Saratoga Investment Corp. Announces Fiscal First Quarter 2016 Financial Results

Further Increases Quarterly Dividend to $0.33 from $0.27 per share

Jul 14, 2015, 16:32 ET from Saratoga Investment Corp.

NEW YORK, July 14, 2015 /PRNewswire/ -- Saratoga Investment Corp. (NYSE: SAR) ("Saratoga Investment" or "the Company"), a business development company, today announced financial results for its 2016 fiscal first quarter.

Summary Financial Information

  • Net investment income on a weighted average per share basis of $0.33 for the quarter ended May 31, 2015. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income on a weighted per share basis was $0.53, an increase of $0.13, or 33% from the quarter ended May 31, 2014.
  • Net investment income of $1.8 million for the quarter ended May 31, 2015. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $2.9 million, an increase of $0.7 million, or 33% from the quarter ended May 31, 2014.
  • Net investment income yield as percentage of average net asset value ("Net Investment Income Yield") was 5.8% for the quarter ended May 31, 2015. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 9.3%, an increase of 180 bps from the quarter ended May 31, 2014.
  • Return on equity for the quarter ended May 31, 2015 was 24.0%.
  • Earnings per share for the quarter ended May 31, 2015 was $1.36, an increase of $1.03 or 312% from the quarter ended May 31, 2014.
  • Net asset value ("NAV") was $123.5 million as of May 31, 2015, an $8.3 million increase from an NAV of $115.2 million as of May 31, 2014.
  • NAV per share was $22.75 as of May 31, 2015, compared to $21.41 as of May 31, 2014.
  • Investment portfolio activity for the quarter ended May 31, 2015:
    • Cost of investments made during the period: $23.2 million
    • Principal repayments during the period: $7.3 million

Operating Results

For the fiscal quarter ended May 31, 2015, Saratoga Investment reported net investment income of $1.8 million, or $0.33 on a weighted average per share basis, and a net gain on investments of $5.6 million, or $1.03 on a weighted average per share basis, resulting in a net increase in net assets from operations of $7.4 million, or $1.36 on a weighted average per share basis. The $5.6 million net gain on investments was comprised largely of $5.5 million in net unrealized gains on investments and $0.1 million in net realized gains. This compared to the fiscal quarter ended May 31, 2014 with net investment income of $2.1 million, or $0.38 on a weighted average per share basis, and a net loss on investments of $0.3 million, or $0.06 on a weighted average per share basis, resulting in a net increase in net assets from operations of $1.8 million, or $0.33 on a weighted average per share basis. The $0.3 million net loss on investments consisted of $0.1 million in net realized gains on investments, offset by $0.4 million in net unrealized depreciation.

Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $2.9 million and $2.2 million for the quarters ended May 31, 2015 and 2014, respectively. The increase in adjusted net investment income of $0.7 million for the quarter ended May 31, 2015 as compared to the same period last year, is primarily due to higher investment income, which has increased to $7.6 million for the quarter ended May 31, 2015 from $6.1 million for the quarter ended May 31, 2014. This increased investment income was generated from an investment base that has grown by 20% since the same quarter last year. The adjusted net investment income increase was partially offset by (i) increased debt and financing expenses from higher outstanding SBA debentures this quarter 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 $946,662 for the quarter ended May 31, 2014 to $904,681 for the quarter ended May 31, 2015, representing a decrease from 1.8% of Assets Under Management ("AUM") for the quarter ended May 31, 2014 to 1.4% for the quarter ended May 31, 2015. This reflects the continued benefit of increased scale, while continuing to be prudent in managing expenses.

Net investment income yield was 5.8% for the quarter ended May 31, 2015. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income yield was 9.3% for the quarter ended May 31, 2015. Return on equity was 24.0% for the same quarter.

Net investment income yield was 7.2% for the quarter ended May 31, 2014. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income yield was 7.5% for the quarter ended May 31, 2014.

NAV was $123.5 million as of May 31, 2015, a $0.9 million increase from an NAV of $122.6 million as of February 28, 2015. NAV per share was $22.75 as of May 31, 2015, compared to $22.70 as of February 28, 2015. During these three months, NAV per share increased by $0.05 per share, primarily reflecting $1.36 earnings offset by the $1.27 dividend declared during the quarter.

"During this quarter, we maintained our momentum of expanding our assets under management, improving investment quality and broadening our investor base," said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. "This continued progress is also reflected in our adjusted net investment income per share and yield going above $0.50 per share and 9% this quarter, respectively. In addition, the 'green light' approval we received from the SBA for our second SBIC license continues to position us well for future sources of liquidity. We also announced the payment of our largest dividend to date under our new dividend policy, a special dividend of $1.00 per share, and continue to increase our regular payments of quarterly cash dividends by another 22% this quarter to $0.33 per share."

Michael J. Grisius, President and Chief Investment Officer, added, "During the first fiscal quarter 2016, we continued to exercise prudent investment judgment and disciplined capital deployment. Despite frothy market conditions, with high multiples and depressed yields, we have maintained the quality of our portfolio credits, while continuing to grow assets under management by a further 9% since year-end. In addition, 95.6% of our interest-bearing portfolio holds our highest credit quality rating and our debt-to-EBITDA multiples persist at levels well below market averages. Even in the tight market we currently face, solid investment judgment and discipline can still generate positive results."

Portfolio and Investment Activity

As of May 31, 2015, the fair value of Saratoga Investment's portfolio was $262.7 million (excluding $6.6 million in cash and cash equivalents), principally invested in 35 portfolio companies and one collateralized loan obligation fund ("CLO"). The overall portfolio composition consisted of 59.8% of first lien term loans, 15.4% of second lien term loans, 2.2% of unsecured notes, 6.4% of subordinated notes in a CLO, 6.8% of syndicated loans, and 9.4% of common equity.

For the fiscal quarter ended May 31, 2015, Saratoga Investment invested $23.2 million in new or existing portfolio companies and had $7.3 million in aggregate amount of exits and repayments, resulting in net investments of $15.9 million for the quarter.

The weighted average current yield on Saratoga Investment's portfolio for the twelve months ended May 31, 2015 was 12.0%, which was comprised of a weighted average current yield of 11.2% on first lien term loans, 11.0% on second lien term loans, 10.8% on unsecured notes, 28.8% on CLO subordinated notes, and 6.3% on syndicated loans.

Liquidity and Capital Resources

As of May 31, 2015, Saratoga Investment had $11.8 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 $49.7 million) and an aggregate of $6.6 million in cash and cash equivalents.

With the $33.2 million credit facility and the $71.0 million additional borrowing capacity at the SBIC subsidiary, as well as the $6.6 million of cash and cash equivalents, Saratoga Investment has a total of $110.8 million of undrawn borrowing capacity and cash and cash equivalents available as of May 31, 2015.

On April 6, 2015, Saratoga Investment 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.

Effective 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 million in aggregate principal amount of Baby Bonds through an At-the-Market ("ATM") offering. As of July 14, 2015, the Company sold 227,863 bonds with a principal of $5,696,575 at an average price of $25.32 for aggregate net proceeds of $5,653,305 (net of transaction costs).

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, $0.22 per share for the quarter ended November 30, 2014, $0.27 per share for the quarter ended February 28, 2015, and a special dividend of $1.00 per share.

On July 8, 2015, Saratoga Investment's Board of Directors declared a dividend to shareholders of $0.33 per share for the quarter ended May 31, 2015, payable on August 31, 2015 to all stockholders of record at the close of business on August 3, 2015. Shareholders 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.

2016 Fiscal First Quarter Conference Call/Webcast Information

When:

Wednesday, July 15, 2015, 10:00 a.m. Eastern Time (ET)

Call: 

Interested parties may participate by dialing (877) 312-9208 (U.S. and Canada) or (678) 224-7872 (outside U.S. and Canada).

A replay of the call will be available from 1:00 p.m. ET on Wednesday, July 15, 2015 through 11:59 p.m. ET on Wednesday, July 22, 2015 by dialing (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (outside U.S. and Canada), passcode for both replay numbers: 71900179.

Webcast: 

Interested parties may access a simultaneous webcast of the call and find the Q1 2016 presentation by going to the "Events & Presentations" section of Saratoga Investment's investor relations website, http://www.saratogainvestmentcorp.com/investor.html

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

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 As of  

May 31, 2015

February 28, 2015

 (unaudited) 

ASSETS

Investments at fair value

Non-control/non-affiliate investments (amortized cost of $239,950,830 and $222,505,383, respectively)

$            245,883,731

$        223,506,589

Control investments (cost of $15,172,837 and $15,953,001, respectively)

16,860,256

17,031,146

Total investments at fair value (amortized cost of $255,123,667 and $238,458,384, respectively)

262,743,987

240,537,735

Cash and cash equivalents

699,127

1,888,158

Cash and cash equivalents, reserve accounts

5,863,893

18,175,214

Interest receivable, (net of reserve of $354,144 and $309,498, respectively)

2,793,526

2,469,398

Management fee receivable

174,527

171,913

Other assets

475,257

317,637

Total assets

$            272,750,317

$        263,560,055

LIABILITIES

Revolving credit facility

$              11,800,000

$            9,600,000

Deferred debt financing costs, revolving credit facility

(575,002)

(594,845)

SBA debentures payable

79,000,000

79,000,000

Deferred debt financing costs, SBA debentures payable

(2,231,653)

(2,340,894)

Notes payable

48,300,000

48,300,000

Deferred debt financing costs, notes payable

(1,758,989)

(1,847,564)

Dividend payable

5,995,489

402,200

Base management and incentive fees payable

6,765,317

5,835,941

Accounts payable and accrued expenses

675,383

835,189

Interest and debt fees payable

912,628

1,405,466

Due to manager

375,820

365,820

Total liabilities

$            149,258,993

$        140,961,313

NET ASSETS

Common stock, par value $.001, 100,000,000 common shares

authorized, 5,428,758 and 5,401,899 common shares issued and outstanding, respectively

$                       5,429

$                   5,402

Capital in excess of par value

185,279,853

184,877,680

Distribution in excess of net investment income

(29,029,436)

(23,905,603)

Accumulated net realized loss from investments and derivatives

(40,384,842)

(40,458,088)

Accumulated net unrealized appreciation on investments and derivatives

7,620,320

2,079,351

Total net assets

123,491,324

122,598,742

Total liabilities and net assets

$            272,750,317

$        263,560,055

NET ASSET VALUE PER SHARE

$                       22.75

$                   22.70

Asset Coverage Ratio

313.8%

321.1%

 

 

Saratoga Investment Corp.

Consolidated Statements of Operations

(unaudited)

For the three months ended May 31, 2015

For the three months ended May 31, 2014

INVESTMENT INCOME

Interest from investments

Non-control/Non-affiliate investments

$               5,648,979

$                  4,707,894

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

691,152

252,928

Control investments

590,990

641,338

     Total interest income

6,931,121

5,602,160

Interest from cash and cash equivalents

736

594

Management fee income

378,746

392,034

Other income

250,564

149,335

Total investment income

7,561,167

6,144,123

EXPENSES

Interest and debt financing expenses

1,963,865

1,787,587

Base management fees

1,124,098

968,479

Professional fees

333,444

435,374

Administrator expenses

250,000

250,000

Incentive management fees

1,797,833

378,489

Insurance

87,317

84,487

Directors fees and expenses

51,000

53,175

General & administrative

182,920

123,626

Total expenses

5,790,477

4,081,217

NET INVESTMENT INCOME

1,770,690

2,062,906

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

Net realized gain from investments

73,246

81,680

Net unrealized appreciation/(depreciation) on investments

5,540,969

(384,697)

Net gain/(loss) on investments

5,614,215

(303,017)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$                7,384,905

$                  1,759,889

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS  PER COMMON SHARE

$                         1.36

$                           0.33

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED

5,422,491

5,379,616

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 months ended May 31, 2015 and 2014.

 

For the three months ended

May 31

2015

2014

Net Investment Income

$       1,770,690

$   2,062,906

Changes in accrued capital gains incentive fee expense/reversal

1,083,883

91,919

Adjusted net investment income

2,854,573

2,154,825

Net investment income yield

5.8%

7.2%

Changes in accrued capital gains incentive fee expense/reversal

3.5%

0.3%

Adjusted net investment income yield (1)

9.3%

7.5%

 

 

Net investment income per share

$ 0.33

$ 0.38

Changes in accrued capital gains incentive fee expense/reversal

$ 0.20

$ 0.02

Adjusted net investment income per share (2)

$ 0.53

$ 0.40

(1) Adjusted net investment income is calculated as adjusted net investment income divided by average net asset value.

(2) Adjusted net investment income per share is calculated as adjusted net investment income divided by weighted average common shares outstanding.

 

SOURCE Saratoga Investment Corp.