on a current basis.

 

36


Table of Contents

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 refinanced in October 2013 and its reinvestment period ends in October 2016. The Saratoga CLO remains 100% owned and managed by Saratoga Investment Corp. We receive a base management fee of 0.25% and a subordinated management fee of 0.25% of the fee basis amount at the beginning of the collection period, paid quarterly to the extent of available proceeds. We are also 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 equal to or greater than 12.0%.

We recognize interest income on our investment in the subordinated notes of Saratoga CLO using the effective interest method, 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.

Expenses

Our primary operating expenses include the payment of investment advisory and management fees, professional fees, directors and officers insurance, fees paid to independent directors and administrator expenses, including our allocable portion of our administrator’s overhead. Our investment advisory and management fees compensate our investment adviser 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 investment adviser 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;

 

    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 Securities and Exchange Commission (“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)).

 

37


Table of Contents

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 (7.5% annualized) 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, 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% (7.5% annualized) 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.

To the extent that any of our leveraged loans are denominated in a currency other than U.S. Dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of interest rate caps, futures, options and forward contracts. Costs incurred in entering into or settling such contracts will be borne by us.

 

38


Table of Contents

New Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Amendments to the Leases (“ASC Topic 842”), which will require for all operating leases the recognition of a right-of-use asset and a lease liability, in the statement of financial position. The lease cost will be allocated over the lease term on a straight-line basis. This guidance is effective for annual and interim periods beginning after December 15, 2018. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 retains many current requirements for the classification and measurement of financial instruments; however, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted for public business entities. Management is currently evaluating the impact the adoption of this standard has on our consolidated financial statements and disclosures.

In August 2014, the FASB issued new accounting guidance that requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments provide a definition of the term “substantial doubt” and include principles for considering the mitigating effect of management’s plans. The amendments also require an evaluation every reporting period, including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued), and certain disclosures when substantial doubt is alleviated or not alleviated. The amendments in this update are effective for reporting periods ending after December 15, 2016. Management does not believe these changes will have a material impact on the Company’s consolidated financial statements and disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In May 2016, ASU 2016-12 amended ASU 2014-09 and deferred the effective period to December 15, 2017. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

Portfolio and investment activity

Corporate Debt Portfolio Overview

 

     At August 31,
2016
     At February 29,
2016
 
     ($ in millions)      ($ in millions)  

Number of investments(1)

     50         59   

Number of portfolio companies(1)

     29         34   

Average investment size(1)

   $ 5.2       $ 4.6   

Weighted average maturity(1)

     3.5yrs         3.8yrs   

Number of industries(1)

     11         11   

Average investment per portfolio company(1)

   $ 9.0       $ 8.0   

Non-performing or delinquent investments(1)

   $ 0.0       $ 0.0   

Fixed rate debt (% of interest bearing portfolio)(2)

   $ 46.3(18.5)%       $ 97.9(40.0)%   

Weighted average current coupon(2)

     11.9%         11.5%   

Floating rate debt (% of interest bearing portfolio)(2)

   $   203.5(81.5)%       $   146.8(60.0)%   

Weighted average current spread over LIBOR(2)

     10.0%         9.1%   

 

(1) Excludes our investment in the subordinated notes of Saratoga CLO.
(2) Excludes our investment in the subordinated notes of Saratoga CLO and investments in equity interests.

 

39


Table of Contents

During the three months ended August 31, 2016, we invested $55.7 million in new or existing portfolio companies and had $50.3 million in aggregate amount of exits and repayments resulting in net investments of $5.4 million for the period. During the three months ended August 31, 2015, we invested $18.9 million in new or existing portfolio companies and had $27.4 million in aggregate amount of exits and repayments resulting in net repayments of $8.5 million for the period.

During the six months ended August 31, 2016, we invested $55.7 million in new or existing portfolio companies and had $70.9 million in aggregate amount of exits and repayments resulting in net repayments of $15.2 million for the period. During the six months ended August 31, 2015, we invested $42.1 million in new or existing portfolio companies and had $34.8 million in aggregate amount of exits and repayments resulting in net investments of $7.3 million for the period.

Our portfolio composition at August 31, 2016 and February 29, 2016 at fair value was as follows:

Portfolio composition

 

     At August 31, 2016     At February 29, 2016  
     Percentage
of Total
Portfolio
    Weighted
Average
Current
Yield
    Percentage
of Total
Portfolio
    Weighted
Average
Current
Yield
 

Syndicated loans

     3.5     5.3     4.2     8.2

First lien term loans

     56.2        10.6        50.9        10.6   

Second lien term loans

     31.9        11.5        31.1        11.5   

Structured finance securities

     4.4        19.4        4.5        16.4   

Equity interests

     4.0        N/A        9.3        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     11.1     100.0     11.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Our investment in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at August 31, 2016 and February 29, 2016 was composed of $299.5 million and $302.7 million, respectively, in aggregate principal amount of predominantly senior secured first lien term loans. This investment is subject to unique risks. (See “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 29, 2016). 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, 2016, $289.5 million or 99.5% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and there were no Saratoga CLO portfolio investments in default. At February 29, 2016, $283.3 million or 99.4% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and one Saratoga CLO portfolio investment was in default with a fair value of $0.8 million.

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)—strong credit; (Yellow)—satisfactory credit; (Red)—payment default risk, in payment default and/or significant restructuring activity.

The CMR distribution of our investments at August 31, 2016 and February 29, 2016 was as follows:

Portfolio CMR distribution

 

     At August 31, 2016     At February 29, 2016  

Color Score

   Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Green

   $ 249,808         91.6   $ 240,623         84.7

Yellow

     —           —          4,058         1.4   

Red

     8         0.0        8         0.0   

N/A(1)

     22,988         8.4        39,307         13.9   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 272,804         100.0   $ 283,996         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of our investment in the subordinated notes of Saratoga CLO and equity interests.

 

40


Table of Contents

The CMR distribution of Saratoga CLO investments at August 31, 2016 and February 29, 2016 was as follows:

Portfolio CMR distribution

 

     At August 31, 2016     At February 29, 2016  

Color Score

   Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Green

   $ 256,542         88.2   $ 251,570         88.3

Yellow

     32,939         11.3        31,752         11.1   

Red

     1,463         0.5        1,331         0.5   

N/A(1)

     13         0.0        192         0.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 290,957         100.0   $ 284,845         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of Saratoga CLO’s equity interests.

Portfolio composition by industry grouping at fair value

The following table shows our portfolio composition by industry grouping at fair value at August 31, 2016 and February 29, 2016:

 

     At August 31, 2016     At February 29, 2016  
     Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Business Services

   $ 132,709         48.6   $ 105,976         37.3

Healthcare Services

     28,249         10.4        36,905         13.0   

Consumer Services

     26,896         9.9        43,109         15.2   

Real Estate

     21,459         7.9        9,537         3.4   

Media

     18,660         6.8        16,574         5.8   

Structured Finance Securities (1)

     11,917         4.4        12,828         4.5   

Education

     10,942         4.0        10,694         3.8   

Food and Beverage

     9,277         3.4        9,131         3.2   

Metals

     8,814         3.2        10,526         3.7   

Building Products

     2,000         0.7        6,367         2.2   

Aerospace and Defense

     997         0.4        —           —     

Consumer Products

     884         0.3        7,642         2.7   

Automotive Aftermarket

     —           —          14,707         5.2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 272,804         100.0   $ 283,996         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of our investment in the subordinated notes of Saratoga CLO.

 

41


Table of Contents

The following table shows Saratoga CLO’s portfolio composition by industry grouping at fair value at August 31, 2016 and February 29, 2016:

 

     At August 31, 2016     At February 29, 2016  
     Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Services: Business

   $ 40,272         13.7   $ 37,308         13.1

Healthcare & Pharmaceuticals

     30,252         10.4        28,339         9.9   

Chemicals/Plastics

     25,190         8.7        24,714         8.7   

High Tech Industries

     14,919         5.1        9,451         3.3   

Aerospace and Defense

     12,987         4.5        12,580         4.4   

Conglomerate

     12,676         4.4        11,770         4.1   

Banking, Finance, Insurance & Real Estate

     12,553         4.3        10,175         3.6   

Retailers (Except Food and Drugs)

     12,211         4.2        18,898         6.6   

Industrial Equipment

     11,675         4.0        11,777         4.1   

Media

     10,843         3.7        4,768         1.7   

Telecommunications

     9,026         3.1        11,364         4.0   

Financial Intermediaries

     8,760         3.0        13,559         4.8   

Leisure Goods/Activities/Movies

     8,258         2.8        8,009         2.8   

Electronics/Electric

     7,437         2.6        9,342         3.3   

Technology

     6,161         2.1        7,774         2.7   

Food Services

     5,962         2.0        5,944         2.1   

Containers/Glass Products

     5,270         1.8        4,168         1.5   

Insurance

     5,031         1.7        4,712         1.7   

Publishing

     4,994         1.7        3,029         1.1   

Automotive

     4,984         1.7        5,470         1.9   

Utilities

     4,339         1.5        6,975         2.4   

Lodging and Casinos

     4,270         1.5        4,958         1.8   

Capital Equipment

     3,995         1.4        —           —     

Food Products

     3,143         1.1        5,694         2.0   

Drugs

     2,957         1.0        2,873         1.0   

Food/Drug Retailers

     2,824         1.0        2,737         1.0   

Hotel, Gaming and Leisure

     2,647         0.9        1,917         0.7   

Cable and Satellite Television

     2,624         0.9        3,557         1.2   

Beverage, Food & Tobacco

     2,498         0.9        984         0.3   

Brokers/Dealers/Investment Houses

     2,463         0.8        2,618         0.9   

Oil & Gas

     2,411         0.8        2,273         0.8   

Construction & Building

     1,962         0.7        2,869         1.0   

Nonferrous Metals/Minerals

     1,482         0.5        1,505         0.5   

Broadcast Radio and Television

     1,319         0.5        1,258         0.4   

Environmental Industries

     787         0.3        732         0.3   

Transportation

     780         0.3        —           —     

Services: Consumer

     747         0.3        496         0.2   

Building and Development

     248         0.1        248         0.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 290,957         100.0   $ 284,845         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

42


Table of Contents

Portfolio composition by geographic location at fair value

The following table shows our portfolio composition by geographic location at fair value at August 31, 2016 and February 29, 2016. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

 

     At August 31, 2016     At February 29, 2016  
     Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Southeast

   $ 101,174         37.1   $ 108,661         38.3

Midwest

     61,810         22.7        57,553         20.3   

Northeast

     53,888         19.7        52,875         18.6   

Southwest

     25,463         9.3        25,535         9.0   

West

     16,552         6.1        24,544         8.6   

Other(1)

     11,917         4.4        12,828         4.5   

International

     2,000         0.7        2,000         0.7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 272,804         100.0   $ 283,996         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of our investment in the subordinated notes of Saratoga CLO.

Results of operations

Operating results for the three and six months ended August 31, 2016 and August 31, 2015 were as follows:

 

     For the three months ended  
     August 31,
2016
     August 31,
2015
 
     ($ in thousands)  

Total investment income

   $ 8,448       $ 7,758   

Total expenses

     5,844         4,101   
  

 

 

    

 

 

 

Net investment income

     2,604         3,657   

Net realized gains from investments

     5,937         3,710   

Net unrealized depreciation on investments

     (3,269      (6,124
  

 

 

    

 

 

 

Net increase in net assets resulting from operations

   $ 5,272       $ 1,243   
  

 

 

    

 

 

 
     For the six months ended  
     August 31,
2016
     August 31,
2015
 
     ($ in thousands)  

Total investment income

   $ 16,356       $ 15,319   

Total expenses

     11,214         9,891   
  

 

 

    

 

 

 

Net investment income

     5,142         5,428   

Net realized gains from investments

     12,040         3,784   

Net unrealized depreciation on investments

     (8,623      (584
  

 

 

    

 

 

 

Net increase in net assets resulting from operations

   $ 8,559       $ 8,628   
  

 

 

    

 

 

 

 

43


Table of Contents

Investment income

The composition of our investment income for the three and six months ended August 31, 2016 and August 31, 2015 were as follows:

 

     For the three months ended  
     August 31,
2016
     August 31,
2015
 
     ($ in thousands)  

Interest from investments

   $ 7,303       $ 6,819   

Management fee income

     375         373   

Interest from cash and cash equivalents and other income

     770         566   
  

 

 

    

 

 

 

Total

   $ 8,448       $ 7,758   
  

 

 

    

 

 

 
     For the six months ended  
     August 31,
2016
     August 31,
2015
 
     ($ in thousands)  

Interest from investments

   $ 14,585       $ 13,750   

Management fee income

     748         752   

Interest from cash and cash equivalents and other income

     1,023         817   
  

 

 

    

 

 

 

Total

   $ 16,356       $ 15,319   
  

 

 

    

 

 

 

For the three months ended August 31, 2016, total investment income increased $0.7 million, or 8.9% compared to the three months ended August 31, 2015. Interest income from investments increased $0.5 million, or 7.1%, to $7.3 million for the three months ended August 31, 2016 from $6.8 million for the three months ended August 31, 2015. This reflects an increase of 8.2% in total investments to $272.8 million at August 31, 2016 from $252.2 million at August 31, 2015, with the weighted average current coupon increasing from 11.7% to 11.9%.

For the six months ended August 31, 2016, total investment income increased $1.0 million, or 6.8% compared to the six months ended August 31, 2015. Interest income from investments increased $0.8 million, or 6.1%, to $14.6 million for the six months ended August 31, 2016 from $13.8 million for the six months ended August 31, 2015. This reflects an increase of 8.2% in total investments to $272.8 million at August 31, 2016 from $252.2 million at August 31, 2015, with the weighted average current coupon increasing from 11.7% to 11.9%.

For the three months ended August 31, 2016 and August 31, 2015, total PIK income was $0.2 million and $0.3 million, respectively. For the six months ended August 31, 2016 and August 31, 2015, total PIK income was $0.3 million and $1.0 million, respectively.

Operating expenses

The composition of our operating expenses for the three and six months ended August 31, 2016 and August 31, 2015 were as follows:

Operating Expenses

 

     For the three months ended  
     August 31,
2016
     August 31,
2015
 
     ($ in thousands)  

Interest and debt financing expenses

   $ 2,370       $ 2,148   

Base management fees

     1,203         1,151   

Professional fees

     302         350   

Administrator expenses

     325         275   

Incentive management fees

     1,208         (41

Insurance

     71         87   

Directors fees and expenses

     60         51   

General and administrative and other expenses

     305         203   

Excise tax expense (credit)

     —           (123
  

 

 

    

 

 

 

Total expenses

   $ 5,844       $ 4,101   
  

 

 

    

 

 

 

 

44


Table of Contents
     For the six months ended  
     August 31,
2016
     August 31,
2015
 
     ($ in thousands)  

Interest and debt financing expenses

   $ 4,738       $ 4,112   

Base management fees

     2,430         2,275   

Professional fees

     662         683   

Administrator expenses

     650         525   

Incentive management fees

     1,937         1,756   

Insurance

     141         175   

Directors fees and expenses

     126         102   

General and administrative and other expenses

     530         386   

Excise tax expense (credit)

     —           (123
  

 

 

    

 

 

 

Total expenses

   $ 11,214       $ 9,891   
  

 

 

    

 

 

 

For the three months ended August 31, 2016, total operating expenses increased $1.7 million, or 42.5% compared to the three months ended August 31, 2015. For the six months ended August 31, 2016, total operating expenses increased $1.3 million, or 13.4% compared to the six months ended August 31, 2015.

For the three and six months ended August 31, 2016 and August 31, 2015, the increase in interest and debt financing expenses is primarily attributable to an increase in outstanding debt as compared to the prior year, with increased levels of outstanding SBA debentures, as well as additional notes being issued. Although the Credit Facility decreased from $2.0 million outstanding at August 31, 2015 to $0.0 million at August 31, 2016, this was more than offset by our SBA debentures increasing from $79.0 million to $103.7 million, and the notes payable increasing from $57.2 million outstanding to $61.8 million outstanding for these same periods. For the three months ended August 31, 2016, the weighted average interest rate on our outstanding indebtedness was 4.80% compared to 5.03% for the three months ended August 31, 2015. For the six months ended August 31, 2016, the weighted average interest rate on our outstanding indebtedness was 4.77% compared to 4.96% for the six months ended August 31, 2015. For both periods, the decrease was primarily driven by an increase in SBA debentures that carry a lower interest rate and makes up a higher proportion of our overall debt this year partially offset by the increase in notes payable that carry a higher interest rate. SBA debentures increased from 57.1% of overall debt as of August 31, 2015 to 62.7% as of August 31, 2016.

For the three months ended August 31, 2016, base management fees increased $0.1 million, or 4.5% compared to the three months ended August 31, 2015. For the six months ended August 31, 2016, base management fees increased $0.2 million, or 6.8% compared to the six months ended August 31, 2015. The increase in base management fees results from the increase in the average value of our total assets, less cash and cash equivalents, from $261.0 million as of August 31, 2015 to $272.7 million as of August 31, 2016.

For the three and six months ended August 31, 2016, professional fees decreased $0.05 million, or 13.5%, and decreased $0.02 million, or 3.1%, respectively, compared to the three and six months ended August 31, 2015.

For the three months ended August 31, 2016, incentive management fees increased $1.2 million as compared to the three months ended August 31, 2015. The first part of the incentive management fees increased this year from $0.7 million to $0.8 million reflecting higher pre-incentive fee net investment income for the three months ended August 31, 2016. For the three months ended August 31, 2016, incentive management fees related to capital gains changed from a $0.8 million reduction of expense to a $0.4 million increase in expense as compared to the three months ended August 31, 2015, reflecting the $2.4 million net loss on investments for the three months ended August 31, 2015, as compared to the $2.7 million net gain on investments for the three months ended August 31, 2016.

 

45


Table of Contents

For the six months ended August 31, 2016, incentive management fees increased $0.2 million, or 10.3% compared to the six months ended August 31, 2015. The first part of the incentive management fees remained relatively unchanged this year at $1.4 million as a higher pre-incentive fee net investment income increase was offset by higher net assets that has led to decreased net investment income above the hurdle rate pursuant to the investment advisory and management agreement. However, for the six months ended August 31, 2016, incentive management fees in total increased $0.2 million as the incentive management fees related to capital gains increased from $0.3 million to $0.5 million compared to the six months ended August 31, 2015, reflecting the $3.2 million net gain on investments for the six months ended August 31, 2015, as compared to the $3.4 million net gain on investments for the six months ended August 31, 2016.

As discussed above, the increase in interest and debt financing expenses for the three and six months ended August 31, 2016 as compared to the three and six months ended August 31, 2015 is primarily attributable to an increase in the amount of outstanding debt. For the three and six months ended August 31, 2016, there were no outstanding borrowings under the Credit Facility. For the three and six months ended August 31, 2015, the weighted average interest rate on the outstanding borrowings under the Credit Facility was 6.00%. For the three months ended August 31, 2016 and August 31, 2015, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 3.19% and 3.25%, respectively. For the six months ended August 31, 2016 and August 31, 2015, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 3.14% and 3.20%, respectively.

Net realized gains/(losses) on sales of investments

For the three months ended August 31, 2016, the Company had $50.3 million of sales, repayments, exits or restructurings resulting in $5.9 million of net realized gains. For the six months ended August 31, 2016, the Company had $70.9 million of sales, repayments, exits or restructurings resulting in $12.0 million of net realized gains. The most significant realized gains during the six months ended August 31, 2016 were as follows (dollars in thousands):

Six Months ended August 31, 2016

 

Issuer

   Asset Type    Gross
Proceeds
     Cost      Net
Realized
Gain
 

Take 5 Oil Change, L.L.C

   Common Stock    $ 6,457       $ 481       $ 5,976   

Legacy Cabinets, Inc.

   Common Stock Voting A-1      2,320         221         2,099   

Legacy Cabinets, Inc.

   Common Stock Voting B-1      1,464         139         1,325   

The $6.0 million of realized gain on our investment in Take 5 Oil Change, L.L.C. was due to the completion of a sales transaction with a strategic acquirer.

The $3.4 million of realized gains on our investments in Legacy Cabinets, Inc. were due to a period of steadily improving performance, leading up to our sale of shares in Legacy Cabinets, Inc.

For the three months ended August 31, 2015, the Company had $27.4 million of sales, repayments, exits or restructurings resulting in $3.7 million of net realized gains. For the six months ended August 31, 2015, the Company had $34.8 million of sales, repayments, exits or restructurings resulting in $3.8 million of net realized gains. The most significant realized gains during the six months ended August 31, 2015 were as follows (dollars in thousands):

Six Months ended August 31, 2015

 

Issuer

   Asset Type    Gross
Proceeds
     Cost      Net
Realized
Gain
 

Network Communications, Inc.

   Common Stock    $ 3,206       $  —         $ 3,206   

Network Communications, Inc

   Unsecured Notes      914         686         228   

The $3.2 million and $0.2 million of realized gains in our investments in Network Communications, Inc. were due to the sale of the company to a third party and reflects the realization value pursuant to that transaction.

 

46


Table of Contents

Net unrealized appreciation/(depreciation) on investments

For the three months ended August 31, 2016, our investments had net unrealized depreciation of $3.3 million versus net unrealized depreciation of $6.1 million for the three months ended August 31, 2015. For the six months ended August 31, 2016, our investments had net unrealized depreciation of $8.6 million versus net unrealized depreciation of $0.6 million for the six months ended August 31, 2015. The most significant cumulative changes in unrealized appreciation and depreciation for the six months ended August 31, 2016, were the following (dollars in thousands):

Six Months ended August 31, 2016

 

Issuer

   Asset Type    Cost      Fair
Value
     Total
Unrealized
Depreciation
     YTD Change
in Unrealized
Depreciation
 

Take 5 Oil Change, L.L.C

   Common Stock    $ —         $ —         $ —         $ (5,755

Legacy Cabinets, Inc.

   Common Stock Voting A-1      —           —           —           (2,456

Legacy Cabinets, Inc.

   Common Stock Voting B-1      —           —           —           (1,550

Elyria Foundry Company, L.L.C.

   Common Stock      9,217         314         (8,903      (1,712

The $5.8 million of change in unrealized depreciation in our investment in Take 5 Oil Change, L.L.C. was driven by the completion of a sales transaction with a strategic acquirer. In realizing this gain as a result of the sale, unrealized appreciation was adjusted to zero, which resulted in a $5.8 million change in unrealized depreciation for the period.

The $4.0 million of change in unrealized depreciation in our investments in Legacy Cabinets, Inc. were driven by the completion of a sales transaction. In realizing these gains as a result of the sale, unrealized appreciation was adjusted to zero, which resulted in a $4.0 million change in unrealized depreciation for the period.

The $1.7 million of change in unrealized depreciation in our investment in Elyria Foundry Company, L.L.C. was driven by a continued decline in oil and gas end markets since year-end, negatively impacting the company’s performance.

The most significant cumulative changes in unrealized appreciation and depreciation for the six months ended August 31, 2015, were the following (dollars in thousands):

Six Months ended August 31, 2015

 

Issuer

   Asset Type    Cost      Fair
Value
     Total
Unrealized
Appreciation/
(Depreciation)
     YTD Change
in Unrealized
Appreciation/
(Depreciation)
 

Saratoga CLO

   Other/Structured Finance Securities    $ 14,304       $ 16,754       $ 2,450       $ 1,372   

Elyria Foundry Company, LLC.

   Common Stock      9,218         3,678         (5,540      (3,084

Smile Brands Group, Inc.

   Syndicated Loan      4,358         2,941         (1,417      (1,203

The $1.4 million unrealized appreciation in our investment in the Saratoga CLO was primarily due to a decline in the discount rate based on prevailing market conditions.

The $3.1 million unrealized depreciation in our investment in Elyria Foundry Company, LLC was primarily due to a decline in oil and gas end markets since year-end, negatively impacting the company’s performance.

The $1.2 million unrealized depreciation in our investment in Smile Brands Group, Inc. was primarily due to declining profitability driven by increased spending.

Changes in net assets resulting from operations

For the three months ended August 31, 2016 and August 31, 2015, we recorded a net increase in net assets resulting from operations of $5.3 million and $1.2 million, respectively. Based on 5,740,816 weighted average common shares outstanding as of August 31, 2016, our per share net increase in net assets resulting from operations was $0.92 for the three months ended August 31, 2016. This compares to a per share net increase in net assets resulting from operations of $0.22 for the three months ended August 31, 2015 based on 5,583,795 weighted average common shares outstanding as of August 31, 2015.

 

47


Table of Contents

For the six months ended August 31, 2016 and August 31, 2015, we recorded a net increase in net assets resulting from operations of $8.6 million and $8.6 million, respectively. Based on 5,739,157 weighted average common shares outstanding as of August 31, 2016, our per share net increase in net assets resulting from operations was $1.49 for the six months ended August 31, 2016. This compares to a per share net increase in net assets resulting from operations of $1.57 for the six months ended August 31, 2015 based on 5,492,491 weighted average common shares outstanding as of August 31, 2015.

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, future borrowings and future offerings of securities.

Although we expect to fund the growth of our investment portfolio through the net proceeds from SBA debenture drawdowns and future equity offerings, including our dividend reinvestment plan (“DRIP”), 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 taxable income in order to satisfy the distribution requirement applicable to RICs under Subchapter M of the Code. In satisfying this distribution requirement, we have in the past relied on IRS issued private letter rulings 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% of the aggregate declared distribution. We may rely on these IRS private letter rulings 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%. This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 308.1% as of August 31, 2016 and 302.5% as of February 29, 2016. 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 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.

Madison revolving credit facility

Below is a summary of the terms of the senior secured revolving credit facility we entered into with Madison Capital Funding LLC (the “Credit Facility”) on June 30, 2010.

Availability. The Company can draw up to the lesser of (i) $40.0 million (the “Facility Amount”) and (ii) the product of the applicable advance rate (which varies from 50.0% to 75.0% depending on the type of loan asset) and the value, determined in accordance with the Credit Facility (the “Adjusted Borrowing Value”), of certain “eligible” loan assets pledged as security for the loan (the “Borrowing Base”), in each case less (a) the amount of any undrawn funding commitments the Company has under any loan asset and which are not covered by amounts in the Unfunded Exposure Account referred to below (the “Unfunded Exposure Amount”) and (b) outstanding borrowings. Each loan asset held by the Company as of the date on which the 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, 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 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

 

48


Table of Contents

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.

Collateral. The Credit Facility is secured by substantially all of the assets of the Company (other than assets held by our SBIC subsidiary) and includes the subordinated notes (“CLO Notes”) issued by Saratoga CLO and the Company’s rights under the CLO Management Agreement (as defined below).

Interest Rate and Fees. Under the Credit Facility, funds are borrowed from or through certain lenders at the greater of the prevailing LIBOR rate and 2.00%, plus an applicable margin of 5.50%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 3.00%, and the applicable margin over such alternative base rate is 4.50%. In addition, the Company pays the lenders a commitment fee of 0.75% per year on the unused amount of the Credit Facility for the duration of the Revolving Period (defined below). Accrued interest and commitment fees are payable monthly. The Company was also obligated to pay certain other fees to the lenders in connection with the closing of the Credit Facility.

Revolving Period and Maturity Date. The Company may make and repay borrowings under the Credit Facility for a period of three years following the closing of the Credit Facility (the “Revolving Period”). The Revolving Period may be terminated at an earlier time by the Company or, upon the occurrence of an event of default, by action of the lenders or automatically. All borrowings and other amounts payable under the Credit Facility are due and payable in full five years after the end of the Revolving Period.

Collateral Tests. It is a condition precedent to any borrowing under the Credit Facility that the principal amount outstanding under the Credit Facility, after giving effect to the proposed borrowings, not exceed the lesser of the Borrowing Base or the Facility Amount (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”):

 

    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 Credit Facility, to accrued interest and commitment fees and any breakage costs payable to the lenders under the Credit Facility for the last 6 payment periods must equal at least 175.0%.

 

    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 and the CLO Notes (in each case, subject to certain adjustments) to outstanding borrowings under the Credit Facility plus the Unfunded Exposure Amount must equal at least 200.0%.

 

    Weighted Average FMV Test. The aggregate adjusted or weighted value of “eligible” pledged loan assets as a percentage of the aggregate outstanding principal balance of “eligible” pledged loan assets must be equal to or greater than 72.0% and 80.0% during the one-year periods prior to the first and second anniversary of the closing date, respectively, and 85.0% at all times thereafter.

The Credit Facility also requires 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 payments or replacements must equal the lower of the amount by which the Borrowing Base is overstated as a result of such breach or any deficiency under the Collateral Tests at the time of repayment or replacement. Compliance with the Collateral Tests is also a condition to the discretionary sale of pledged loan assets by the Company.

Priority of Payments. During the Revolving Period, the priority of payments provisions of the Credit Facility require, after payment of specified fees and expenses and any necessary funding of the Unfunded Exposure Account, that collections of principal from the loan assets and, to the extent that these are insufficient, collections of interest 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. Similarly, following termination of the Revolving Period, collections of interest are required to be applied, after payment of certain fees and expenses, to cure any deficiencies in the Borrowing Base Test, the Interest Coverage Ratio and the Overcollateralization Ratio as of the relevant payment date.

Reserve Account. The Credit Facility requires the Company to set aside an amount equal to the sum of accrued interest, commitment fees and administrative agent fees due and payable on the next succeeding three payment dates (or corresponding to three payment periods). If for any monthly period during which fees and other payments accrue, the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets which do not pay cash interest at least quarterly exceeds 15.0% of the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets, the Company is required to set aside such interest and fees due and payable on the next succeeding six payment dates. Amounts in the reserve account can be applied solely to the payment of administrative agent fees, commitment fees, accrued and unpaid interest and any breakage costs payable to the lenders.

 

49


Table of Contents

Unfunded Exposure Account. With respect to revolver or delayed draw loan assets, the Company is required to set aside in a designated account (the “Unfunded Exposure Account”) 100.0% of its outstanding and undrawn funding commitments with respect to such loan assets. The Unfunded Exposure Account is funded at the time the Company acquires a revolver or delayed draw loan asset and requests a related borrowing under the Credit Facility. The Unfunded Exposure Account is funded through a combination of proceeds of the requested borrowing and other Company funds, and if for any reason such amounts are insufficient, through application of the priority of payment provisions described above.

Operating Expenses. The priority of payments provision of the Credit Facility provides for the payment of certain operating expenses of the Company out of collections on principal and interest during the Revolving Period and out of collections on interest following the termination of the Revolving Period in accordance with the priority established in such provision. The operating expenses payable pursuant to the priority of payment provisions is limited to $350,000 for each monthly payment date or $2.5 million for the immediately preceding period of twelve consecutive monthly payment dates. This ceiling can be increased by the lesser of 5.0% or the percentage increase in the fair market value of all the Company’s assets only on the first monthly payment date to occur after each one-year anniversary following the closing of the Credit Facility. Upon the occurrence of a Manager Event (described below), the consent of the administrative agent is required in order to pay operating expenses through the priority of payments provision.

Events of Default. The Credit Facility contains certain negative covenants, customary representations and warranties and affirmative covenants and events of default. The Credit Facility does not contain grace periods for breach by the Company of certain covenants, including, without limitation, preservation of existence, negative pledge, change of name or jurisdiction and separate legal entity status of the Company covenants and certain other customary covenants. Other events of default under the Credit Facility include, among other things, the following:

 

    an Interest Coverage Ratio of less than 150.0%;

 

    an Overcollateralization Ratio of less than 175.0%;

 

    the filing of certain ERISA or tax liens;

 

    the occurrence of certain “Manager Events” such as:

 

    failure by Saratoga Investment Advisors and its affiliates to maintain collectively, directly or indirectly, a cash equity investment in the Company in an amount equal to at least $5,000,000 at any time prior to the third anniversary of the closing date;

 

    failure of the Management Agreement between Saratoga Investment Advisors and the Company to be in full force and effect;

 

    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 Madison Capital Funding appointed to replace such key person within 30 days;

 

    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 Madison Capital Funding appointed within 30 days; or

 

    occurrence of any event constituting “cause” under the Collateral Management Agreement between the Company and Saratoga CLO (the “CLO Management Agreement”), delivery of a notice under Section 12(c) of the CLO Management Agreement with respect to the removal of the Company as collateral manager or the Company ceases to act as collateral manager under the CLO Management Agreement.

Conditions to Acquisitions and Pledges of Loan Assets. The Credit Facility imposes certain additional conditions to the acquisition and pledge of additional loan assets. Among other things, the Company may not acquire additional loan assets without the prior written consent of the administrative agent until such time that the administrative agent indicates in writing its satisfaction with Saratoga Investment Advisors’ policies, personnel and processes relating to the loan assets.

Fees and Expenses. The Company paid certain fees and reimbursed Madison Capital Funding LLC for the aggregate amount of all documented, out-of-pocket costs and expenses, including the reasonable fees and expenses of lawyers, incurred by Madison Capital Funding LLC in connection with the Credit Facility and the carrying out of any and all acts contemplated thereunder up to and as of the date of closing of the stock purchase transaction with Saratoga Investment Advisors and certain of its affiliates. These amounts totaled $2.0 million.

 

50


Table of Contents

On February 24, 2012, we amended our senior secured revolving credit facility with Madison Capital Funding LLC to, among other things:

 

    expand the borrowing capacity under the Credit Facility from $40.0 million to $45.0 million;

 

    extend the period during which we may make and repay borrowings under the 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 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 the administrative agent.

On September 17, 2014, we entered into a second amendment to the Revolving Facility with Madison Capital Funding LLC to, among other things:

 

    extend the commitment termination date from February 24, 2015 to September 17, 2017;

 

    extend the maturity date of the Revolving 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%.

As of August 31, 2016, we had no outstanding borrowings under the Credit Facility and $103.7 million SBA-guaranteed debentures outstanding (which are discussed below). As of February 29, 2016, we had no outstanding borrowings under the Credit Facility and $103.7 million SBA-guaranteed debentures outstanding. Our borrowing base under the Credit Facility at August 31, 2016 and February 29, 2016 was $24.0 million and $21.8 million, respectively.

Our asset coverage ratio, as defined in the 1940 Act, was 308.1% as of August 31, 2016 and 302.5% as of February 29, 2016.

SBA-guaranteed debentures

In addition, we, through a wholly-owned subsidiary, sought and obtained a license 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. 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 license allows our SBIC subsidiary 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 currently limit 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. As of August 31, 2016, our SBIC subsidiary had $75.0 million in regulatory capital and $103.7 million SBA-guaranteed debentures outstanding.

We received exemptive relief from the SEC to permit us to exclude the debt of our SBIC subsidiary guaranteed by the SBA from the definition of senior securities in the 200% asset coverage test under the 1940 Act. This allows us increased flexibility under the 200% asset coverage test by permitting us to borrow up to $150.0 million more than we would otherwise be able to absent the receipt of this exemptive relief.

On April 2, 2015, the SBA issued a “green light” letter inviting the Company to continue the application process to obtain a license to form and operate its second SBIC subsidiary. On September 27, 2016, the SBA informed us that as part of their continued review of our application for a second license, and in order to ensure that they were reviewing the most current information available, we would need to update all previously submitted materials and invited us to reapply. As a result of this request, with which we are in the process of complying, the existing “green light” letter that the SBA issued to us will expire. If approved in the future, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue up to $150.0 million of additional SBA-guaranteed debentures in addition to the $150.0 million already approved under the first license.

 

51


Table of Contents

Unsecured notes

In May 2013, we issued $48.3 million in aggregate principal amount of our 7.50% unsecured notes due 2020 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. Interest on these notes is paid quarterly in arrears on February 15, May 15, August 15 and November 15, at a rate of 7.50% per year, beginning August 15, 2013. The notes mature on May 31, 2020 and since May 31, 2016, may be redeemed in whole or in part at any time or from time to time at our option. In connection with the issuance of the notes, we agreed to the following covenants for the period of time during which the notes are outstanding:

 

    we will not violate (whether or not we are subject to) Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect to any exemptive relief granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings.

 

    we will not violate (regardless of whether we are subject to) Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect to (i) any exemptive relief granted to us by the SEC and (ii) no-action relief granted by the SEC to another BDC (or to the Company if it determines to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act in order to maintain the BDC’s status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986. Currently these provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase.

The Notes are listed on the NYSE under the trading symbol “SAQ” with a par value of $25.00 per share.

On May 29, 2015, we entered into a Debt Distribution Agreement with Ladenburg Thalmann & Co. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the Notes through an ATM offering. As of August 31, 2016, we sold 539,725 bonds with a principal of $13,493,125 at an average price of $25.31 for aggregate net proceeds of $13,385,766 (net of transaction costs).

At August 31, 2016 and February 29, 2016, the fair value of investments, cash and cash equivalents and cash and cash equivalents, reserve accounts were as follows:

 

     At August 31, 2016     At February 29, 2016  
     Fair Value      Percentage
of
Total
    Fair Value      Percentage
of
Total
 
     ($ in thousands)  

Cash and cash equivalents

   $ 12,707         4.3   $ 2,440         0.8

Cash and cash equivalents, reserve accounts

     10,174         3.4        4,595         1.6   

Syndicated loans

     9,516         3.2        11,868         4.1   

First lien term loans

     153,276         51.9        144,643         49.7   

Second lien term loans

     87,024         29.4        88,178         30.3   

Structured finance securities

     11,917         4.0        12,828         4.4   

Equity interests

     11,071         3.8        26,479         9.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 295,685         100.0   $ 291,031         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

On September 24, 2014, we announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of our common stock at prices below our NAV as reported in its then most recently published consolidated financial statements, which was subsequently increased to 400,000 shares of our common stock. As of August 31, 2016, we purchased 138,494 shares of common stock, at the average price of $16.16 for approximately $2.2 million pursuant to this repurchase plan. On October 5, 2016, our board of directors extended the open market share repurchase plan for another year to October 15, 2017 and increased the number of shares we are permitted to repurchase at prices below our NAV, as reported in its then most recently published consolidated financial statements, to 600,000 shares of our common stock.

 

52


Table of Contents

On October 5, 2016, our board of directors declared a dividend of $0.44 per share payable 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 our DRIP.

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 our 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 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 our 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 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 our 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 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 our 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 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 our 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 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 our 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 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.

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 as of May 26, 2015. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our 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 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.

 

53


Table of Contents

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 our 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 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. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our 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 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. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to our 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 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 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 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 the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2011.

 

54


Table of Contents

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 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 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.

Contractual obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at August 31, 2016:

 

            Payment Due by Period  
     Total      Less Than
1 Year
     1 -3
Years
     3 -5
Years
     More Than
5 Years
 
     ($ in thousands)  

Long-Term Debt Obligations

   $ 165,453       $ —        $ —        $ 61,793       $ 103,660   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Off-balance sheet arrangements

The Company’s off-balance sheet arrangements consisted of $8.0 million and $2.0 million of unfunded commitments to provide debt financing to its portfolio companies or to fund limited partnership interests as of August 31, 2016 and February 29, 2016, respectively. 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.

 

55


Table of Contents

A summary of the composition of the unfunded commitments as of August 31, 2016 and February 29, 2016 is shown in the table below (dollars in thousands):

 

     As of  
     August 31,
2016
     February 29,
2016
 

Avionte Holdings, LLC

   $ 1,000       $ 1,000   

BoardEffect, Inc.

     7,000         —     

Identity Automation Systems

     —           1,000   
  

 

 

    

 

 

 

Total

   $ 8,000       $ 2,000   
  

 

 

    

 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks have not changed materially from the risks reported in our Form 10-K for the year ended February 29, 2016.

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.

 

(b) There have been no changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

56


Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On August 31, 2012, a complaint was filed in the United States Bankruptcy Court for the Southern District of New York by GSC Acquisition Holdings, LLC against us to recover, among other things, approximately $2.6 million for the benefit of the estates and the general unsecured creditors of GSC Group, Inc. and its affiliates, including the Company’s former investment adviser, GSCP (NJ), L.P. The complaint alleges that the former investment adviser made a constructively fraudulent transfer of $2.6 million in deferred incentive fees by waiving them in connection with the termination of the Management Agreement with us, and that the termination of the Management Agreement was itself a fraudulent transfer. These transfers, the complaint alleges, were made without receipt of reasonably equivalent value and while the former investment adviser was insolvent. The complaint has not yet been served, and the plaintiff’s motion for authority to prosecute the case on behalf of the estates was taken under advisement by the court on October 1, 2012. We opposed that motion. We believe that the claims in this lawsuit are without merit and, if the plaintiff is authorized to proceed, intend to vigorously defend against this action.

Except as discussed above, neither we nor our wholly-owned subsidiaries, Saratoga Investment Funding LLC and Saratoga Investment Corp. SBIC 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 annual report on Form 10-K for the year ended February 29, 2016, which could materially affect our business, financial condition and/or operating results. 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

Not applicable.

 

57


Table of Contents

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

Number

  

Description of Document

31.1*    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
32.2*    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

* Submitted herewith.

 

58


Table of Contents

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 12, 2016     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

 

59

EX-31.1

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)) 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 12, 2016

 

/s/ CHRISTIAN L. OBERBECK

Christian L. Oberbeck
Chief Executive Officer
EX-31.2

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)) 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 12, 2016

 

/s/ HENRI J. STEENKAMP

Name: Henri J. Steenkamp

Chief Financial Officer and Chief Compliance Officer

EX-32.1

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 12, 2016

 

/s/ CHRISTIAN L. OBERBECK

Christian L. Oberbeck
Chief Executive Officer
EX-32.2

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 12, 2016

 

/s/ HENRI J. STEENKAMP

Name: Henri J. Steenkamp
Chief Financial Officer and Chief Compliance Officer