Saratoga Investment Corp. : Announces Fiscal First Quarter 2019 Financial Results

NEW YORK, July 10, 2018 /PRNewswire/ -- Saratoga Investment Corp. (NYSE:SAR) ("Saratoga Investment" or "the Company"), a business development company, today announced financial results for its 2019 fiscal first quarter.

Summary Financial Information

The Company's summarized financial information is as follows:

"We are pleased with the strength of our first fiscal quarter of 2019 which continues to drive industry leading performance metrics across the board," said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. "Adjusted NII per share is $0.64, thirteen cents above our current $0.51 dividend; adjusted NII Yield is 11.1%; LTM ROE is 14.9%, almost 600 basis points above the BDC industry mean; and NAV per share is $23.06, up $1.37 from the same period last year. While overall NAV increased to $144.8 million, representing a 13.5% increase over the same period last year. Last month, we increased our dividend for the fifteenth consecutive quarter, a $0.01 increase to $0.51 per share. Importantly, we continue to out-earn our dividend payments – by 18% currently based on the last twelve months earnings. In the current rising rate environment, we believe we are well-structured, with 81% of our interest earning investments having floating-rate interest rates and through their LIBOR floors, and all of our debt at quarter-end being fixed-rate."

Michael J. Grisius, President and Chief Investment Officer, added, "This fiscal quarter has again demonstrated the important, positive impact on performance of our relentless focus on identifying and underwriting high quality credits, which we've been able to accomplish despite persistent market challenges. The number of portfolio investments rated in our highest category rose to 99%, and we were able to move capital from non-accrual or low-yielding investments to higher-yielding, performing credits from which we will benefit in the future. In addition, this quarter we also invested in three new portfolio companies, and subsequent to quarter-end, also closed deals in a further three new portfolio companies, bringing our total investments for the past two months to six new platforms while continuing to also grow through smaller follow-ons. By combining a robust pipeline with flexible sources of liquidity, we have been able to compensate for quarterly repayments that can be lumpy and unpredictable. We remain confident that we can continue to improve the size and quality of our AUM steadily over the long-term."

As of May 31, 2018, Saratoga Investment increased its assets under management ("AUM") to $343.4 million, an increase of 0.2% from $342.7 million as of February 28, 2018, and an increase of 4.1% from $329.7 million as of May 31, 2017. The increase this quarter reflects originations of $35.2 million, offset by repayments and amortizations of $36.5 million that were primarily non-accrual or lower yielding syndicated investments. Including realized and unrealized gains, Saratoga Investment's portfolio has continued to grow this quarter and remains strong, with a continued high level of investment quality in loan investments, with 99.3% of our loans this quarter at our highest internal rating. Included in this quarter's originations are also three investments in new portfolio companies. Since Saratoga management has taken over the management of the BDC, $296.9 million of repayments and sales of investments originated by Saratoga have generated a gross unlevered IRR of 13.4%.

For the three months ended May 31, 2018, total investment income of $10.5 million increased $1.8 million, or 20.5%, compared to $8.7 million for the three months ended May 31, 2017. This increased investment income was generated from an investment base that has grown by 4.1% since last year, with the weighted average current coupon on non-CLO investments unchanged at 11.3%, but further benefitting from an increase on interest earned on the CLO equity. In addition, this quarter's investment income was up 3.6% on a quarter-on-quarter basis from $10.1 million for the quarter ended February 28, 2018.

As compared to the three months ended May 31, 2017, the investment income increase of $1.8 million was offset by (i) increased debt and financing expenses from higher outstanding SBA debentures this quarter for the full period, reflective of the growing investment and asset base, (ii) increased base management fees generated from the management of this larger pool of investments and (iii) increased total expenses, excluding interest and debt financing expenses, base management fees and incentive fees, reflecting primarily higher broken deal fees and administrator expenses this quarter, as well as higher professional fees due to increased Sarbanes-Oxley ("SOX") activities now that the Company qualifies as an accelerated filer.   

Net investment income on a weighted average per share basis was $0.63 for the quarter ended May 31, 2018. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income on a weighted average per share basis was $0.64. This compares to adjusted net investment income per share of $0.60 for the quarter ended February 28, 2018 and $0.50 for the quarter ended May 31, 2017, reflecting increases of 6.7% and 28.0%, respectively.

Net investment income yield as a percentage of average net asset value ("Net Investment Income Yield") was 10.9% for the quarter ended May 31, 2018. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 11.1%. In comparison, adjusted Net Investment Income Yield was 10.7% and 9.2% for the quarters ended February 28, 2018 and May 31, 2017, respectively.

Net Asset Value ("NAV") was $144.8 million as of May 31, 2018, an increase of $1.1 million from $143.7 million as of February 28, 2018, and an increase of $17.2 million from $127.6 million as of May 31, 2017.

• For the three months ended May 31, 2018, $3.9 million of net investment income, $0.2 million of net realized gains and $0.6 million of net unrealized appreciation were earned, partially offset by $0.9 million deferred tax expense on net unrealized gains in Saratoga Investment's blocker subsidiaries and $3.1 million of dividends declared. In addition, $0.5 million of stock dividend distributions were made through the Company's dividend reinvestment plan ("DRIP"). No shares were sold through the Company's At-the-Market ("ATM") equity offering during the quarter.

NAV per share was $23.06 as of May 31, 2018, compared to $22.96 as of February 28, 2018 and $21.69 as of May 31, 2017.

• For the three months ended May 31, 2018, NAV per share increased by $0.10 per share, primarily reflecting the $0.7 million, or $0.11 per share increase in net assets (net of the $0.50 dividend paid during the first fiscal quarter of 2019). This was slightly offset by the $0.01 dilutive impact of the quarter's share issuances from the 25,435 shares issued under the DRIP. The Company made no purchases of common stock in the open market during the quarter.

Return on equity for the last twelve months ended May 31, 2018 was 14.9%, compared to 7.1% for the comparable period last year.

Earnings per share for the quarter ended May 31, 2018 was $0.61, compared to earnings per share of $0.89 for the quarter ended February 28, 2018 and $0.17 for the quarter ended on May 31, 2017.

Investment portfolio activity for the quarter ended May 31, 2018:

• Cost of investments made during the period: $35.2 million, including investments in three new portfolio companies
• Principal repayments during the period: $36.5 million

Additional Financial Information

For the fiscal quarter ended May 31, 2018, Saratoga Investment reported net investment income of $3.8 million, or $0.63 on a weighted average per share basis, and a net realized and unrealized loss on investments of $0.1 million, or $0.01 on a weighted average per share basis, resulting in a net increase in net assets from operations of $3.8 million, or $0.61 on a weighted average per share basis. The $0.1 million net loss on investments was comprised of $0.2 million in net realized gain on investments and $0.6 million in net unrealized appreciation on investments, offset by $0.9 million of net deferred tax expense on unrealized gains in Saratoga Investment's blocker subsidiaries. The $0.6 million unrealized appreciation is primarily due to $0.8 million unrealized appreciation on Saratoga Investment's Easy Ice investment. This compared to the fiscal quarter ended May 31, 2017 with net investment income of $3.5 million, or $0.60 on a weighted average per share basis, and a net realized and unrealized loss on investments of $2.5 million, or $0.42 on a weighted average per share basis, resulting in a net increase in net assets from operations of $1.0 million, or $0.17 on a weighted average per share basis. The $2.5 million net loss on investments consisted of $0.1 million in net realized gains on investments offset by $2.6 million in unrealized depreciation.

Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $4.0 million and $2.9 million for the quarters ended May 31, 2018 and May 31, 2017, respectively – an increase of $1.1 million year-over-year, or 35.9%.

Total expenses, excluding interest and debt financing expenses, base management fees and incentive management fees, increased from $1.1 million for the quarter ended May 31, 2017 to $1.2 million for the quarter ended May 31, 2018, remaining unchanged at 1.4% of average total assets.

Portfolio and Investment Activity

As of May 31, 2018, the fair value of Saratoga Investment's portfolio was $343.4 million (excluding $13.7 million in cash and cash equivalents), principally invested in 32 portfolio companies and one collateralized loan obligation fund ("CLO"). The overall portfolio composition consisted of 57.0% of first lien term loans, 28.3% of second lien term loans, 0.6% of unsecured term loans, 4.8% of subordinated notes in a CLO, and 9.3% of common equity.

For the fiscal quarter ended May 31, 2018, Saratoga Investment invested $35.2 million in new or existing portfolio companies and had $36.5 million in aggregate amount of exits and repayments, resulting in net divestment of $1.3 million for the quarter. 

As of May 31, 2018, the weighted average current yield on Saratoga Investment's portfolio for the twelve months ended was 11.3%, which was comprised of a weighted average current yield of 11.3% on first lien term loans, 11.9% on second lien term loans, 8.2% on unsecured term loans, 23.2% on CLO subordinated notes, and 3.4% on equity interests.

As of May 31, 2018, 80.6% of Saratoga Investment's interest earning portfolio is in floating rate debt, with many of these investments having floors. For all of these investments, the relevant 1-month or 3-month LIBOR rate is currently above the floors. Pursuant to the disclosure included in Item 3 of Saratoga Investment's Form 10-Q for the quarter ended May 31, 2018, assuming that the investments as of May 31, 2018 were to remain constant for a full fiscal year and no actions were taken to alter the existing interest rate terms, a hypothetical change of 1.0% in interest rates would cause a corresponding increase of approximately $2.5 million to interest income over twelve months.

Liquidity and Capital Resources

As of May 31, 2018, Saratoga Investment had no outstanding borrowings under its $45 million senior secured revolving credit facility with Madison Capital Funding LLC. At the same time, Saratoga Investment had $137.7 million SBA debentures outstanding, $74.5 million of baby bonds (fair value of $77.0 million) issued and an aggregate of $13.7 million in cash and cash equivalents.

With $45.0 million available under the credit facility and the $12.3 million additional borrowing capacity at the SBIC subsidiary, as well as the $13.7 million of cash and cash equivalents, Saratoga Investment has a total of $71.0 million of undrawn borrowing capacity and cash and cash equivalents available as of May 31, 2018. The proceeds from the DRIP program totaled $0.5 million of equity investments in the first fiscal quarter of 2019. Saratoga Investment also has the ability to issue additional equity or baby bonds through the existing shelf registration statement.

On March 16, 2017, Saratoga Investment entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc., through which Saratoga may offer for sale, from time to time, up to $30.0 million of its common stock through an ATM offering. As of May 31, 2018, the Company sold 348,123 shares for gross proceeds of $7.8 million at an average price of $22.52 for aggregate net proceeds of $7.8 million (net of transaction costs).

Share Repurchase Plan

In fiscal year 2015, the Company announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published financial statements. During fiscal year 2017, the share repurchase plan was increased to 600,000 shares of common stock, and during fiscal year 2018, this share repurchase plan was extended for another year, through October 2018, at the same level of approval. As of May 31, 2018, Saratoga purchased 218,491 shares of common stock, at the average price of $16.84 for approximately $3.7 million pursuant to this repurchase plan.

Dividend

On May 30, 2018, Saratoga Investment announced a dividend of $0.51 per share for the fiscal quarter ended May 31, 2018, payable on June 27, 2018, to all stockholders of record at the close of business on June 15, 2018. In addition, on February 26, 2018, Saratoga Investment announced a dividend of $0.50 per share for the fiscal quarter ended February 28, 2018, paid on March 26, 2018 to all stockholders of record at the close of business on March 14, 2018.

During fiscal year 2018, Saratoga Investment declared and paid dividends of $1.90 per share, composed of $0.46 for the quarter ended February 28, 2017, $0.47 per share for the quarter ended May 31, 2017, $0.48 per share for the quarter ended August 31, 2017, and $0.49 per share for the quarter ended November 30, 2017.

Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company's DRIP.

About Saratoga Investment Corp.

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

Forward Looking Statements

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

Financials

Supplemental Information Regarding Adjusted Net Investment Income, Adjusted Net Investment Income Yield and Adjusted Net Investment Income per share

On a supplemental basis, Saratoga Investment provides information relating to adjusted net investment income, adjusted net investment income yield and adjusted net investment income per share, which are non-GAAP measures. These measures are provided in addition to, but not as a substitute for, net investment income, net investment income yield and net investment income per share. 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, Saratoga Investment accrues, but do not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate. As such, Saratoga Investment believes that adjusted net investment income,  adjusted net investment income yield and adjusted net investment income per share 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, net investment income yield to adjusted net investment income yield and net investment income per share to adjusted net investment income per share for the three months ended May 31, 2018 and May 31, 2017.

Contact: Henri Steenkamp
Saratoga Investment Corp.
212-906-7800

Roland Tomforde
Broadgate Consultants
212-232-2222

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SOURCE Saratoga Investment Corp.