Saratoga Investment Corp. Announces Fiscal Second Quarter 2011 Financial Results

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Oct 15, 2010, 06:58 ET

NEW YORK, Oct. 15 /PRNewswire-FirstCall/ -- Saratoga Investment Corp. (NYSE: SAR), a business development company, today announced financial results for the fiscal second quarter ended August 31, 2010.

Operating Results

For the quarter ended August 31, 2010, Saratoga Investment Corp. reported net investment income of $2.5 million, or $1.21 per share, and net gain on investments of $4.2 million, or $2.06 per share, resulting in a net increase in net assets from operations of $6.7 million, or $3.27 per share. The $4.2 million net gain was due to unrealized appreciation. Net asset value was $29.71 per share as of August 31, 2010 as compared to $32.75 per share (on a split adjusted basis) as of February 28, 2010.

"We are very excited to have successfully completed Saratoga Investment Corp.'s transition to its new investment manager," said Christian L. Oberbeck, Chief Executive Officer of Saratoga Investment Corp. "The recapitalization that accompanied this management change has made available the capital resources necessary for the Company to return to the business of lending to US middle-market companies and has helped place Saratoga Investment Corp. back on a sound financial footing, providing a foundation for future growth and profitability. The Company will remain a regulated investment company going forward."

Portfolio and Investment Activity

As of August 31, 2010, the value of the Company's investment portfolio was $94.4 million, principally invested in 25 portfolio companies and one collateralized loan obligation fund ("CLO") with $398 million of assets under management. The portfolio was composed of 14.8% first lien term loans, 20.6% second lien term loans, 30.9% senior secured notes, 4.4% unsecured notes, 24.2% subordinated notes of GSCIC CLO.

During the second quarter, Saratoga Investment Corp. made no investments in new or existing portfolio companies. For the quarter, the Company had no exits and repayments.

As of August 31, 2010, 49.2%, or $32.8 million, of the Company's interest-bearing portfolio was fixed-rate debt with a weighted average current coupon of 11.6%; and 50.8%, or $34.0 million, of its interest-bearing portfolio was floating rate debt with a weighted average current spread of LIBOR plus 7.3%.

Liquidity and Capital Resources

In July 2010, the Company's shareholders approved a $55 million recapitalization plan that included Saratoga Investment Advisors, LLC and CLO Partners LLC purchasing approximately 1 million shares of common stock of Saratoga Investment Corp. for $15.20 per share (on a split adjusted basis) pursuant to a definitive stock purchase agreement for a minority investment, pro forma for the issuance of the new shares, of approximately 37% of the Company's equity.

The recapitalization plan also included a commitment from Madison Capital Funding LLC to provide the Company with a $40 million senior secured revolving credit facility. Upon closing and approval of the transaction, the Company was immediately able to borrow funds under the new credit facility that, when added to the $15 million equity investment, was sufficient to repay the full amount of the Company's existing debt and to provide the Company with working capital thereafter. This transaction cured the Company's event of default which had been ongoing since July 2009.

On August 12, 2010, Saratoga Investment Corp. filed Articles of Amendment to its charter with the Maryland State Department of Assessment and Taxations to effect a one-for-ten reverse stock split of its outstanding shares of common stock. Pursuant to the Articles of Amendment, effective at 11:59 p.m. on August 12, 2010, every ten outstanding shares of its common stock, par value $.0001 per share, automatically converted into one share of common stock, par value $.001 per share. No fractional shares of the Company's common stock were issued in connection with the reverse stock split. Any stockholder otherwise entitled to a fractional share received a cash payment in lieu thereof based upon the closing price for the Company's common stock as reported by the New York Stock Exchange on August 12, 2010.

Each of the Company's stockholder's percentage ownership and proportional voting power remained unchanged after the reverse stock split, except for minor changes and adjustments resulting from fractional shares. The reverse stock split did not substantially alter the rights and privileges of the Company's stockholders and the number of authorized shares of the Company's common stock remains unchanged.

As of August 13, 2010, Saratoga Investment Corp.'s common stock began trading on the New York Stock Exchange on a split-adjusted basis under a new CUSIP number — 80349A 208.

Dividend

The Company's Board of Directors did not declare a dividend for the second quarter of fiscal year 2011. Further details regarding the quarterly dividend will be forthcoming. The authority to grant dividends rests entirely with Saratoga Investment Corp.'s Board of Directors.

2011 Fiscal Second Quarter Conference Call/Webcast Information

When: Monday, October 18, 2010 at 10:30 a.m. Eastern Time (ET)

Call: Interested parties may participate by dialing (877) 675-3569 (U.S. and Canada) or (760) 298-5076 (outside U.S. and Canada). A replay of the call will be available from 1:30 p.m. ET on Monday, October 18, 2010 through 11:59 p.m. ET on Monday, October 25, 2010 by dialing (800) 642-1687 (U.S. and Canada) or (706) 645-9291 (outside U.S. and Canada), passcode for both replay numbers: 18661153.

Webcast: Interested parties may also access a simultaneous webcast of the call by going to http://ir.saratogainvestmentcorp.com/events.cfm.

About Saratoga Investment Corp.

Saratoga Investment Corp. is a specialty finance company that invests primarily in leveraged loans and mezzanine debt issued by U.S. middle-market companies, high yield bonds and collateralized loan obligations. It has elected to be treated as a business development company under the Investment Company Act of 1940. The Company may also opportunistically invest in distressed debt, debt issued by non-middle market companies, and equity securities issued by middle and non-middle market companies. The Company draws upon the support and investment advice of its external manager, Saratoga Investment Advisors, a New York-based investment firm formed to focus on credit driven strategies. Saratoga Investment Corp. is traded on the New York Stock Exchange under the symbol "SAR".

Contact:	Richard Petrocelli
	Saratoga Investment Corp.
	212-906-7800

	Roland Tomforde
	Broadgate Consultants
	212-232-2222

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

		As of
		August 31, 2010	February 28, 2010
		(unaudited)
ASSETS

Investments at fair value
	Non-control/non-affiliate investments (amortized cost of $113,282,140 and $117,678,275, respectively)	$ 71,577,499	$ 72,674,847
	Control investments (cost of $29,233,097 and $29,233,097, respectively)	22,837,839	16,698,303
	Total investments at fair value (amortized cost of $142,515,237 and $146,911,372, respectively)	94,415,338	89,373,150
Cash and cash equivalents		1,863,196	3,352,434
Cash and cash equivalents, securitization accounts		307,730	225,424
Outstanding interest rate cap at fair value (cost of $131,000 and $131,000, respectively)		23,718	42,147
Interest receivable, (net of reserve of $3,916,107 and $2,120,309, respectively)		1,877,374	3,473,961
Deferred credit facility financing costs, net		1,974,687	-
Management fee receivable		231,638	327,928
Other assets		299,790	140,272
	Total assets	$ 100,993,471	$ 96,935,316

LIABILITIES
Revolving credit facility		$ 20,000,000	$ 36,992,222
Management and incentive fees payable		423,442	3,071,093
Accounts payable and accrued expenses		682,401	1,111,081
Interest and credit facility fees payable		170,057	267,166
Due to manager		70,000	15,602
	Total liabilities	$ 21,345,900	$ 41,457,164

NET ASSETS
Common stock, par value $.001 and $.001 per share, respectively, 100,000,000 common shares
	authorized, 2,680,842 and 1,694,011 common shares issued and outstanding, respectively	$ 2,681	$ 1,694
Capital in excess of par value		143,153,372	128,339,497
Accumulated net investment loss		(362,207)	(2,846,135)
Accumulated net realized loss from investments and derivatives		(14,939,093)	(12,389,830)
Net unrealized depreciation on investments and derivatives		(48,207,182)	(57,627,074)
	Total Net Assets	79,647,571	55,478,152
Total liabilities and Net Assets		$ 100,993,471	$ 96,935,316

NET ASSET VALUE PER SHARE*		$ 29.71	$ 32.75

*Net Asset Value per share and end of period shares outstanding for the year ended February 28, 2010 has been adjusted to reflect a one-for-ten reverse stock split in August 2010.

Saratoga Investment Corp.

Consolidated Statements of Operations

		For the three months ended August 31		For the six months ended August 31
		2010	2009	2010	2009
		(unaudited)	(unaudited)	(unaudited)	(unaudited)
INVESTMENT INCOME
Interest from investments
	Non-control/Non-affiliate investments	$ 1,749,678	$ 2,654,665	$ 3,366,945	$ 5,973,505
	Control investments	816,802	449,485	1,469,522	1,317,714
	Total interest income	2,566,480	3,104,150	4,836,467	7,291,219
Interest from cash and cash equivalents		863	6,991	1,182	20,182
Management fee income		508,071	516,939	1,014,856	1,037,931
Other income		37,633	57,278	71,192	100,412
	Total investment income	3,113,047	3,685,358	5,923,697	8,449,744

EXPENSES
Interest and credit facility financing expenses		738,147	1,405,548	1,569,268	2,048,441
Base management fees		423,442	505,314	834,831	1,053,058
Professional fees		1,614,588	341,998	2,757,125	681,778
Administrator expenses		173,425	171,861	328,562	343,722
Incentive management fees		-	-	-	322,183
Insurance		171,596	223,459	366,250	429,476
Directors fees and expenses		108,233	63,136	272,844	145,136
General & administrative		141,461	66,145	205,597	125,925
	Expenses before expense waiver and reimbursement	3,370,892	2,777,461	6,334,477	5,149,719
Expense reimbursement		(103,425)	(171,861)	(258,562)	(343,722)
Waiver of deferred incentive management fees		(2,636,146)	-	(2,636,146)	-
	Total expenses net of expense waiver and reimbursement	631,321	2,605,600	3,439,769	4,805,997

	NET INVESTMENT INCOME	2,481,726	1,079,758	2,483,928	3,643,747

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain/(loss) from investments		2,147	(1,024,796)	(2,549,263)	(1,029,948)
Net unrealized appreciation/(depreciation) on investments		4,214,508	(16,157,371)	9,438,323	(13,388,079)
Net unrealized appreciation/(depreciation) on derivatives		1,438	14,147	(18,431)	49,834
	Net gain/(loss) on investments	4,218,093	(17,168,020)	6,870,629	(14,368,193)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$ 6,699,819	$ (16,088,262)	$ 9,354,557	$ (10,724,446)

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE*		$ 3.27	$ (19.40)	$ 5.00	$ (12.93)

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED*		2,047,985	829,138	1,870,998	829,138

*Earnings per share and Weighted average shares outstanding for the three and six months ended August 31, 2009 have been adjusted to reflect a one-for-ten reverse stock split in August 2010.