NEW YORK, May 20, 2015 /PRNewswire/ -- Saratoga Investment Corp. (NYSE: SAR) ("Saratoga Investment" or "the Company"), a business development company, today announced financial results for its 2015 fiscal year end and fourth quarter.

Summary Financial Information

• Net investment income on a weighted average per share basis of $1.80 and $0.53 for the year and quarter ended February 28, 2015, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income on a weighted per share basis was $1.85 and $0.50, respectively.
• Net investment income of $9.7 million and $2.9 million for the year and quarter ended February 28, 2015, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $10.0 million and $2.7 million, respectively.
• Net investment income yield as percentage of average net asset value ("Net Investment Income Yield") was 8.2% and 9.5% for the year and quarter ended February 28, 2015, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 8.5% and 8.8%, respectively.
• Return on equity for the year and quarter ended February 28, 2015 was 9.3% and 8.9%, respectively.
• Earnings per share for the year and quarter ended February 28, 2015 was $2.04 and $0.50, respectively.
• Net asset value ("NAV") was $122.6 million as of February 28, 2015, a $9.2 million increase from a NAV of $113.4 million as of February 28, 2014.
• NAV per share was $22.70 as of February 28, 2015, compared to $21.08 as of February 28, 2014.
• Investment portfolio activity for the year ended February 28, 2015
  • Cost of investments made during the period: $104.9 million
  • Principal repayments during the period: $73.3 million
• Investment portfolio activity for the quarter ended February 28, 2015
  • Cost of investments made during the period: $20.9 million
  • Principal repayments during the period: $20.5 million

Operating Results

For the fiscal year ended February 28, 2015, Saratoga Investment reported net investment income of $9.7 million, or $1.80 on a weighted average per share basis, and a net gain on investments of $1.3 million, or $0.24 on a weighted average per share basis, resulting in a net increase in net assets from operations of $11.0 million, or $2.04 on a weighted average per share basis. The $1.3 million net gain on investments was comprised largely of $3.3 million in net realized gain on investments offset by $1.9 million in net unrealized depreciation on investments. This compared to the fiscal year ended February 28, 2014 with net investment income of $8.9 million, or $1.80 on a weighted average per share basis, and a net loss on investments of $377,281, or $0.07 on a weighted average per share basis, resulting in a net increase in net assets from operations of $8.5 million, or $1.73 on a weighted average per share basis. The $377,281 net loss on investments consisted of $1.6 million in net unrealized depreciation on investments, offset by $1.3 million in net realized gains.

For the quarter ended February 28, 2015, Saratoga Investment reported net investment income of $2.9 million, or $0.53 on a weighted average per share basis, and a net loss on investments of $0.2 million, or $0.03 on a weighted average per share basis, resulting in a net increase in net assets from operations of $2.7 million, or $0.50 on a weighted average per share basis. The $183,622 net loss on investments was largely comprised of $256,673 in net unrealized depreciation on investments. This compared to the quarter ended February 28, 2014 with net investment income of $1.5 million, or $0.28 on a weighted average per share basis, and a net gain on investments of $2.2 million, or $0.42 on a weighted average per share basis, resulting in a net increase in net assets from operations of $3.8 million, or $0.70 on a weighted average per share basis. The $2.2 million net gain on investments consisted of $2.1 million in net unrealized appreciation on investments, as well as $0.1 million in net realized gains.

The increase in net investment income of $0.8 million and $1.4 million for the year and quarter ended February 28, 2015, respectively, is primarily due to higher investment income, which has increased to $27.4 million for the year ended February 28, 2015 from $22.9 million for the year ended February 28, 2014, and to $7.5 million from $5.7 million for the same quarterly periods. This increased investment income was generated from an investment base that has grown by 17% since last year. The adjusted net investment income increase was partially offset by (i) increased debt and financing expenses from higher outstanding SBA debentures this year reflective of the growing investment and asset base, and (ii) increased base and incentive management fees generated from the management of this larger pool of investments. Total expenses, excluding interest and debt financing expenses, base management fees and incentive management fees, decreased from $3.7 million for the year ended February 28, 2014 to $3.6 million for the year ended February 28, 2015, representing a decrease from 1.8% of Assets Under Management ("AUM") for the year ended February 28, 2014 to 1.5% for the year ended February 28, 2015. This reflects the continued benefit of increased scale.

Net Investment Income Yield was 8.2% and 9.5% for the year and quarter ended February 28, 2015, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 8.5% and 8.8% for the year and quarter ended February 28, 2015, respectively. Return on Equity was 9.3% and 8.9% for the year and quarter ended February 28, 2015, respectively.

Net Investment Income Yield was 8.0% and 5.5% for the year and quarter ended February 28, 2014, respectively. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 8.0% and 7.0% for the year and quarter ended February 28, 2014, respectively.

NAV was $122.6 million as of February 28, 2015, a $9.2 million increase from a NAV of $113.4 million as of February 28, 2014. NAV per share was $22.70 as of February 28, 2015, compared to $21.08 as of February 28, 2014.

"In fiscal year 2015, we have achieved important goals by expanding our assets under management, improving investment quality, broadening our investor base and adding talented senior management and professionals to our team," said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. "In 2015, we successfully deployed a significant amount of the capital available to us through our SBIC license and received the 'green light' approval from the SBA for our second SBIC license. We also moved to strengthen our shareholder base by commencing regular quarterly dividends, which have increased every consecutive quarter, as well as declaring a recent special dividend, while adopting a dividend reinvestment plan that enables our investors to reinvest in Saratoga's growth. We anticipate another increase to our dividend next quarter."

Michael J. Grisius, President and Chief Investment Officer, added, "We continue building our team to achieve greater size investments and capabilities. During fiscal year 2015, we saw a year-on-year increase of our assets under management, while the overall credit quality in the portfolio continues to be excellent. Over 94% of our portfolio bears our highest credit quality rating. In addition, we deployed capital at multiples far below market averages, even though market conditions and competition remain challenging. Despite a tighter market, we continue to have a positive view of our pipeline of new investment opportunities and the demand for financing in the markets we address."

Portfolio and Investment Activity

As of February 28, 2015, the fair value of Saratoga Investment's portfolio was $240.5 million (excluding $20.1 million in cash and cash equivalents), principally invested in 34 portfolio companies and one collateralized loan obligation fund ("CLO"). The overall portfolio composition consisted of 60.3% of first lien term loans, 14.8% of second lien term loans, 1.8% of unsecured notes, 7.1% of subordinated notes in a CLO, 7.6% of syndicated loans, and 8.4% of common equity.

For the fiscal year ended February 28, 2015, Saratoga Investment invested $104.9 million in new or existing portfolio companies and had $73.3 million in aggregate amount of exits and repayments, resulting in net investments of $31.6 million for the year.  For the quarter ended February 28, 2015, Saratoga Investment invested $20.9 million in new or existing portfolio companies, and had $20.5 million in aggregate amount of exits and repayments, resulting in net investments of $0.4 million for the quarter.

As of February 28, 2015, the weighted average current yield on Saratoga Investment's portfolio for the twelve months ended February 28, 2015 was 11.8%, which was comprised of a weighted average current yield of 11.0% on first lien term loans, 11.2% on second lien term loans, 13.7% on unsecured notes, 25.2% on CLO subordinated notes, and 6.2% on syndicated loans.

Liquidity and Capital Resources

As of February 28, 2015, Saratoga Investment had $9.6 million in outstanding borrowings under its $45 million senior secured revolving credit facility with Madison Capital Funding LLC. At the same time, Saratoga Investment had $79.0 million outstanding of SBA debentures, $48.3 million of Baby Bonds (fair value of $49.5 million) and an aggregate of $20.1 million in cash and cash equivalents.

With the $35.4 million credit facility and the $71.0 million additional borrowing capacity at the SBIC subsidiary, as well as the $20.1 million of cash and cash equivalents, Saratoga Investment has a total of $126.6 million of undrawn borrowing capacity and cash and cash equivalents available as of February 28, 2015.

On April 6, 2015, Saratoga Investment also announced that the U.S. Small Business Administration ("SBA") issued a "green light" or "go forth" letter inviting Saratoga Investment to continue its application process to obtain a license to form and operate a second Small Business Investment Company ("SBIC") subsidiary. A second license, if ultimately granted by the SBA, will allow Saratoga Investment to grow its asset base by an additional $112.5 million.

Dividend

During fiscal year 2015, Saratoga Investment announced the decision made by its Board of Directors to adopt a new dividend policy to pay a regular quarterly cash dividend to shareholders. Since then, the Company has paid quarterly dividends of $0.18 per share for the quarter ended August 31, 2014, and $0.22 per share for the quarter ended November 30, 2014.

On April 9, 2015, Saratoga Investment announced a dividend of $0.27 per share for the fiscal quarter ended February 28, 2015, payable on May 29, 2015 to all stockholders of record at the close of business on May 4, 2015. Shareholders will have the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company's dividend reinvestment plan ("DRIP"), which Saratoga Investment adopted in conjunction with the new dividend policy, and provides for the reinvestment of dividends on behalf of its stockholders. 

On May 14, 2015, Saratoga Investment announced that its Board of Directors has declared a special dividend to shareholders of $1.00 per share, payable on June 5, 2015 to all stockholders of record at the close of business on May 26, 2015. Shareholders will have the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company's dividend reinvestment plan ("DRIP"), which Saratoga Investment adopted in conjunction with the new dividend policy, and provides for the reinvestment of dividends on behalf of its stockholders.

Saratoga Investment shareholders who hold their shares with a broker must affirmatively instruct their brokers prior to the record date if they prefer to receive this dividend and future dividends in common stock.  The number of shares of Common Stock to be delivered shall be determined by dividing the total dollar amount by 95% of the average of the market prices per share at the close of trading on the ten (10) trading days immediately preceding (and including) the payment date.

2015 Fiscal Year End and Fourth Quarter Conference Call/Webcast Information

 

About Saratoga Investment Corp.

Saratoga Investment Corp. is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses.  The Company invests primarily in mezzanine debt, senior and unitranche leveraged loans and, to a lesser extent, equity to provide financing for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives in partnership with business owners, management teams and financial sponsors.  Saratoga Investment Corp.'s objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from its debt and equity investments.  Saratoga Investment Corp. has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940 and is externally-managed by Saratoga Investment Advisors, LLC, an SEC-registered investment advisor focusing on credit-driven strategies.  Saratoga Investment Corp. owns an SBIC-licensed subsidiary and manages a $300 million Collateralized Loan Obligation (CLO) fund.  It also owns 100% of the subordinated notes of the CLO.  These diverse funding sources, combined with a permanent capital base, enable Saratoga Investment Corp. to provide a broad range of financing solutions.

Forward Looking Statements

This press release contains certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties and other factors enumerated in this press release and the filings Saratoga Investment Corp. makes with the SEC.  Saratoga Investment Corp. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Financials

 

 

 

 

 

Correction of Immaterial Errors Related to Prior Period

During the year ended February 28, 2015, the Company identified errors related to the accounting for the capital gains portion of the incentive fee for the years ended February 28, 2014, 2013, 2012 and 2011, as well as the cumulative impact of these errors as of February 28, 2014.

The Company assessed the materiality of these errors and concluded that they were not  material to any prior annual periods, but the cumulative impact of correcting them in the current period would be quantitatively material to the results of operations of the Company for the year ended February 28, 2015, if the entire adjustment was recorded in that period. Therefore, the consolidated financial statements as of and for the years ended February 28, 2014 and 2013 have been corrected.

Supplemental Information Regarding Adjusted Net Investment Income and Adjusted Net Investment Income Yield

On a supplemental basis, we provide information relating to adjusted net investment income and adjusted net investment income yield, which are non-GAAP measures. These measures are provided in addition to, but not as a substitute for, net investment income and net investment income yield. Adjusted net investment income represents net investment income excluding any capital gains incentive fee expense or reversal attributable to unrealized gains. The management agreement with our advisor provides that a capital gains incentive fee is determined and paid annually with respect to cumulative realized capital gains (but not unrealized capital gains) to the extent such realized capital gains exceed realized and unrealized losses for such year. In addition, we accrue, but do not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate. As such, we believe that adjusted net investment income and adjusted net investment income yield is a useful indicator of operations exclusive of any capital gains incentive fee expense or reversal attributable to unrealized gains. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. The following table provides a reconciliation of net investment income to adjusted net investment income and net investment income yield to adjusted net investment income yield for the three and twelve months ended February 28, 2015 and 2014.

 

 

 

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SOURCE Saratoga Investment Corp.