SARATOGA INVESTMENT CORP. The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following discussion and other parts of this Annual 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. "Risk Factors" and "Note about Forward-Looking Statements" appearing elsewhere herein.
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 Annual Report on Form 10-K involve risks and uncertainties, including statements as to:
• our future operating results and the impact of the COVID-19 pandemic
thereon;
• the introduction, withdrawal, success and timing of business initiatives
and strategies;
• changes in political, economic or industry conditions, the interest rate
environment or financial and capital markets, which could result in changes
in the value of our assets;
• pandemics or other serious public health events, such as the recent global
outbreak of COVID-19;
• the relative and absolute investment performance and operations of our
Investment Adviser;
• the impact of increased competition;
• our ability to turn potential investment opportunities into transactions
and thereafter into completed and successful investments;
• the unfavorable resolution of any future legal proceedings;
• our business prospects and the prospects of our portfolio companies,
including our and their ability to achieve our respective objectives as a
result of the current COVID-19 pandemic;
• the impact of investments that we expect to make and future acquisitions
and divestitures;
• 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 and the impact of the COVID-19
pandemic thereon;
• the ability of our portfolio companies to achieve their objectives;
• our expected financings and investments;
• our regulatory structure and tax status, including our ability to operate
as a business development company ("BDC"), or to operate our small business
investment company ("SBIC") subsidiaries, 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 impact of the COVID-19 pandemic thereon;
• the impact of interest rate volatility on our results, particularly because
we use leverage as part of our investment strategy;
• the impact of legislative and regulatory actions and reforms andregulatory, supervisory or enforcement actions of government agencies
relating to us or our investment adviser;
• the impact of changes to tax legislation and, generally, our tax position;
• our ability to access capital and any future financings by us;
• the ability of our Investment Adviser to attract and retain highly talented
professionals; and
• the ability of our Investment Adviser to locate suitable investments for us
and to monitor and effectively administer our investments.
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Such forward-looking statements may include statements preceded by, followed by or that otherwise include terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "project," "should," "will" and "would" or the negative of these terms or other comparable terminology. We have based the forward-looking statements included in this annual report on Form 10-K on information available to us on the date of this annual report on Form 10-K, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law orSEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with theU.S. Securities and Exchange Commission (the "SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this annual report on Form 10-K.
OVERVIEW
We are aMaryland corporation that has elected to be treated as a BDC under the Investment Company Act of 1940, as amended (the "1940 Act"). Our investment objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from our investments. We invest primarily in senior and unitranche leveraged loans and mezzanine debt issued by privateU.S. middle market companies, which we define as companies having earnings before interest, tax, depreciation and amortization ("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. Although we have no current intention to do so, to the extent we invest in private equity funds, we will limit our investments in entities that are excluded from the definition of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, which includes private equity funds, to no more than 15.0% of its net assets. 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").
Corporate History
We commenced operations, at the time known asGSC Investment Corp. , onMarch 23, 2007 and completed an initial public offering of shares of common stock onMarch 28, 2007 . Prior toJuly 30, 2010 , we were externally managed and advised byGSCP (NJ), L.P. , an entity affiliated withGSC Group, Inc. In connection with the consummation of a recapitalization transaction onJuly 30, 2010 , as described below we engagedSaratoga Investment Advisors ("SIA") to replaceGSCP (NJ), L.P. as our investment adviser and changed our name toSaratoga Investment Corp. As a result of the event of default under a revolving securitized credit facility with Deutsche Bank we previously had in place, inDecember 2008 we engaged the investment banking firm ofStifel, Nicolaus & Company to evaluate strategic transaction opportunities and consider alternatives for us. OnApril 14, 2010 ,GSC Investment Corp. entered into a stock purchase agreement withSaratoga Investment Advisors and certain of its affiliates and an assignment, assumption and novation agreement withSaratoga Investment Advisors , pursuant to whichGSC Investment Corp. assumed certain rights and obligations ofSaratoga Investment Advisors under a debt commitment letterSaratoga Investment Advisors received fromMadison Capital Funding LLC , which indicatedMadison Capital Funding's willingness to provideGSC 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. andGSCP (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 whichGSCP (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. 69
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OnJuly 30, 2010 , the transactions contemplated by the stock purchase agreement withSaratoga 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 toSaratoga Investment Advisors and certain of its affiliates closed, the Company entered into the Credit Facility, and the Company began doing business asSaratoga 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 onJuly 30, 2010 .
On
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
Advisors and certain of its affiliates.
OnMarch 28, 2012 , our wholly-owned subsidiary,Saratoga Investment Corp. SBIC, LP ("SBIC LP "), received an SBIC license from theSmall Business Administration ("SBA"). OnAugust 14, 2019 , our wholly-owned subsidiary,Saratoga Investment Corp. SBIC II LP ("SBIC II LP "), also received an SBIC license from the SBA. InMay 2013 , we issued$48.3 million in aggregate principal amount of our 7.50% fixed-rate unsecured notes due 2020 (the "2020 Notes") 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. The 2020 Notes were listed on the NYSE under the trading symbol "SAQ" with a par value of$25.00 per share. The 2020 Notes were redeemed in full onJanuary 13, 2017 . OnMay 29, 2015 , we entered into a Debt Distribution Agreement withLadenburg Thalmann & Co. through which we may offer for sale, from time to time, up to$20.0 million in aggregate principal amount of the 2020 Notes through an At-the-Market ("ATM") offering. Prior to the 2020 Notes being redeemed in full, the Company sold 539,725 bonds with a principal of$13.5 million at an average price of$25.31 for aggregate net proceeds of$13.4 million (net of transaction costs). OnDecember 21, 2016 , we issued$74.5 million in aggregate principal amount of our 6.75% fixed-rate unsecured notes due 2023 (the "2023 Notes") for net proceeds of$71.7 million after deducting underwriting commissions of approximately$2.3 million and offering costs of approximately$0.5 million . The issuance included the exercise of substantially all of the underwriters' option to purchase an additional$9.8 million aggregate principal amount of 2023 Notes within 30 days. The 2023 Notes were listed on the NYSE under the trading symbol "SAB" with a par value of$25.00 per share. OnDecember 21, 2019 andFebruary 7, 2020 , the Company redeemed$50.0 million and$24.5 million , respectively, in aggregate principal amount of the$74.5 million in aggregate principal amount of issued and outstanding 2023 Notes. OnMarch 16, 2017 , we entered into an equity distribution agreement withLadenburg Thalmann & Co. Inc. , through which we may offer for sale, from time to time, up to$30.0 million of our common stock through an ATM offering. Subsequent to this,BB&T Capital Markets andB. Riley FBR, Inc. were also added to the agreement. OnJuly 9, 2019 , the amount of the common stock to be offered through this offering was increased to$70.0 million , and onOctober 8, 2019 , the amount of the common stock to be offered was increased to$130.0 million . As ofFebruary 29, 2020 , the Company sold 3,922,018 shares for gross proceeds of$97.1 million at an average price of$24.77 for aggregate net proceeds of$95.9 million (net of transaction costs). For the year endedFebruary 29, 2020 , the Company sold 3,427,346 shares for gross proceeds of$85.9 million at an average price of$25.06 for aggregate net proceeds of$84.7 million (net of transaction costs). OnJuly 13, 2018 , the Company issued 1,150,000 shares of its common stock priced at$25.00 per share (par value$0.001 per share) at an aggregate total of$28.75 million . The net proceeds, after deducting underwriting commissions of$1.15 million and offering costs of approximately$0.2 million , amounted to approximately$27.4 million . The Company also granted the underwriters a 30-day option to purchase up to an additional 172,500 shares of its common stock, which was not exercised. 70
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OnAugust 7, 2018 , we entered into an unsecured loan agreement ("CLO 2013-1 Warehouse Loan") withSaratoga Investment Corp. CLO 2013-1Warehouse, Ltd ("CLO 2013-1 Warehouse"), a wholly-owned subsidiary ofSaratoga Investment Corp. CLO 2013-1, Ltd. ("Saratoga CLO"), pursuant to which CLO 2013-1 Warehouse may borrow from time to time up to$20 million from us in order to provide capital necessary to support warehouse activities. The CLO 2013-1 Warehouse Loan, which expired onFebruary 7, 2020 , bears interest at an annual rate of3M USD LIBOR + 7.5%. During the year endedFebruary 28, 2019 , the maximum amount invested by us in the CLO 2013-1 Warehouse Loan amounted to$20.0 million . OnAugust 28, 2018 , the Company issued$40.0 million in aggregate principal amount of our 6.25% fixed-rate notes due 2025 (the "2025 Notes") for net proceeds of$38.7 million after deducting underwriting commissions of approximately$1.3 million . Offering costs incurred were approximately$0.3 million . The issuance included the full exercise of the underwriters' option to purchase an additional$5.0 million aggregate principal amount of 2025 Notes within 30 days. Interest on the 2025 Notes is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.25% per year, beginningNovember 30, 2018 . The 2025 Notes mature onAugust 31, 2025 and commencingAugust 31, 2021 , may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.6 million related to the 2025 Notes have been capitalized and are being amortized over the term of the 2025 Notes. OnDecember 14, 2018 , the Company completed the third refinancing of the Saratoga CLO (the "2013-1 Reset CLO Notes"). This refinancing, among other things, extended the Saratoga CLO reinvestment period toJanuary 2021 , and extended its legal maturity toJanuary 2030 . A non-call period ofJanuary 2020 was also added. In addition to and as part of the refinancing, the Saratoga CLO has also been upsized from$300 million in assets to approximately$500 million . As part of this refinancing and upsizing, the Company invested an additional$13.8 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased$2.5 million in aggregate principal amount of the Class F-R-2 Notes tranche and$7.5 million in aggregate principal amount of the Class G-R-2 Notes tranche at par. Concurrently, the existing$4.5 million of Class F notes and$20.0 million CLO 2013-1 Warehouse Loan were repaid. OnFebruary 5, 2019 , the Company completed a re-opening and up-sizing of its existing 2025 Notes by issuing an additional$20.0 million in aggregate principal amount for net proceeds of$19.2 million after deducting underwriting commissions of approximately$0.6 million and discount of$0.2 million . Offering costs incurred were approximately$0.2 million . The issuance included the full exercise of the underwriters' option to purchase an additional$2.5 million aggregate principal amount of 2025 Notes within 30 days. Interest rate, interest payment dates and maturity remain unchanged from the existing 2025 Notes issued inAugust 2018 . The net proceeds from this offering were used for general corporate purposes in accordance with our investment objective and strategies. The financing costs and discount of$1.0 million related to the 2025 Notes have been capitalized and are being amortized over the term of the 2025 Notes. AtFebruary 29, 2020 , the total 2025 Notes outstanding was$60.0 million . The 2025 Notes are listed on the NYSE under the trading symbol "SAF" with a par value of$25.00 per share. OnAugust 14, 2019 , our wholly-owned subsidiary,Saratoga Investment Corp. SBIC II LP ("SBIC II LP "), also received an SBIC license from the SBA. The new license will provide up to$175.0 million in additional long-term capital in the form of SBA debentures. OnFebruary 11, 2020 , the Company entered into an unsecured loan agreement ("CLO 2013-1 Warehouse 2 Loan") withSaratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd ("CLO 2013-1 Warehouse 2"), a wholly-owned subsidiary of Saratoga CLO, pursuant to which CLO 2013-1 Warehouse 2 may borrow from time to time up to$20.0 million from the Company in order to provide capital necessary to support warehouse activities. The CLO 2013-1 Warehouse 2 Loan, which expires onAugust 20, 2021 , bears interest at an annual rate of3M USD LIBOR + 7.5%. COVID-19 OnMarch 11, 2020 , theWorld Health Organization declared the novel coronavirus ("COVID-19")as a pandemic, and onMarch 13, 2020 the United States declared a national emergency with respect to COVID-19. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, includingthe United States , have reacted by instituting quarantines, mandating business and school closures and restricting travel. Such actions are creating disruption in global supply chains and adversely impacting a number of industries. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty and risks with respect to the underlying value of the Company's portfolio companies, the Company's business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, company decisions to delay, defer and/or modify the character of dividends in order to preserve liquidity, increased costs of operations, changes in law and/or regulation, and uncertainty regarding government and regulatory policy. We have evaluated subsequent events fromFebruary 29, 2020 throughMay 6, 2020 . However, as the discussion in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations relates to the Company's financial statements for the fiscal year endFebruary 29, 2020 , the analysis contained herein may not fully account for impacts relating to the COVID-19 pandemic. In that regard, for example, as ofFebruary 29, 2020 , the Company valued its portfolio investments in conformity withU.S. GAAP based on the facts and circumstances known by the Company at that time, or reasonably expected to be known at that time. Due to the overall volatility that the COVID-19 pandemic has caused during the months that followed ourFebruary 29, 2020 valuation, any valuations conducted now or in the future in conformity withU.S. GAAP could result in a lower fair value of our portfolio. The potential impact to our results going forward will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain the coronavirus or treat its impact, all of which are beyond our control. Accordingly, the Company cannot predict the extent to which its financial condition and results of operations will be affected at this time.
Critical Accounting Policies
Basis of Presentation
The preparation of financial statements in accordance withU.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. 71
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Investment Valuation
The Company accounts for its investments at fair value in accordance with theFinancial 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 or its liabilities are to be transferred 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 fromSaratoga Investment Advisors , 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
conclusions are documented and discussed with our senior management; and
• An independent valuation firm engaged by our board of directorsindependently 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. We use a third-party independent valuation
firm to value our investment in the subordinated notes of Saratoga CLO and
the Class F-R-2 Notes and Class G-R-2 Notes tranches of the Saratoga CLOs
every quarter.
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
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
and the audit committee of our board of directors.
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 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 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.
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Table of Contents 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.
Payment-in-Kind Interest
The Company holds debt and preferred equity 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.
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 or preferred equity
investments may provide for a portion or all of the interest to be PIK. To the
extent interest is PIK, 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 or common equity securities that
pay dividends on a current basis.
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 initially refinanced in October 2013 with its reinvestment period
extended to October 2016 . On November 15, 2016 , we completed a second
refinancing of the Saratoga CLO with its reinvestment period extended to October
2018 .
On August 7, 2018 , we entered into an unsecured loan agreement, CLO
2013-1Warehouse Loan, with Saratoga Investment Corp. CLO 2013-1 Warehouse, Ltd ,
a wholly-owned subsidiary of Saratoga CLO, pursuant to which CLO 2013-1
Warehouse may borrow from time to time up to $20 million from us in order to
provide capital necessary to support warehouse activities. The CLO 2013-1
Warehouse Loan, which expires on February 7, 2020 , bears interest at an annual
rate of 3M USD LIBOR + 7.5%. During the year ended February 28, 2019 , the
maximum amount invested by us in the CLO 2013-1 Warehouse Loan amounted to
$20.0 million .
On December 14, 2018 , we completed a third refinancing and upsize of the
Saratoga CLO. The third Saratoga CLO refinancing, among other things, extended
its reinvestment period to January 2021 , and extended its legal maturity date to
January 2030 . A non-call period of January 2020 was also added. Following this
refinancing, the Saratoga CLO portfolio increased from approximately
$300.0 million in aggregate principal amount to approximately $500.0 million of
predominantly senior secured first lien term loans. In addition to refinancing
its liabilities, we invested an additional $13.8 million in all of the newly
issued subordinated notes of the Saratoga CLO and also purchased $2.5 million in
aggregate principal amount of the Class F-R-2 and $7.5 million aggregate
principal amount of the Class G-R-2notes tranches at par, with a coupon of LIBOR
plus 8.75% and LIBOR plus 10.00%, respectively. As part of this refinancing, we
also redeemed our existing $4.5 million aggregate amount of the Class F notes
tranche at par and the $20.0 million CLO 2013-1 Warehouse Loan was repaid.
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OnFebruary 11, 2020 , the Company entered into an unsecured loan agreement ("CLO 2013-1 Warehouse 2 Loan") withSaratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd ("CLO 2013-1 Warehouse 2"), a wholly-owned subsidiary of Saratoga CLO, pursuant to which CLO 2013-1 Warehouse 2 may borrow from time to time up to$20.0 million from the Company in order to provide capital necessary to support warehouse activities. The CLO 2013-1 Warehouse 2 Loan, which expires onAugust 20, 2021 , bears interest at an annual rate of3M USD LIBOR + 7.5%. During the year endedFebruary 29, 2020 , the maximum amount invested by us in CLO 2013-1 Warehouse 2 amounted to$2.5 million . As ofFebruary 29, 2020 , the fair value of our investment in CLO 2013-1 Warehouse 2 was$2.2 million .
The Saratoga CLO remains effectively 100% owned and managed by
Following the third refinancing and the issuance of the 2013-1 Reset CLO Notes onDecember 14, 2018 , we are no longer 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 paid in cash equal to or greater than 12.0%. 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.
ASC 606
InMay 2014 , the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASC 606"), which supersedes the revenue recognition requirements in Revenue Recognition (ASC 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. InMay 2016 , ASU 2016-12 amended ASU 2014-09 and deferred the effective period for annual periods beginning afterDecember 15, 2017 . Management has concluded that the majority of its revenues associated with financial instruments are scoped out of ASC 606, and has concluded that the only significant impact relates to the timing of the recognition of the CLO incentive fee income. We adopted ASC 606 under the modified retrospective approach using the practical expedient provided for, therefore the presentation of prior periods has not been adjusted.
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;
• expenses incurred by our Investment Adviser payable for travel and 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;
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• 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
("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, ifapplicable, 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)).
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-incentivefee
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 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 on
each investment in the Company's portfolio, 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 Annual Report.
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The terms of the investment advisory and management agreement withSaratoga Investment Advisors , our current investment adviser, are substantially similar to the terms of the investment advisory and management agreement we had entered into withGSCP (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
prior to such time will not be taken into account when calculating the
capital gains fee payable to
Saratoga Investment Advisors will be entitled to 20.0% of net gains that arise afterMay 31, 2010 . In addition, the cost basis for computing realized gains and losses on investments held by us as ofMay 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% but is less than or equal to
2.344% in any fiscal quarter is payable to
This will enable
investment income as such amount approaches 2.344% in any quarter, and
Saratoga Investment Advisors will receive 20.0% of any additional netinvestment income. Under the investment advisory and management agreement
with our former investment adviser,
the excess net investment income over 1.875%.
• We will no longer have deferral rights regarding incentive fees in theevent that the distributions to stockholders and change in net assets is
less than 7.5% for the preceding four fiscal quarters.
Capital Gains Incentive Fee
The Company records an expense accrual relating to the capital gains incentive fee payable by the Company to its Manager 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 Manager if the Company were to liquidate its investment portfolio at such time. The actual incentive fee payable to the Company's Manager 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.
New Accounting Pronouncements
InAugust 2018 , FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in ASU 2018-13 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning afterDecember 15, 2019 . An entity is permitted to early adopt the removed or modified disclosures upon the issuance of ASU 2018-13 and may delay adoption of the additional disclosures, which are required for public companies only, until their effective date. Management has assessed these changes and does not believe they would have a material impact on the Company's consolidated financial statement and disclosures.
SEC Disclosure Update and Simplification
InMarch 2019 , theSEC adopted the final rule under SEC Release No. 33-10618, Fast Act Modernization and Simplification of Regulation S-K, amending certain disclosure requirements. The amendments are intended to simplify certain disclosure requirements and to provide for a consistent set of rules to govern incorporating information by reference and hyperlinking, improve readability and navigability of disclosure documents, and discourage repetition and disclosure of immaterial information. The Company has adopted the final rule, as applicable under SEC Release No. 33-10618 and determined the effect of the adoption of the simplification rules on financial statements will be limited to the modification and removal of certain disclosures. 76
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Portfolio and investment activity
Investment Portfolio Overview
February 29, February 28, February 28,
2020 2019 2018
($ in millions)
Number of investments(1) 74 58 55
Number of portfolio companies(2) 35 31 30
Average investment per portfolio
company(2) $ 12.9 $ 11.8 $ 10.9
Average investment size(1) $ 6.3 $ 6.5 $ 6.0
Weighted average maturity(3) 3.1 yrs 3.6yrs 3.5yrs
Number of industries 9 8 10
Non-performing or delinquent
investments (fair value) $ 2.1 $ 5.7 $ 9.5
Fixed rate debt (% of interest
earning portfolio)(3) $ 29.7 (6.8 %) $ 55.7 (16.3 %) $ 82.5 (26.5 %)
Fixed rate debt (weighted average
current coupon)(3) 9.3 % 10.4 % 12.2 %
Floating rate debt (% of interest
earning portfolio)(3) $ 404.4 (93.2 %) $ 285.0 (83.7 %) $ 229.3 (73.5 %)
Floating rate debt (weighted average
current spread over
LIBOR)(3)(4) 8.0 % 8.6 % 8.8 %
(1) Excludes our investment in the subordinated notes of Saratoga CLO.
(2) At
Saratoga CLO, Class F-R-2 Notes and Class G-R-2 Notes tranches of Saratoga
CLO and loan to
Saratoga CLO, Class F-R-2 Notes and Class G-R-2 Notes tranches of Saratoga
CLO. At
of Saratoga CLO and Class
(3) Excludes our investment in the subordinated notes of Saratoga CLO and equity
interests.
(4) Calculation uses either 1-month or 3-month LIBOR, depending on the
contractual terms, and after factoring in any existing LIBOR floors.
During the fiscal year endedFebruary 29, 2020 , we invested$204.6 million in new or existing portfolio companies and had$167.3 million in aggregate amount of exits and repayments resulting in net investments of$37.3 million for the year. During the fiscal year endedFebruary 28, 2019 , we invested$187.7 million in new or existing portfolio companies and had$135.7 million in aggregate amount of exits and repayments resulting in net investments of$52.0 million for the year. During the fiscal year endedFebruary 28, 2018 , we invested$107.7 million in new or existing portfolio companies and had$66.3 million in aggregate amount of exits and repayments resulting in net investments of$41.4 million for the year. Portfolio Composition
Our portfolio composition at
February 29, 2020 February 28, 2019 February 28, 2018
Weighted Weighted Weighted
Percentage Average Percentage Average Percentage Average
of Total Current of Total Current of Total Current
Portfolio Yield Portfolio Yield Portfolio Yield
Syndicated loans - % - % - % - % 1.2 % 5.9 %
First lien term loans 71.3 9.6 50.5 10.9 57.6 11.1
Second lien term loans 15.1 10.7 31.3 11.7 27.7 11.9
Unsecured term loans 0.9 9.3 0.5 0.0 - -
Structured finance securities 6.7 11.4 8.8 14.6 4.8 21.2
Equity interests 6.0 - 8.9 3.1 8.7 3.6
Total 100.0 % 9.3 % 100.0 % 10.7 % 100.0 % 11.1 %
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AtFebruary 29, 2020 , our investment in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value of$22.6 million and constituted 4.6% of our portfolio. This investment constitutes a first loss position in a portfolio that, as ofFebruary 29, 2020 andFebruary 28, 2019 , was composed of$528.4 million and$510.3 million , respectively, in aggregate principal amount of primarily senior secured first lien term loans. In addition, as ofFebruary 29, 2020 , we also own$2.5 million in aggregate principal of the F-R-2 Notes and$7.5 million in aggregate principal of the G-R-2 Notes in the Saratoga CLO, that only rank senior to the subordinated notes. AtFebruary 29, 2020 , our investment in CLO 2013-1 Warehouse 2, a wholly-owned subsidiary of Saratoga CLO, had a fair value of$2.2 million and constituted 0.5% of our portfolio. This investment is subject to unique risks. (See "Part 1. Item 1A. 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"). 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, atFebruary 29, 2020 ,$494.2 million or 98.6% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and two Saratoga CLO portfolio investments were in default with a fair value of$1.4 million . AtFebruary 28, 2019 ,$491.0 million or 98.5% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and two Saratoga CLO portfolio investment were in default with a fair value of$0.01 million . For more information relating to Saratoga CLO, see the audited financial statements for Saratoga CLO included elsewhere herein.
Portfolio CMR distribution
The CMR distribution of our investments at
Saratoga Investment Corp. February 29, 2020 February 28, 2019 Investments Percentage Investments Percentage at of Total at of Total Color Score Fair Value Portfolio Fair Value Portfolio ($ in thousands) Green$ 429,784 88.5 %$ 336,061 83.6 % Yellow 2,141 0.5 4,600 1.1 Red 2,137 0.4 6 0.0 N/A(1) 51,570 10.6 61,353 15.3 Total$ 485,632 100.0 %$ 402,020 100.0 %
(1) Comprised of our investment in the subordinated notes of Saratoga CLO and
equity interests.
The change in reserve from$0.6 million as ofFebruary 28, 2019 to$1.2 million as ofFebruary 29, 2020 primarily related to the increase in reserve for the year for our investment inRoscoe Medical, Inc. andMy Alarm Center, LLC , offset by the decrease in reserve for the year from the sale ofM/C Acquisition, L.L.C. 78
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The CMR distribution of Saratoga CLO investments at
Saratoga CLO
February 29, 2020 February 28, 2019
Investments Percentage Investments Percentage
at of Total at of Total
Color Score Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Green $ 456,767 91.1 % $ 462,171 92.7 %
Yellow 37,446 7.5 28,839 5.8
Red 6,787 1.4 7,379 1.5
N/A(1) 0 0.0 16 0.0
Total $ 501,000 100.0 % $ 498,405 100.0 %
(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
Saratoga Investment Corp. February 29, 2020 February 28, 2019 Investments Percentage Investments Percentage At of Total At of Total Fair Value Portfolio Fair Value Portfolio ($ in thousands) Business Services$ 285,356 58.8 %$ 252,676 62.8 % Education 77,341 15.9 48,076 12.0 Healthcare Services 69,072 14.2 57,342 14.3 Structured Finance Securities(1) 34,675 7.1 35,328 8.8 Property Management 11,503 2.4 - - Metals 3,130 0.7 2,827 0.7 Food and Beverage 2,141 0.4 2,100 0.5 Consumer Services 1,997 0.4 3,166 0.8 Consumer Products 417 0.1 505 0.1 Total$ 485,632 100.0 %$ 402,020 100.0 %
(1) At
Class F-R-2 Notes and Class G-R-2 Notes of Saratoga CLO and Saratoga
of our investment in the subordinated notes, Class F-R-2Notes and Class G-R-2
Notes of Saratoga CLO.
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The following table shows Saratoga CLO's portfolio composition by industry
grouping at fair value at
Saratoga CLO
February 29, 2020 February 28, 2019
Investments Percentage Investments Percentage
at of Total at of Total
Fair Value Portfolio Fair Value Portfolio
($ inthousands)
Banking Finance Insurance & Real Estate$ 87,957 17.6 %$ 74,638 15.0 % Services: Business 45,735 9.1 36,575 7.3 Healthcare & Pharmaceuticals 39,978 8.0 39,242 7.9 High Tech Industries 32,897 6.6 38,886 7.8 Services: Consumer 28,327 5.6 24,712 5.0 Telecommunications 28,317 5.6 28,156 5.6 Aerospace & Defense 25,093 5.0 16,836 3.4 Beverage Food & Tobacco 21,637 4.3 23,436 4.7 Media: Advertising Printing & Publishing 19,808 4.0 31,799 6.4 Hotel Gaming & Leisure 16,883 3.4 15,373 3.1 Containers Packaging & Glass 15,753 3.1 10,033 2.0 Consumer goods: Non-durable 15,700 3.1 15,528 3.1 Chemicals Plastics & Rubber 14,689 2.9 15,841 3.2 Retail 14,538 2.9 23,018 4.6 Automotive 13,820 2.8 13,373 2.7 Consumer goods: Durable 11,674 2.3 6,324 1.3 Capital Equipment 9,551 1.9 9,638 1.9 Media: Broadcasting & Subscription 7,959 1.6 10,410 2.1 Construction & Building 7,617 1.5 13,293 2.7 Utilities: Oil & Gas 7,306 1.5 2,953 0.6 Transportation: Cargo 7,054 1.4 11,137 2.2 Forest Products & Paper 5,385 1.1 4,555 0.9 Utilities: Electric 4,752 1.0 2,941 0.6 Metals & Mining 4,112 0.8 5,048 1.0 Energy: Oil & Gas 3,559 0.7 763 0.1 Energy: Electricity 3,357 0.7 5,059 1.0 Media: Diversified & Production 2,711 0.5 13,086 2.6 Wholesale 1,928 0.4 - - Transportation: Consumer 1,914 0.4 4,773 1.0 Environmental Industries 989 0.2 979 0.2 Total$ 501,000 100.0 %$ 498,405 100.0 % 80
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Portfolio composition by geographic location at fair value
The following table shows our portfolio composition by geographic location at
fair value at February 29, 2020 and February 28, 2019 . The geographic
composition is determined by the location of the corporate headquarters of the
portfolio company.
February 29, 2020 February 28, 2019
Investments Percentage Investments Percentage
at of Total at of Total
Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Southeast $ 165,353 34.0 % $ 130,604 32.5 %
West 99,390 20.5 10,777 2.7
Midwest 75,528 15.5 116,388 29.0
Southwest 61,456 12.7 50,236 12.5
Northeast 18,047 3.7 19,061 4.7
Northwest 9,981 2.1 8,636 2.1
Other(1) 55,877 11.5 66,318 16.5
Total $ 485,632 100.0 % $ 402,020 100.0 %
(1) At
Class F-R-2 Notes and Class G-R-2 Notes of Saratoga CLO,
Corp. CLO 2013-1 Warehouse 2, Ltd and foreign investments. At
2019, comprised of our investment in the subordinated notes, Class F-R-2
Notes and Class G-R-2 Notes of Saratoga CLO and foreign investments.
Results of operations
Operating results for the fiscal years ended
For the Year Ended
February 29, February 28, February 28,
2020 2019 2018
($ in thousands)
Total investment income $ 58,448 $ 47,708 $ 38,615
Total operating expenses 43,587 29,406 25,883
Loss on extinguishment of debt 1,583 - -
Net investment income 13,278 18,302 12,732
Net realized gains (losses) from
investments 42,877 4,874 (5,878 )
Net change in unrealized appreciation
(depreciation) on investments (771 ) (2,900 ) 10,825
Net change in provision for deferred
taxes on unrealized (appreciation)
depreciation on investments 355 (1,767 ) -
Net increase in net assets resulting
from operations $ 55,739 $ 18,509 $ 17,679
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Investment income
The composition of our investment income for the fiscal years ended
For the Year Ended
February 29, February 28, February 28,
2020 2019 2018
($ in thousands)
Interest from investments $ 48,047 $ 43,297 $ 35,110
Interest from cash and cash equivalents 536 65 28
Management fee income 2,504 1,722 1,509
Incentive fee income - 633 591
Structuring and advisory fee income 5,286 1,355 825
Other income 2,075 636 552
Total investment income $ 58,448 $ 47,708 $ 38,615
For the fiscal year ended February 29, 2020 , total investment income increased
$10.7 million , or 22.5% compared to the fiscal year ended February 28, 2019 .
Interest income from investments increased $4.7 million , or 11.0%, to
$48.0 million for the year ended February 29, 2020 from $43.3 million for the
fiscal year ended February 28, 2019 . This reflects an increase of 20.8% in total
investments to $485.6 million at February 29, 2020 from $402.0 million at
February 28, 2019 . At February 29, 2020 , the weighted average current yield on
investments was 9.3% compared to 10.7% at February 28, 2019 , which offset some
of the interest income increase.
For the fiscal year ended February 28, 2019 , total investment income increased
$9.1 million , or 23.5% compared to the fiscal year ended February 28, 2018 .
Interest income from investments increased $8.2 million , or 23.3%, to
$43.3 million for the year ended February 28, 2019 from $35.1 million for the
fiscal year ended February 28, 2018 . This reflects an increase of 17.3% in total
investments to $402.0 million at February 28, 2019 from $342.7 million at
February 28, 2018 . At February 28, 2019 , the weighted average current yield on
investments was 10.7% compared to 11.1% at February 28, 2018 , which offset some
of the increase.
For the fiscal year ended February 29, 2020 and February 28, 2019 , total PIK
income was $4.4 million and $4.2 million , respectively. This increase was
primarily due to the increase in investment in Easy Ice, LLC , which primarily
generated PIK interest income. The Company sold its interest in Easy Ice, LLC
during the year ended February 29, 2020 .
For the fiscal year ended February 28, 2019 and February 28, 2018 , total PIK
income was $4.2 million , and $2.8 million , respectively. This increase was
primarily due to the increase in investment in Easy Ice, LLC , which primarily
generates PIK interest income.
Following the third refinancing of the CLO on December 14, 2018 , the Company is
no longer entitled to receive the incentive fee. For the years ended
February 28, 2019 and February 28, 2018 incentive fee income of $0.6 million and
$0.6 million , respectively, was recognized related to the Saratoga CLO,
reflecting the 12.0% hurdle rate that has been achieved.
For the fiscal year ended February 29, 2020 , February 28, 2019 and February 28,
2018 , total structuring and advisory fee income was $5.3 million , $1.4 million
and $0.8 million , respectively. Structuring and advisory fee income represents
fee income earned and received performing certain investment and advisory
activities during the closing of new investments.
For the fiscal year ended February 29, 2020 , February 28, 2019 and February 28,
2018 , other income was $2.1 million , $0.6 million and $0.6 million ,
respectively. Other income includes dividends received, origination fees and
prepayment income fees and is recorded in the consolidated statements of
operations when earned.
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Operating expenses
The composition of our operating expenses for the years ended
For the Year Ended
February 29, February 28, February 28,
2020 2019 2018
($ in thousands)
Interest and debt financing
expenses $ 14,683 $ 13,126 $ 10,939
Base management fees 8,099 6,879 5,846
Incentive management fees 14,164 4,891 4,334
Professional fees 1,684 1,849 1,591
Administrator expenses 2,131 1,896 1,646
Insurance 260 253 260
Directors fees and expenses 278 291 197
General and administrative and
other expenses 1,326 1,248 1,085
Income tax benefit 962 (1,027 ) -
Excise tax expense (credit) - - (15 )
Total operating expenses $ 43,587 $
29,406
For the year endedFebruary 29, 2020 , total operating expenses increased$14.2 million , or 48.2% compared to the year endedFebruary 28, 2019 . For the year endedFebruary 28, 2019 , total operating expenses increased$3.5 million , or 13.6% compared to the year endedFebruary 28, 2018 . For the year endedFebruary 29, 2020 , the increase in interest and debt financing expenses is primarily attributable to an increase in the average outstanding borrowings of the 2025 Notes, partially offset by a decrease in the average outstanding borrowings of the 2023 Notes, which were redeemed during the fiscal year. OnDecember 21, 2019 andFebruary 7, 2020 , the Company redeemed$50.0 million and$24.5 million , respectively, in aggregate principal amount of the$74.5 million in aggregate principal amount of issued and outstanding 2023 Notes. Total average outstanding debt increased from$249.3 million for the year endedFebruary 28, 2019 to$273.8 million for the year endedFebruary 29, 2020 . For the year endedFebruary 29, 2020 , the weighted average interest rate on our outstanding indebtedness was 4.71% compared to the 4.62% for the year endedFebruary 28, 2019 . The increase in weighted average interest rate was primarily driven by an increase of$34.5 million in the average outstanding borrowings from the issuance of the 2025 Notes, which carry a fixed rate 6.25% interest rate. The average outstanding borrowings of the 2023 Notes decreased$11.3 million from$74.5 million for the year endedFebruary 28, 2019 to$63.2 million for the year endedFebruary 29, 2020 . As noted above, the 2023 Notes were redeemed during the fiscal year endedFebruary 29, 2020 . AtFebruary 29, 2020 andFebruary 28, 2019 , the SBA debentures represented 71.4% and 52.7% of overall debt, respectively. For the years endedFebruary 28, 2019 andFebruary 28, 2018 , the increase in interest and debt financing expenses is primarily attributable to an increase in total outstanding debt. The increase is primarily attributable to an increase in average outstanding debt from$212.1 million for the year endedFebruary 28, 2018 to$249.3 million for the year endedFebruary 28, 2019 . For the year endedFebruary 28, 2019 , the weighted average interest rate on our outstanding indebtedness was 4.62% compared to the 4.50% for the year endedFebruary 28, 2018 . The increase in weighted average interest rate was primarily driven by the issuance of the 2025 Notes which carry a fixed rate of 6.25%, versus the SBA debentures that carry a lower interest rate. AtFebruary 28, 2019 andFebruary 28, 2018 , the SBA debentures represented 52.7% and 64.9% of overall debt, respectively. For the year endedFebruary 29, 2020 , base management fees increased$1.2 million , or 17.7% compared to the fiscal year endedFebruary 28, 2019 . The increase in base management fees results from the 17.7% increase in the average value of our total assets, less cash and cash equivalents, from$393.1 million as ofFebruary 28, 2019 to$462.8 million as ofFebruary 29, 2020 . 83
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For the year endedFebruary 28, 2019 , base management fees increased$1.0 million , or 17.7% compared to the fiscal year endedFebruary 28, 2018 . The increase in base management fees results from the 17.7% increase in the average value of our total assets, less cash and cash equivalents, from$334.1 million as ofFebruary 28, 2018 to$393.1 million as ofFebruary 28, 2019 . For the year endedFebruary 29, 2020 , incentive management fees increased$9.3 million , or 189.6% compared to the fiscal year endedFebruary 28, 2019 . The first part of the incentive management fees increased this year from$4.6 million for the year endedFebruary 28, 2019 to$5.8 million for the year endedFebruary 29, 2020 , as higher average total assets of 17.7% has led to increased net investment income above the hurdle rate pursuant to the investment advisory and management agreement. The incentive management fees related to capital gains increased from$0.3 million for the fiscal year endedFebruary 28, 2019 to$8.4 million for the fiscal year endedFebruary 29, 2020 , reflecting the net realized and unrealized gain on investments this year, primarily related to ourCensis Technologies, Inc. andEasy Ice, LLC investments and also including the impact of the deferred taxes on unrealized appreciation. For the year endedFebruary 28, 2019 , incentive management fees increased$0.6 million , or 12.9% compared to the fiscal year endedFebruary 28, 2018 . The first part of the incentive management fees increased this year from$3.4 million for the year endedFebruary 28, 2018 to$4.6 million for the year endedFebruary 28, 2019 , as higher average total assets of 17.7% has led to increased net investment income above the hurdle rate pursuant to the investment advisory and management agreement. The incentive management fees related to capital gains decreased from$0.9 million for the fiscal year endedFebruary 28, 2018 to$0.3 million for the fiscal year endedFebruary 28, 2019 , reflecting the net realized and unrealized gain on investments this year, including the impact of the deferred taxes on unrealized appreciation. For the year endedFebruary 29, 2020 , professional fees decreased$0.2 million , or 8.9% compared to the fiscal year endedFebruary 28, 2019 . This decrease primarily relates to decreased legal and accounting fees this year, as the shelf registration statement last year led to higher fees. For the year endedFebruary 28, 2019 , professional fees increased$0.3 million , or 16.3% compared to the fiscal year endedFebruary 28, 2018 . This increase primarily relates to increased legal, valuation and accounting fees, including additional cost related to the Sarbanes-Oxley Act implementation.
For the year ended
For the year ended
As discussed above, the increase in interest and debt financing expenses for the years endedFebruary 29, 2020 ,February 28, 2019 andFebruary 28, 2018 is primarily attributable to an increase in the average amount of outstanding debt as compared to the prior years. For the fiscal years endedFebruary 29, 2020 ,February 28, 2019 andFebruary 28, 2018 , the average borrowings outstanding under the Credit Facility was approximately$0.6 million ,$3.4 million and$7.1 million , respectively, and the average weighted average interest rate on the outstanding borrowing under the Credit Facility was 6.66%, 7.10% and 6.02%, respectively. For the fiscal years endedFebruary 29, 2020 ,February 28, 2019 andFebruary 28, 2018 , the average borrowings outstanding of SBA debentures was$150.0 million ,$146.0 million and$130.1 million , respectively. For the years endedFebruary 29, 2020 ,February 28, 2019 andFebruary 28, 2018 , the weighted average interest rate on the outstanding borrowings of the SBA debentures was 3.23%, 3.20% and 3.14%, respectively.
During the year ended
As discussed above, during the fourth quarter of 2020 fiscal year, the Company redeemed$74.45 million in aggregate principal amount of issued and outstanding 2023 Notes. During the years endedFebruary 29, 2020 , 2019 and 2018, the average dollar amount of our 6.75% fixed-rate 2023 Notes outstanding was$63.2 million ,$74.5 million and$74.5 million , respectively. 84
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For the years endedFebruary 29, 2020 ,February 28, 2019 andFebruary 28, 2018 , we recognized income tax expense (benefit) of$1.0 million ,$(1.0) million and$0.0 million , respectively. This relates to net deferred federal and state income tax expense (benefit) with respect to operating gains and losses and income derived from equity investments held in the taxable blockers.
Net realized gains (losses) on sales of investments
For the fiscal year endedFebruary 29, 2020 , the Company had$167.3 million of sales, repayments, exits or restructurings resulting in$42.9 million of net realized gains. The most significant realized gains and losses during the year endedFebruary 29, 2020 were as follows (dollars in thousands): Fiscal year ended February 29, 2020 Net Gross Realized Issuer Asset Type Proceeds Cost Gain Easy Ice, LLC Equity Interests $ 41,928 $ 10,703 $ 31,225 Censis Technologies, Inc. Equity Interests 12,280 999 11,281
The
For the fiscal year endedFebruary 28, 2019 , the Company had$135.7 million of sales, repayments, exits or restructurings resulting in$4.9 million of net realized gains. The most significant realized gains and losses during the year endedFebruary 28, 2019 were as follows (dollars in thousands): 85
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Fiscal year ended February 28, 2019
Net
Gross Realized
Issuer Asset Type Proceeds Cost Gain
HMN Holdco, LLC Equity Interests $ 642 $ 62 $ 580
HMN Holdco, LLC Equity Interests 4,539 438 4,101
For the year ended February 28, 2019 , the $4.7 million of net realized gains on
our investments in HMN Holdco, LLC was due to a refinancing transaction that
included the sale of our equity position.
For the fiscal year ended February 28, 2018 , the Company had $66.3 million of
sales, repayments, exits or restructurings resulting in $5.9 million of net
realized losses. The most significant realized gains and losses during the year
ended February 28, 2018 were as follows (dollars in thousands):
Fiscal year ended February 28, 2018
Net
Realized
Gross Gain
Issuer Asset Type Proceeds Cost (Loss)
My Alarm Center, LLC Second Lien Term Loan $ 2,617 $ 10,330 $ (7,713 )
Mercury Funding, LLC Equity Interests 2,631 858 1,773
The
The
Net change in unrealized appreciation (depreciation) on investments
For the year ended
Fiscal year ended February 29, 2020
Total YTD Change in
Unrealized Unrealized
Fair Appreciation Appreciation
Issuer Asset Type Cost Value (Depreciation) (Depreciation)
Easy Ice, LLC Second Term Lien Loan & Equity Interests $ - $ - $ - $ (3,817 )
GreyHeller LLC First Term Lien Loan & Equity Interests 7,821 9,982 2,161 1,331
Netreo Holdings, LLC First Term Lien Loan & Equity Interests 8,273 12,029 3,756 1,655
The $3.8 million net change in unrealized depreciation in our investment in Easy
Ice, LLC was driven by the completion of a sales transaction. In recognizing a
realized gain as a result of the sale, unrealized appreciation was adjusted to
zero, which resulted in a $3.8 million change in unrealized depreciation for the
year.
The
The
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For the year endedFebruary 28, 2019 , our investments had a net change in unrealized depreciation of$2.9 million versus a net change in unrealized appreciation of$10.8 million for the year endedFebruary 28, 2018 . The most significant cumulative net change in unrealized appreciation (depreciation) for the year endedFebruary 28, 2019 , were the following (dollars in thousands): Fiscal year ended February 28, 2019 Total YTD Change in Unrealized Unrealized Fair Appreciation Appreciation Issuer Asset Type Cost Value (Depreciation) (Depreciation) Elyria Foundry, L.L.C. Equity Interests$ 9,685 $ 1,804 $ (7,881 ) $ (1,630 ) Roscoe Medical, Inc. Second Lien Term Loan 4,189 2,499 (1,690 ) (1,419 ) Netreo Holdings, LLC Equity Interests 3,150 5,179 2,029 2,029 My Alarm Center, LLC Equity Interests 2,358 1,113 (1,245 ) (1,274 )
The
The
The
The
For the year endedFebruary 28, 2018 , our investments had a net change in unrealized appreciation of$10.8 million versus a net change in unrealized depreciation of$10.6 million for the year endedFebruary 28, 2017 . The most significant cumulative changes in unrealized appreciation for the year endedFebruary 28, 2018 , were the following (dollars in thousands): Fiscal year ended February 28, 2018 Total Unrealized YTD Change Fair Appreciation in Unrealized Issuer Asset Type Cost Value (Depreciation) Appreciation Elyria Foundry Company, L.L.C. Equity Interests$ 9,685 $ 3,434 $ (6,251 ) $ 2,553 My Alarm Center, LLC Second Lien Term Loan - - - 2,298 Easy Ice, LLC Equity Interests 8,761 10,760 1,999 1,999 Saratoga Investment Corp. CLO 2013-1 Structured Finance Ltd. Securities 9,296 11,875 2,579 1,948 The$2.6 million of net change in unrealized appreciation in our investment inElyria Foundry Company, L.L.C. was driven by a continued increase in oil and gas markets, positively impacting the company's performance. The$2.3 million of net change in unrealized appreciation in our investment inMy Alarm Center, LLC was driven by the completion of a sales transaction. In recognizing this loss as a result of the sale, unrealized depreciation was adjusted to zero, which resulted in a$2.3 million change in unrealized appreciation for the year.
The
The
Changes in net assets resulting from operations
For the fiscal years endedFebruary 29, 2020 ,February 28, 2019 andFebruary 28, 2018 , we recorded a net increase in net assets resulting from operations of$55.7 million ,$18.5 million and$17.7 million , respectively. Based on 9,319,192 weighted average common shares outstanding as ofFebruary 29, 2020 , our per share net increase in net assets resulting from operations was$5.98 for the fiscal year endedFebruary 29, 2020 . This compares to a per share net increase in net assets resulting from operations of$2.63 for the fiscal year endedFebruary 28, 2019 (based on 7,046,686 weighted average common shares outstanding as ofFebruary 28, 2019 ), and a per share net increase in net assets resulting from operations of$2.93 for the fiscal year endedFebruary 28, 2018 (based on 6,024,040 weighted average common shares outstanding as ofFebruary 28, 2018 ). 87
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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 inU.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 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 the Code. In satisfying this distribution requirement, in accordance with certain applicable provisions of the Code and theTreasury regulations and a revenue procedure 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 that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. We may rely on the revenue procedure 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 200.0%, reduced to 150.0% effectiveApril 16, 2019 following the approval received from the non-interested board of directors onApril 16, 2018 . This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 607.1% as ofFebruary 29, 2020 and 234.5% as ofFebruary 28, 2019 . 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 withMadison Capital Funding LLC (the "Credit Facility") onJune 30, 2010 , which was most recently amended onApril 24, 2020 . 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 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. 88
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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 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 subsidiaries) 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 1.00%,
plus an applicable margin of 4.75%. At the Company's option, funds may be
borrowed based on an alternative base rate, which in no event will be less than
2.00%, and the applicable margin over such alternative base rate is 3.75%. 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 theCredit 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.
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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
collectively, directly or indirectly, a cash equity investment in the
Company in an amount equal to at least $5.0 million 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.
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Fees and Expenses. The Company paid certain fees and reimbursedMadison 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 byMadison 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 withSaratoga Investment Advisors and certain of its affiliates. These amounts totaled$2.0 million .
On
• 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
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
• extend the commitment termination date from February 24, 2015 to
September 17, 2017 ;
• extend the maturity date of the Revolving Facility from
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 onLIBOR borrowings from 2.00% to 1.25%.
On
• extend the commitment termination date from September 17, 2017 to
September 17, 2020 ;
• extend the final maturity date of the Credit Facility from
2022 to September 17, 2025 ;
• reduce the floor on base rate borrowings from 2.25% to 2.00%;
• reduce the floor on LIBOR borrowings from 1.25% to 1.00%; and
• reduce the commitment fee rate from 0.75% to 0.50% for any period during
which the ratio of advances outstanding to aggregate commitments,
expressed as a percentage, is greater than or equal to 50%.
On
• permit certain amendments related to the Paycheck Protection Program
("Permitted PPP Amendment") to Loan Asset Documents;
• exclude certain debt and interest amounts allowed by the Permitted PPP
Amendments from certain calculations related to Net Leverage Ratio,
Interest Coverage Ratio and EBITDA; and
• exclude such Permitted PPP Amendments from constituting a MaterialModification.
As ofFebruary 29, 2020 , we had no outstanding borrowings under the Credit Facility and$150.0 million of SBA-guaranteed debentures outstanding (which are discussed below). As ofFebruary 28, 2019 , we had no outstanding borrowings under the Credit Facility and$150.0 million of SBA-guaranteed debentures outstanding. Our borrowing base under the Credit Facility atFebruary 29, 2020 andFebruary 28, 2019 was$35.6 million and$30.6 million , respectively.
Our asset coverage ratio, as defined in the 1940 Act, was 607.1% as of
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SBA-guaranteed debentures
In addition, we, through two wholly-owned subsidiaries, sought and obtained licenses from the SBA to operate an SBIC. In this regard, onMarch 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 and onAugust 14, 2019 , our wholly-owned subsidiary,Saratoga Investment Corp. SBIC II LP , also received a license. 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 subsidiaries 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 overU.S. Treasury Notes with 10-year maturities. SBA regulations previously limited 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. This maximum has been increased by SBA regulators for new licenses to$175.0 million of SBA debentures when it has at least$87.5 million in regulatory capital. The new license will provide up to$175.0 million in additional long-term capital in the form of SBA-guaranteed debentures.The SBIC LP andSBIC II LP are regulated by the SBA. As a result of the 2016 omnibus spending bill signed into law inDecember 2015 , the maximum amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding was increased from$225.0 million to$350.0 million . Our wholly-owned SBIC subsidiaries are 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. With this license approval, Saratoga will grow its SBA relationship from$150.0 million to$325.0 million of committed capital. We received exemptive relief from theSEC to permit us to exclude the debt of our SBIC subsidiaries guaranteed by the SBA from the definition of senior securities in the asset coverage test under the 1940 Act. This allows us increased flexibility under the asset coverage test by permitting us to borrow up to$325.0 million more than we would otherwise be able to absent the receipt of this exemptive relief. OnApril 16, 2018 , as permitted by the Small Business Credit Availability Act, which was signed into law onMarch 23, 2018 , our non-interested board of directors approved of our becoming subject to a minimum asset coverage ratio of 150.0% from 200% under Sections 18(a)(1) and 18(a)(2) of the Investment Company Act, as amended. The 150.0% asset coverage ratio became effective onApril 16, 2019 . As ofFebruary 29, 2020 , ourSBIC LP subsidiary had$75.0 million in regulatory capital and$150.0 million SBA-guaranteed debentures outstanding and ourSBIC II LP subsidiary had$50.0 million in regulatory capital and did not have any SBA-guaranteed debenturesoutstanding.
Unsecured notes
InMay 2013 , we issued$48.3 million in aggregate principal amount of our 2020 Notes 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 2020 Notes is paid quarterly in arrears onFebruary 15 ,May 15 ,August 15 andNovember 15 , at a rate of 7.50% per year, beginningAugust 15, 2013 . The 2020 Notes mature onMay 31, 2020 and sinceMay 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 2020 Notes, we agreed to the following covenants for the period of time during which the 2020 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
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 200.0% 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 cashdividend 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 the Code. Currently these provisions generally prohibit us from
declaring any cash dividend or distribution upon any class of our capitalstock, or purchasing any such capital stock if our asset coverage, as
defined in the 1940 Act, is below 200.0% 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.
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The 2020 Notes were redeemed in full on
OnMay 29, 2015 , we entered into a Debt Distribution Agreement withLadenburg Thalmann & Co. through which we may offer for sale, from time to time, up to$20.0 million in aggregate principal amount of the 2020 Notes through an ATM offering. Prior to the 2020 Notes being redeemed in full, the Company had sold 539,725 bonds with a principal of$13.5 million at an average price of$25.31 for aggregate net proceeds of$13.4 million (net of transaction costs). OnDecember 21, 2016 , we issued$74.5 million in aggregate principal amount of our 2023 Notes for net proceeds of$71.7 million after deducting underwriting commissions of approximately$2.3 million and offering costs of approximately$0.5 million . The issuance included the exercise of substantially all of the underwriters' option to purchase an additional$9.8 million aggregate principal amount of 2023 Notes within 30 days. Interest on the 2023 Notes is paid quarterly in arrears onMarch 15 ,June 15 ,September 15 andDecember 15 , at a rate of 6.75% per year, beginningMarch 30, 2017 . The 2023 Notes mature onDecember 30, 2023 , and commencingDecember 21, 2019 , may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used to repay all of the outstanding indebtedness under the 2020 Notes onJanuary 13, 2017 , which amounted to$61.8 million , and for general corporate purposes in accordance with our investment objective and strategies. OnDecember 21, 2019 andFebruary 7, 2020 , the Company redeemed$50.0 million and$24.5 million , respectively, in aggregate principal amount of the$74.5 million in aggregate principal amount of issued and outstanding 2023 Notes and are no longer listed on the NYSE. OnAugust 28, 2018 , the Company issued$40.0 million in aggregate principal amount of our 6.25% fixed-rate notes due 2025 (the "2025 Notes") for net proceeds of$38.7 million after deducting underwriting commissions of approximately$1.3 million . Offering costs incurred were approximately$0.3 million . The issuance included the full exercise of the underwriters' option to purchase an additional$5.0 million aggregate principal amount of 2025 Notes within 30 days. Interest on the 2025 Notes is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.25% per year, beginningNovember 30, 2018 . The 2025 Notes mature onAugust 31, 2025 and commencingAugust 31, 2021 , may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.6 million related to the 2025 Notes have been capitalized and are being amortized over the term of the 2025 Notes. The 2025 Notes are listed on the NYSE under the trading symbol "SAF" with a par value of$25.00 per share. OnFebruary 5, 2019 , the Company completed a re-opening and up-sizing of its existing 2025 Notes by issuing an additional$20.0 million in aggregate principal amount for net proceeds of$19.2 million after deducting underwriting commissions of approximately$0.6 million and discount of$0.2 million . Offering costs incurred were approximately$0.2 million . The issuance included the full exercise of the underwriters' option to purchase an additional$2.5 million aggregate principal amount of 2025 Notes within 30 days. Interest rate, interest payment dates and maturity remain unchanged from the existing 2025 Notes issued inAugust 2018 . The net proceeds from this offering were used for general corporate purposes in accordance with our investment objective and strategies. The financing costs and discount of$1.0 million related to the 2025 Notes have been capitalized and are being amortized over the term of the 2025 Notes.
At
In connection with the issuance of the 2025 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
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, or, if we obtain the required approvals from our
independent directors and/or stockholders, 150% (after deducting the
amount of such dividend, distribution or purchase price, as the case may
be).
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• we will not declare any dividend (except a dividend payable in our
stock), or declare any other distribution, upon a class of our capital
stock, or purchase any such capital stock, unless, in every such case, at
the time of the declaration of any such dividend or distribution, or atthe time of any such purchase, we have an asset coverage (as defined in
the 1940 Act) of at least 150.0%, as such obligation may be amended or
superseded, after deducting the amount of such dividend, distribution or
purchase price, as the case may be, and in each case giving effect to
(i) any exemptive relief granted to us by the SEC , and (ii) any SEC
no-action relief granted by the SEC to another BDC (or to us if wedetermine 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 such
provisions of Section 61(a) of the 1940 Act as may be applicable to usfrom time to time, as such obligation may be amended or superseded, in
order to maintain such BDC's status as a regulated investment company
under Subchapter M of the Code.
• if, at any time, we are not subject to the reporting requirements of
Sections 13 or 15(d) of the Securities Exchange Act of 1934, or the
Exchange Act, to file any periodic reports with the SEC , we agree tofurnish to holders of the 2025 Notes and the Trustee, for the period of
time during which the 2025 Notes are outstanding, our audited annual
consolidated financial statements, within 90 days of our fiscal year end,
and unaudited interim consolidated financial statements, within 45 days
of our fiscal quarter end (other than our fourth fiscal quarter). Allsuch financial statements will be prepared, in all material respects, in
accordance with applicable
principles.
At
February 29, 2020 February 28, 2019
Fair Value Percentage of Total Fair Value Percentage of Total
($ in thousands)
Cash and cash equivalents $ 24,599 4.7 % $ 30,799 6.6 %
Cash and cash equivalents,
reserve accounts 14,851 2.8 31,295 6.7
First lien term loans 346,233 66.0 202,846 43.7
Second lien term loans 73,570 14.0 125,786 27.1
Unsecured term loans 4,346 0.8 2,100 0.5
Structured finance securities 32,470 6.2 35,328 7.6
Equity interests 29,013 5.5 35,960 7.8
Total $ 525,082 100.0 % $ 464,114 100.0 %
On July 13, 2018 , the Company issued 1,150,000 shares of its common stock priced
at $25.00 per share (par value $0.001 per share) at an aggregate total of
$28.75 million . The net proceeds, after deducting underwriting commissions of
$1.15 million and offering costs of approximately $0.2 million , amounted to
approximately $27.4 million . The Company also granted the underwriters a 30-day
option to purchase up to an additional 172,500 shares of its common stock, which
was not exercised.
On March 16, 2017 , we entered into an equity distribution agreement with
Ladenburg Thalmann & Co. Inc. , through which we may offer for sale, from time to
time, up to $30.0 million of our common stock through an ATM offering.
Subsequent to this, BB&T Capital Markets and B. Riley FBR, Inc. were also added
to the agreement. On July 11, 2019 , the amount of the common stock to be offered
through this offering was increased to $70.0 million , and on October 8, 2019 ,
the amount of the common stock to be offered was increased to $130.0 million .
For the year ended February 29, 2020 , the Company sold 3,427,346 shares for
gross proceeds of $85.9 million at an average price of $25.06 for aggregate net
proceeds of $84.7 million (net of transaction costs) and as of February 29,
2020 , the Company sold 3,922,018 shares for gross proceeds of $97.1 million at
an average price of $24.77 for aggregate net proceeds of $95.9 million (net of
transaction costs).
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OnSeptember 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. OnOctober 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. OnOctober 5, 2016 , the Company's board of directors extended the open market share repurchase plan for another year toOctober 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. OnOctober 10, 2017 ,January 8, 2019 andJanuary 7, 2020 , the Company's board of directors extended the open market share repurchase plan for another year toOctober 15, 2018 ,January 15, 2020 andJanuary 15, 2021 , respectively, each time leaving the number of shares unchanged at 600,000 shares of its common stock. OnMay 4, 2020 , the Board of Directors increased the share repurchase plan to 1.3 million shares of common stock. As ofFebruary 29, 2020 , the Company purchased 218,491 shares of common stock, at the average price of$16.87 for approximately$3.7 million pursuant to this repurchase plan. OnJanuary 7, 2020 , the Company declared a dividend of$0.56 per share, which was paid onFebruary 6, 2020 , to common stockholders of record onJanuary 24, 2020 . 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$5.4 million in cash and 35,682 newly issued shares of common stock, or 0.3% 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$25.44 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onJanuary 24 , 27, 28, 29, 30, 31 andFebruary 3 , 4, 5 and 6, 2020. OnAugust 27, 2019 , the Company declared a dividend of$0.56 per share, which was paid onSeptember 26, 2019 , to common stockholders of record onSeptember 13, 2019 . 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$4.5 million in cash and 34,575 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$23.34 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onSeptember 13, 16 , 17, 18, 19, 20, 23, 24, 25 and 26, 2019. OnMay 28, 2019 , our board of directors declared a dividend of$0.55 per share, which was paid onJune 27, 2019 , to common stockholders of record as ofJune 13, 2019 . 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$3.6 million in cash and 31,545 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$22.65 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onJune 14, 17 , 18, 19, 20, 21, 24, 25, 26 and 27, 2019. OnFebruary 26, 2019 , our board of directors declared a dividend of$0.54 per share, which was paid onMarch 28, 2019 , to common stockholders of record as ofMarch 14, 2019 . 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$3.5 million in cash and 31,240 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$21.36 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onMarch 15, 18 , 19, 20, 21, 22, 25, 26, 27 and 28, 2019. OnNovember 27, 2018 , our board declared a dividend of$0.53 per share payable onJanuary 2, 2019 , to common stockholders of record onDecember 17, 2018 . 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$3.4 million in cash and 30,796 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$18.88 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onDecember 18, 19 , 20, 21, 24, 26, 27, 28, 31, 2018 andJanuary 2, 2019 . OnAugust 28, 2018 , our board of directors declared a dividend of$0.52 per share, which was paid onSeptember 27, 2018 , to common stockholders of record as ofSeptember 17, 2018 . 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$3.3 million in cash and 25,862 newly issued shares of common stock, or 0.3% 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$22.35 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onSeptember 14, 17 , 18, 19, 20, 21, 24, 25, 26 and 27, 2018. 95
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OnMay 30, 2018 , our board of directors declared a dividend of$0.51 per share, which was paid onJune 27, 2018 , to common stockholders of record as ofJune 15, 2018 . 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$2.7 million in cash and 21,562 newly issued shares of common stock, or 0.3% 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$23.72 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onJune 14, 15 , 18, 19, 20, 21, 22, 25, 26 and 27, 2018. OnFebruary 26, 2018 , our board of directors declared a dividend of$0.50 per share, which was paid onMarch 26, 2018 , to common stockholders of record as ofMarch 14, 2018 . 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$2.6 million in cash and 25,354 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$19.91 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onMarch 13, 14 , 15, 16, 19, 20, 21, 22, 23 and 26, 2018. OnNovember 29, 2017 , our board of directors declared a dividend of$0.49 per share payable onDecember 27, 2017 , to common stockholders of record onDecember 15, 2017 . 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$2.5 million in cash and 25,435 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$21.14 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onDecember 13, 14 , 15, 18, 19, 20, 21, 22, 26 and 27, 2017. OnAugust 28, 2017 , our board of directors declared a dividend of$0.48 per share payable onSeptember 26, 2017 , to common stockholders of record onSeptember 15, 2017 . 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$2.2 million in cash and 33,551 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$20.19 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onSeptember 13, 14 , 15, 18, 19, 20, 21, 22, 25 and 26, 2017. OnMay 30, 2017 , our board of directors declared a dividend of$0.47 per share which was paid onJune 27, 2017 , to common stockholders of record onJune 15, 2017 . 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$2.3 million in cash and 26,222 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$20.04 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onJune 14, 15 , 16, 19, 20, 21, 22, 23, 26 and 27, 2017. OnFebruary 28, 2017 , our board of directors declared a dividend of$0.46 per share, which was paid onMarch 28, 2017 , to common stockholders of record as ofMarch 15, 2017 . 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$2.0 million in cash and 29,096 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$21.38 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onMarch 15, 16 , 17, 20, 21, 22, 23, 24, 27 and 28, 2017. OnJanuary 12, 2017 , our board of directors declared a dividend of$0.45 per share, which was paid onFebruary 9, 2017 , to common stockholders of record as ofJanuary 31, 2017 . 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$1.6 million in cash and 50,453 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$20.25 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onJanuary 27 , 30, 31 andFebruary 1 , 2, 3, 6, 7, 8 and 9, 2017. 96
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OnOctober 5, 2016 , our board of directors declared a dividend of$0.44 per share, which was paid onNovember 9, 2016 , to common stockholders of record as ofOctober 31, 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 58,548 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$17.12 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onOctober 27 , 28, 31 andNovember 1 , 2, 3, 4, 7, 8 and 9, 2016. OnAugust 8, 2016 , our board of directors declared a special dividend of$0.20 per share, which was paid onSeptember 5, 2016 , to common stockholders of record as ofAugust 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 95.0% of the volume weighted average trading price per share of the common stock onAugust 22 , 23, 24, 25, 26, 29, 30, 31 andSeptember 1 and 2, 2016. OnJuly 7, 2016 , our board of directors declared a dividend of$0.43 per share, which was paid onAugust 9, 2016 , to common stockholders of record as ofJuly 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 95.0% of the volume weighted average trading price per share of the common stock onJuly 27 , 28, 29 andAugust 1 , 2, 3, 4, 5, 8 and 9, 2016. OnMarch 31, 2016 , our board of directors declared a dividend of$0.41 per share, which was paid onApril 27, 2016 , to common stockholders of record as ofApril 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 95.0% of the volume weighted average trading price per share of the common stock onApril 14, 15 , 18, 19, 20, 21, 22, 25, 26 and 27, 2016. OnJanuary 12, 2016 , our board of directors declared a dividend of$0.40 per share, which was paid onFebruary 29, 2016 , to common stockholders of record as ofFebruary 1, 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$1.4 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 95.0% of the volume weighted average trading price per share of the common stock onFebruary 16, 17 , 18, 19, 22, 23, 24, 25, 26 and 29, 2016. OnOctober 7, 2015 , our board of directors declared a dividend of$0.36 per share, which was paid onNovember 30, 2015 , to common stockholders of record as ofNovember 2, 2015 . 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$1.1 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 95.0% of the volume weighted average trading price per share of the common stock onNovember 16, 17 , 18, 19, 20, 23, 24, 25, 27 and 30, 2015. OnJuly 8, 2015 , our board of directors declared a dividend of$0.33 per share, which was paid onAugust 31, 2015 , to common stockholders of record as ofAugust 3, 2015 . 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$1.1 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 95.0% of the volume weighted average trading price per share of the common stock onAugust 18, 19 , 20, 21, 24, 25, 26, 27, 28 and 31, 2015. 97
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OnMay 14, 2015 , our board of directors declared a special dividend of$1.00 per share, which was paid onJune 5, 2015 , to common stockholders of record on as ofMay 26, 2015 . 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$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 95.0% of the volume weighted average trading price per share of the common stock onMay 22 , 26, 27, 28, 29 andJune 1 , 2, 3, 4, and 5, 2015. OnApril 9, 2015 , our board of directors declared a dividend of$0.27 per share, which was paid onMay 29, 2015 , to common stockholders of record as ofMay 4, 2015 . 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$0.9 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 95.0% of the volume weighted average trading price per share of the common stock onMay 15, 18 , 19, 20, 21, 22, 26, 27, 28 and 29, 2015. OnSeptember 24, 2014 , our board of directors declared a dividend of$0.22 per share, which was paid onFebruary 27, 2015 , to common stockholders of record onFebruary 2, 2015 . Shareholders have 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$0.8 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 95.0% of the volume weighted average trading price per share of the common stock onFebruary 13, 17 , 18, 19, 20, 23, 24, 25, 26 and 27, 2015. Also, onSeptember 24, 2014 , our board of directors declared a dividend of$0.18 per share, which was paid onNovember 28, 2014 , to common stockholders of record onNovember 3, 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 95.0% of the volume weighted average trading price per share of the common stock onNovember 14, 17 , 18, 19, 20, 21, 24, 25, 26 and 28, 2014. OnOctober 30, 2013 , our board of directors declared a dividend of$2.65 per share, which was paid onDecember 27, 2013 , to common stockholders of record as ofNovember 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 theIRS 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 onDecember 11, 13 and 16, 2013. OnNovember 9, 2012 , our board of directors declared a dividend of$4.25 per share, which was paid onDecember 31, 2012 , to common stockholders of record as ofNovember 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 onDecember 14, 17 and 19, 2012. 98
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OnNovember 15, 2011 , our board of directors declared a dividend of$3.00 per share, which was paid onDecember 30, 2011 , to common stockholders of record as ofNovember 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 onDecember 20 , 21 and 22, 2011. OnNovember 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 theIRS 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 onDecember 29, 2010 to common shareholders of record onNovember 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 onDecember 20 , 21 and 22, 2010. OnNovember 13, 2009 , our board of directors declared a dividend of$18.25 per share, which was paid onDecember 31, 2009 , to common stockholders of record as ofNovember 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$1.5099 per share, which equaled the volume weighted average trading price per share of the common stock onDecember 24 and 28, 2009.
We cannot provide any assurance that these measures will provide sufficient sources of liquidity to support our operations and growth.
Contractual obligations
The following table shows our payment obligations for repayment of debt and
other contractual obligations at
Payment Due by Period
Less Than 1 - 3 3 - 5 More Than
Long-Term Debt Obligations Total 1 Year Years Years 5 Years
($ in thousands)
Revolving credit facility $ - $ - $ - $ - $ - SBA debentures 150,000 - - 79,000 71,000 2025 Notes 60,000 - - - 60,000
Total Long-Term Debt Obligations
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Off-balance sheet arrangements
AtFebruary 29, 2020 andFebruary 28, 2019 , the Company's off-balance sheet arrangements consisted of$64.1 million and$4.5 million , respectively, of unfunded commitments outstanding to provide debt financing to its portfolio companies or to fund limited partnership interests. 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 unfunded commitments outstanding as of
February 29, 2020 February 28, 2019
At Company's discretion
inMotionNow, Inc. $ 3,000 $ -
Omatic Software, LLC 1,000 1,000
Passageways, Inc. 5,000 -
PDDS Buyer, LLC 5,000 -
Saratoga Investment Corp. CLO 2013-1
Warehouse 2, Ltd 17,500 -
Top Gun Pressure Washing, LLC 5,000 -
Village Realty Holdings LLC 10,000 -
Total 46,500 1,000
At portfolio company's discretion-satisfaction of certain financial and nonfinancial covenants
required
ArbiterSports, LLC $ 1,000 $ -
Axiom Purchaser, Inc. 1,000 1,000
CoConstruct, LLC 3,500 -
Davisware, LLC 2,000 -
Destiny Solutions Inc. - 1,500
GDS Holdings US, Inc. - 1,000
GoReact 2,000 -
HemaTerra Holding Company, LLC 4,000 -
Passageways, Inc. 3,000 -
Village Realty Holdings LLC 1,124 -
17,624 3,500
Total $ 64,124 $ 4,500© Edgar Online, source
