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 Quarterly Report on Form 10-Q. In addition to historical information, the following discussion and other parts of this Quarterly 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 "Note about Forward-Looking Statements" and Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedFebruary 28, 2022 .
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 Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:
? our future operating results and the continued impact of coronavirus
("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;
? the impact of geopolitical conditions, including the ongoing conflict between
economic markets, and various sectors, industries and markets for commodities
globally, such as oil and natural gas;
? the relative and absolute investment performance and operations of our Manager;
? 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 operational and financial performance of our
portfolio companies, including their ability to achieve our respective
objectives as a result of the current COVID-19 pandemic and the effects of the
disruptions caused by the COVID-19 pandemic on our ability to continue to
effectively manage our business;
? 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;
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? our expected financings and investments;
? our regulatory structure and tax treatment, 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, including the decommissioning of LIBOR
and the rising interest rate environment, on our results, particularly because
we use leverage as part of our investment strategy;
? the impact of supply chain constraints and labor difficulties on our portfolio
companies and the global economy;
? the elevated level of inflation, and its impact on our portfolio companies and
on the industries in which we invest;
? the impact of legislative and regulatory actions and reforms and regulatory,
supervisory or enforcement actions of government agencies relating to us or our
Manager;
? 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 Manager to attract and retain highly talented professionals;
and
? the ability of our Manager to locate suitable investments for us and to monitor
and effectively administer our investments and the impacts of the COVID-19
pandemic thereon.
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The following statements are not guarantees of future performance and are
subject to risks, uncertainties, and other factors, some of which are beyond our
control and difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements,
including without limitation:
? changes in laws and regulations, changes in political, economic, geopolitical
or industry conditions, and changes in the interest rate environment, including
with respect to the decommissioning of LIBOR and interest rate hikes by the
markets, including with respect to changes resulting from or in response to, or
potentially even the absence of changes as a result of, the impact of the
COVID-19 pandemic;
? the length and duration of the COVID-19 pandemic in
as worldwide, and the magnitude of its impact and time required for economic
recovery, including with respect to the impact of travel restrictions, business
closures and other restrictions on the ability of the Manager's investment
professionals to conduct in-person diligence on, and otherwise monitor,
existing and future investments;
? an economic downturn and the time period required for robust economic recovery
therefrom, including from increasing inflation, a shifting interest rate
environment, geopolitical events (including the war in
ongoing impact of the COVID-19 pandemic, which may have a material impact on
our portfolio companies' results of operations and financial condition, which
could lead to the loss of some or all of our investments in certain portfolio
companies and have a material adverse effect on our results of operations and
financial condition;
? a contraction of available credit, an inability or unwillingness of our lenders
to fund their commitments to us and/or an inability to access capital markets
or additional sources of liquidity, including as a result of the impact and
duration of the COVID-19 pandemic, could have a material adverse effect on our
results of operations and financial condition and impair our lending and
investment activities;
? risks associated with possible disruption in our portfolio companies'
operations due to wars and other forms of conflict, terrorist acts, security
operations and catastrophic events such as fires, floods, earthquakes,
tornadoes, hurricanes and global health epidemics; and
? the risks, uncertainties and other factors we identify in "Risk Factors" in our
most recent Annual Report on Form 10-K under Part I, Item 1A, in our quarterly
reports on Form 10-Q, including this report, and in our other filings with the
SEC that we make from time to time. 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 Quarterly Report on Form 10-Q on information available to us on the date of this Quarterly Report on Form 10-Q, 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 theSEC , 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 Quarterly Report on Form 10-Q.
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OVERVIEW
We are a Maryland 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
private U.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 intend to qualify annually, to be treated for U.S. federal
income tax purposes 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 as GSC Investment Corp. , on March 23,
2007 and completed an initial public offering of shares of common stock on March
28, 2007 . Prior to July 30, 2010 , we were externally managed and advised by GSCP
(NJ), L.P. , an entity affiliated with GSC Group, Inc. In connection with the
consummation of a recapitalization transaction on July 30, 2010 , as described
below we engaged Saratoga Investment Advisors to replace GSCP (NJ), L.P. as our
investment adviser and changed our name to Saratoga Investment Corp.
As a result of the event of default under a revolving securitized credit
facility with Deutsche Bank we previously had in place, in December 2008 we
engaged the investment banking firm of Stifel, Nicolaus & Company to evaluate
strategic transaction opportunities and consider alternatives for us. On April
14, 2010 , GSC Investment Corp. entered into a stock purchase agreement with
Saratoga Investment Advisors and certain of its affiliates and an assignment,
assumption and novation agreement with Saratoga Investment Advisors , pursuant to
which GSC Investment Corp. assumed certain rights and obligations of Saratoga
Investment Advisors under a debt commitment letter Saratoga Investment Advisors
received from Madison Capital Funding LLC , which indicated Madison Capital
Funding's willingness to provide GSC 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. and GSCP (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 which GSCP (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.
On July 30, 2010 , the transactions contemplated by the stock purchase agreement
with Saratoga 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 to Saratoga Investment Advisors and certain of its
affiliates closed, the Company entered into the Madison Credit Facility, and the
Company began doing business as Saratoga Investment Corp.
We used the net proceeds from the private sale transaction and a portion of the
funds available to us under the Madison 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 on July 30, 2010 .
On August 12, 2010 , we effected a one-for-ten reverse stock split of our
outstanding common stock. As a result of the reverse 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.
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In
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 theNew York Stock Exchange ("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 and are no longer listed on the NYSE. 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 (the "Share Repurchase Plan"). OnOctober 7, 2015 , our board of directors extended the Share Repurchase Plan for another year and increased the number of shares the Company was 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 , our board of directors extended the Share Repurchase Plan for another year toOctober 15, 2017 and increased the number of shares the Company was 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 , our board of directors extended the Share Repurchase Plan for another year toOctober 15, 2018 ,January 15, 2020 andJanuary 15, 2021 , respectively, each time leaving the number of shares the Company was permitted to repurchase unchanged at 600,000 shares of its common stock. OnMay 4, 2020 , our board of directors increased the Share Repurchase Plan to permit the Company to repurchase 1.3 million shares of its common stock. OnJanuary 5, 2021 , our board of directors extended the Share Repurchase Plan for another year toJanuary 15, 2022 , leaving the number of shares the Company was permitted to repurchase unchanged at 1.3 million shares of common stock. OnJanuary 4, 2022 , our board of directors extended the Shares Repurchase Plan for another year toJanuary 15, 2023 , leaving the number of shares the Company is permitted to repurchase unchanged at 1.3 million shares of common stock. As ofAugust 31, 2022 , the Company purchased 803,962 shares of common stock, at the average price of$21.47 for approximately$17.3 million pursuant to the Share Repurchase Plan. During the three months endedAugust 31, 2022 the Company purchased 153,350 shares of common stock, at the average price of$24.04 for approximately$3.7 million pursuant to the Share Repurchase Plan. During the six months endedAugust 31, 2022 the Company purchased 295,527 shares of common stock, at the average price of$25.11 for approximately$7.4 million pursuant to the Share Repurchase Plan. 90 OnMay 29, 2015 , we entered into a Debt Distribution Agreement withLadenburg Thalmann & Co. Inc. 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 had sold 539,725 2022 Notes 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 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 partial exercise of the underwriters' option to purchase an additional$9.8 million in 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 the issued and outstanding 2023 Notes and are no longer listed on the NYSE. 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 added to the equity ATM program. OnJuly 11, 2019 , the amount of the common stock to be offered 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 . This agreement was terminated as ofJuly 29, 2021 , and as of that date, the Company had 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). 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.
OnAugust 28, 2018 , the Company issued$40.0 million in aggregate principal amount of our 6.25% fixed-rate notes due 2025 (the "6.25% 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 in aggregate principal amount of 6.25% 2025 Notes within 30 days. 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 6.25% 2025 Notes have been capitalized and were amortized over the term of the 6.25% 2025 Notes. OnFebruary 5, 2019 , the Company issued an additional$20.0 million in aggregate principal amount of the 6.25% 2025 Notes for net proceeds of$19.2 million after deducting underwriting commissions of approximately$0.6 million and discount of$0.2 million . The additional 6.25% 2025 Notes were treated as a single series with the existing 6.25% 2025 Notes under the indenture and had the same terms as the existing 6.25% 2025 Notes. 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 in aggregate principal amount of 6.25% 2025 Notes within 30 days. 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 6.25% 2025 Notes have been capitalized and were amortized over the term of the 6.25% 2025 Notes. OnAugust 31, 2021 , the 6.25% 2025 Notes were redeemed and are no longer listed on the NYSE. 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 was also 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 were repaid. 91
OnAugust 14, 2019 , our wholly owned subsidiary,Saratoga Investment Corp. SBIC II LP ("SBIC II LP "), also received an SBIC license from the SBA.SBIC II LP's SBIC license provides up to$175.0 million in additional long-term capital in the form of SBA debentures. OnJune 24, 2020 , the Company issued$37.5 million in aggregate principal amount of our 7.25% fixed-rate notes due 2025 (the "7.25% 2025 Notes") for net proceeds of$36.3 million after deducting underwriting commissions of approximately$1.2 million . Offering costs incurred were approximately$0.3 million . OnJuly 6, 2020 , the underwriters exercised their option in full to purchase an additional$5.625 million in aggregate principal amount of its 7.25% unsecured notes due 2025. Net proceeds to the Company were$5.4 million after deducting underwriting commissions of approximately$0.2 million . 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 7.25% 2025 Notes have been capitalized and are being amortized over the term of the 7.25% 2025 Notes. OnJuly 14, 2022 , the 7.25% 2025 Notes were redeemed and are no longer listed on the NYSE. OnJuly 9, 2020 , the Company issued$5.0 million in aggregate principal amount of our 7.75% fixed-rate notes due in 2025 (the "7.75% Notes 2025 ") for net proceeds of$4.8 million after deducting underwriting commissions of approximately$0.2 million . Offering costs incurred were approximately$0.1 million . Interest on the 7.75% Notes 2025 is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 7.75% per year, beginningAugust 31, 2020 . The 7.75% Notes 2025 mature onJuly 9, 2025 and may be redeemed in whole or in part at any time or from time to time at our option, subject to a fee depending on the date of repayment. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$0.3 million related to the 7.75% Notes 2025 have been capitalized and are being amortized over the term of the 7.75% Notes 2025. As ofAugust 31, 2022 , the total 7.25% 2025 Notes outstanding was$5.0 million . The 7.75% Notes 2025 are not listed and has a
par value of$25.00 per share. OnDecember 29, 2020 , the Company issued$5.0 million in aggregate principal amount of our 6.25% fixed-rate notes due in 2027 (the "6.25% Notes 2027"). Offering costs incurred were approximately$0.1 million . Interest on the 6.25% Notes 2027 is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.25% per year. The 6.25% Notes 2027 mature onDecember 29, 2027 and may be redeemed in whole or in part at any time or from time to time at our option on or afterDecember 29, 2024 . The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$0.1 million related to the 6.25% Notes 2027 have been capitalized and are being amortized over the term of the 6.25% Notes 2027. The 6.25% 2027 Notes are not listed and have a par value of$25.00 per share. OnJanuary 28, 2021 , the Company issued$10.0 million in aggregate principal amount of our 6.25% fixed rate notes due in 2027 (the "Second 6.25% Notes 2027") for net proceeds of$9.7 million after deducting underwriting commissions of approximately$0.3 million . Offering costs incurred were approximately$0.0 million . Interest on the Second 6.25% Notes 2027 is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.25% per year. The Second 6.25% Notes 2027 mature onJanuary 28, 2027 and commencingJanuary 28, 2023 , 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$0.3 million related to the Second 6.25% Notes 2027 have been capitalized and are being amortized over the term of the Second 6.25% Notes. The Second 6.25% 2027 Notes are unlisted and have a par value of$25.00 per share. OnFebruary 26, 2021 , the Company completed the fourth refinancing of the Saratoga CLO. This refinancing, among other things, extended the Saratoga CLO reinvestment period toApril 2024 , and extended its legal maturity toApril 2033 . A non-call period endingFebruary 2022 was also added. In addition, and as part of the refinancing, the Saratoga CLO has also been upsized from$500 million in assets to approximately$650 million . As part of this refinancing and upsizing, the Company invested an additional$14.0 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased$17.9 million in aggregate principal amount of the Class F-R-3 Notes tranche at par. Concurrently, the existing$2.5 million of Class F-R-2 Notes,$7.5 million of Class G-R-2 Notes and$25.0 million CLO 2013-1 Warehouse 2 Loan were repaid. The Company also paid$2.6 million of transaction costs related to the refinancing and upsizing on behalf of the Saratoga CLO, to be reimbursed from future equity distributions. AtAugust 31, 2021 , the outstanding receivable of$2.6 million was paid in full.
OnMarch 10, 2021 , the Company issued$50.0 million in aggregate principal amount of our 4.375% fixed-rate Notes due in 2026 (the "4.375% Notes 2026") for net proceeds of$49.0 million after deducting underwriting commissions of approximately$1.0 million . Offering costs incurred were approximately$0.2 million . Interest on the 4.375% Notes 2026 is paid semi-annually in arrears onFebruary 28 andAugust 28 , at a rate of 4.375% per year, beginningAugust 28, 2021 . The 4.375% Notes 2026 mature onFebruary 28, 2026 and may be redeemed in whole or in part at any time on or afterNovember 28, 2025 at par plus a "make-whole" premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.2 million related to the 4.375% Notes 2026 have been capitalized and are being amortized over the term of the 4.375% Notes 2026. 92 OnJuly 15, 2021 , the Company issued an additional$125.0 million in aggregate principal amount of the Company's 4.375% Notes 2026 (the "Additional 4.375% 2026 Notes") for net proceeds for approximately$123.5 million , based on the public offering price of 101.00% of the aggregate principal amount of the Additional 4.375% 2026 Notes, after deducting the underwriting discount of$2.5 million and the offering expenses payable by the Company . The net proceeds from the offering were used redeem all of the outstanding 6.25% 2025 Notes (as described above), and for general corporate purposes in accordance with our investment objective and strategies. The Additional 4.375% 2026 Notes were treated as a single series with the existing 4.375% 2026 Notes under the indenture and had the same terms as the existing 4.375% 2026 Notes. OnJuly 30, 2021 , we entered into an equity distribution agreement withLadenburg Thalmann & Co. Inc. andCompass Point Research and Trading, LLC (the "Agents"), through which we may offer for sale, from time to time, up to$150.0 million of our common stock through the Agents, or to them, as principal for their account. As ofAugust 31, 2022 , the Company sold 4,840,361 shares for gross proceeds of$124.0 million at an average price of$25.61 for aggregate net proceeds of$122.4 million (net of transaction costs). During the three and six months endedAugust 31, 2022 , there were no shares sold pursuant to the equity distribution agreement with the Agents. OnAugust 9, 2021 , the Company exchanged its existing$17.9 million Class F-R-3 Notes for$8.5 million Class F-1-R-3 Notes and$9.4 million Class F-2-R-3 Notes at par. OnAugust 11, 2021 , the Company sold its Class F-1-R-3 Notes to third parties, resulting in a realized loss of$0.1 million . The Company has formed a wholly owned special purpose entity,Saratoga Investment Funding II LLC , aDelaware limited liability company ("SIF II"), for the purpose of entering into a$50.0 million senior secured revolving credit facility withEncina Lender Finance, LLC (the "Lender"), supported by loans held by SIF II and pledged to the Lender under the credit facility (the "Encina Credit Facility). The Encina Credit Facility closed onOctober 4, 2021 . During the first two years following the closing date, SIF II may request an increase in the commitment amount under the Encina Credit Facility to up to$75.0 million . The terms of the Encina Credit Facility require a minimum drawn amount of$12.5 million at all times during the first six months following the closing date, which increases to the greater of$25.0 million or 50% of the commitment amount in effect at any time thereafter. The term of the Encina Credit Facility is three years. Advances under the Encina Credit Facility bear interest at a floating rate per annum equal to LIBOR plus 4.0%, with LIBOR having a floor of 0.75%, with customary provisions related to the selection by the Lender and the Company of a replacement benchmark rate. Concurrently with the closing of the Encina Credit Facility, all remaining amounts outstanding on the Company's existing revolving credit facility withMadison Capital Funding, LLC were repaid and the facility terminated.
OnOctober 26, 2021 , the Company and TJHA JV I LLC ("TJHA") entered into a Limited Liability Company Agreement (the "LLC Agreement") to co-manageSaratoga Senior Loan Fund I JV LLC ("SLF JV"). SLF JV is invested inSaratoga Investment Corp Senior Loan Fund 2021-1 Ltd ("SLF 2021"), which is a wholly owned subsidiary of SLF JV. SLF 2021 was formed for the purpose of making investments in a diversified portfolio of broadly syndicated first lien and second lien term loans or bonds in the primary and secondary markets. The Company and TJHA have equal voting interest on all material decisions with respect to SLF JV, including those involving its investment portfolio, and equal control of corporate governance. No management fee is charged to SLF JV as control and management of SLF JV is shared equally. The Company and TJHA have committed to provide up to a combined$50.0 million of financing to SLF JV through cash contributions, with the Company providing$43.75 million and TJHA providing$6.25 million , resulting in an 87.5% and 12.5% ownership between the two parties. The financing is issued in the form of an unsecured note and equity. The unsecured note will pay a fixed rate of 10.0% per annum and is due and payable in full onJune 15, 2023 . As ofAugust 31, 2022 , the Company and TJHA's investment in SLF JV consisted of an unsecured note of$14.1 million and$2.0million , respectively; and membership interest of$14.1 million and$6.7 million , respectively.
As of
SLF JV's investment in SLF 2021 is in the form of an unsecured loan. The unsecured note will pay a floating rate of LIBOR plus 7.00% per annum and is due and payable in full onJune 9, 2023 . As ofAugust 31, 2022 , SLF JV's investment in SLF 2021 had an aggregate fair value of approximately$23.7 million . The Company has determined that SLF JV is an investment company under ASC 946; however, in accordance with such guidance the Company will generally not consolidate its investment in a company other than a wholly-owned investment company subsidiary. SLF JV is not a wholly-owned investment company subsidiary as the Company and TJHA each have an equal 50% voting interest in SLF JV and thus neither party has a controlling financial interest. Furthermore, ASC 810 concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, the Company does not consolidate SLF JV. 93 OnJanuary 19, 2022 , the Company issued$75.0 million in aggregate principal amount of our 4.35% fixed-rate Notes due in 2027 (the "4.35% Notes 2027") for net proceeds of$73.0 million , based on the public offering price of 99.317% of the aggregate principal amount of the 4.35% Notes 2027, after deducting the underwriting commissions of approximately$1.5 million . Offering costs incurred were approximately$0.2 million . Interest on the 4.35% Notes 2027 is paid semi-annually in arrears onFebruary 28 andAugust 28 , at a rate of 4.35% per year, beginningAugust 28, 2022 . The 4.35% Notes 2027 mature onFebruary 28, 2027 and may be redeemed in whole or in part at the Company's option at any time prior toNovember 28, 2026 , at par plus a "make-whole" premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.7 million related to the 4.35% Notes 2027 have been capitalized and are being amortized over the term of the 4.35% Notes 2027. OnApril 27, 2022 , the Company issued$87.5 million in aggregate principal amount of our 6.00% fixed-rate notes due 2027 (the "6.00% 2027 Notes") for net proceeds of$84.8 million after deducting underwriting commissions of approximately$2.7 million . Offering costs incurred were approximately$0.1 million . OnMay 10, 2022 , the underwriters partially exercised their option to purchase an additional$10.0 million in aggregate principal amount of the 6.00% 2027 Notes. Net proceeds to the Company were$9.7 million after deducting underwriting commissions of approximately$0.3 million . Interest on the 6.00% 2027 Notes is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.00% per year, beginningAugust 31, 2022 . The 6.00% 2027 Notes mature onApril 30, 2027 and commencingApril 27, 2024 , may be redeemed in whole or in part at any time or from time to time at our option. Financing costs of$3.3 million related to the 6.00% 2027 Notes have been capitalized and are being amortized over the term of the 6.00% 2027 Notes. The 6.00% 2027 Notes are listed on the NYSE under the trading symbol "SAT" with a par value of$25.00 per share. OnAugust 15, 2022 , the Company issued$8.0 million in aggregate principal amount of the 6.00% 2027 Notes for net proceeds of$7.8 million , based on the public offering price of 97.80% of the aggregate principal amount of the 6.00% Notes 2027. Additional offering costs incurred were approximately$0.03 million . Additional financing costs of$0.03 million related to the 6.00% 2027 Notes have been capitalized and are being amortized over the term of the 6.00% 2027 Notes. Recent COVID-19 Developments We have been closely monitoring, and will continue to monitor, the impact of the COVID-19 pandemic (including new variants of COVID-19) and its impact on all aspects of our business, including how it will impact our portfolio companies, employees, due diligence and underwriting processes, and financial markets. Given the continued fluidity of the pandemic, we cannot estimate the long-term impact of COVID-19 on our business, future results of operations, financial position or cash flows at this time. Further, the operational and financial performance of the portfolio companies in which we make investments may be significantly impacted by COVID-19, which may in turn impact the valuation of our investments. We believe our portfolio companies have taken, and continue to take, immediate actions to effectively and efficiently respond to the challenges posed by COVID-19 and related restrictions imposed by state and local governments and other private businesses, including developing liquidity plans supported by internal cash reserves, and shareholder support. The COVID-19 pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, cancellations of events and restrictions on travel, significant reductions in demand for certain goods and services, reductions in business activity and financial transactions, supply chain disruptions, labor difficulties and shortages, commodity inflation and elements of economic and financial market instability inthe United States and globally. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter.
Critical Accounting Policies and Use of Estimates
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 and estimates follows. 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 measurement 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. 94 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. We use multiple techniques for determining fair value based on the nature of the investment and experience with those types of investments and specific portfolio companies. The selections of the valuation techniques and the inputs and assumptions used within those techniques often require subjective judgements and estimates. These techniques include market comparables, discounted cash flows and enterprise value waterfalls. Fair value is best expressed as a range of values from which the Company determines a single best estimate. The types of inputs and assumptions that may be considered in determining the range of values of our investments include the nature and realizable value of any collateral, the portfolio company's ability to make payments, market yield trend analysis and volatility in future interest rates, call and put features, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flows 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 Saratoga Investment Advisors and preliminary valuationconclusions are documented and discussed with our senior management; and
? An independent valuation firm engaged by our board of directors independently
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-2-R-3 Notes tranche of the
Saratoga CLO 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
Advisors, independent valuation firm (to the extent applicable) 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 flows 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 market comparables for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined bySaratoga Investment Advisors and recommended to our board of directors. Specifically, we use Intex cash flows, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The cash flows use a set of inputs including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated valuations. The inputs 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 the valuation for our investment in Saratoga CLO. InDecember 2020 , theU.S. Securities and Exchange Commission (the "SEC") adopted a new rule providing a framework for fund valuation practices. New Rule 2a-5 under the 1940 Act ("Rule 2a-5") establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 will permit boards, subject to board oversight and certain other conditions, to designate certain parties to perform fair value determinations. Rule 2a-5 also defines when market quotations are "readily available" for purposes of the 1940 Act and the threshold for determining whether a fund must determine the fair value of a security. TheSEC also adopted new Rule 31a-4 under the 1940 Act ("Rule 31a-4"), which provides the recordkeeping requirements associated with fair value determinations. Finally, theSEC is rescinding previously issued guidance on related issues, including the role of the board in determining fair value and the accounting and auditing of fund investments. Rule 2a-5 and Rule 31a-4 became effective onMarch 8, 2021 , and have a compliance date ofSeptember 8, 2022 . While our board of directors has not elected to designateSaratoga Investment Advisors as the valuation designee, the Company has adopted certain revisions to its valuation policies and procedures in order comply with the applicable requirements of Rule 2a-5 and Rule 31a-4. 95 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. OnJanuary 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 inOctober 2013 with its reinvestment period extended toOctober 2016 . OnNovember 15, 2016 , we completed a second refinancing of the Saratoga CLO with its reinvestment period extended toOctober 2018 . OnDecember 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 toJanuary 2021 , and extended its legal maturity date toJanuary 2030 . A non-call period ofJanuary 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 in aggregate principal amount of the Class G-R-2 notes tranches at par, with a coupon of3M USD LIBOR plus 8.75% and3M USD LIBOR plus 10.00%, respectively. As part of this refinancing, we also redeemed our existing$4.5 million in aggregate amount of the Class F notes tranche at par and the$20.0 million CLO 2013-1 Warehouse
Loan
was repaid.
96
OnFebruary 11, 2020 , the Company entered into an unsecured loan agreement withSaratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd. ("CLO 2013-1 Warehouse 2"), a wholly owned subsidiary Saratoga CLO. OnFebruary 26, 2021 , the Company completed the fourth refinancing of the Saratoga CLO. This fourth Saratoga CLO refinancing, among other things, extended the Saratoga CLO reinvestment period toApril 2024 , and extended its legal maturity toApril 2033 . The non-call period was extended toFebruary 2022 . In addition, and as part of the refinancing, the Saratoga CLO has also been upsized from$500 million in assets to approximately$650 million . As part of this refinancing and upsizing, the Company invested an additional$14.0 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased$17.9 million in aggregate principal amount of the Class F-R-3 Notes tranche at par. Concurrently, the existing$2.5 million of Class F-R-2 Notes,$7.5 million of Class G-R-2 Notes and$25.0 million of the CLO 2013-1 Warehouse 2 Loan were repaid. The Company also paid$2.6 million of transaction costs related to the refinancing and upsizing on behalf of the Saratoga CLO, to be reimbursed from future equity distributions. AtAugust 31, 2021 , the outstanding receivable of$2.6 million was repaid in full. OnAugust 9, 2021 , the Company exchanged its existing$17.9 million Class F-R-3 Notes for$8.5 million Class F-1-R-3 Notes and$9.4 million Class F-2-R-3 Notes at par. OnAugust 11, 2021 , the Company sold its Class F-1-R-3 Notes to third parties, resulting in a realized loss of$0.1 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. 97 Expenses Our primary operating expenses include the payment of investment advisory and management fees, professional fees, directors and officers insurance, fees paid to directors who are not "interested persons" (as defined in Section 2(a)(19) of the 1940 Act) of the Company ("independent directors") and administrator expenses, including our allocable portion of our administrator's overhead. Our investment advisory and management fees compensate our Manager 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 Manager 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 Manager 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;
? 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
? 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, if applicable,
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)).
98
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-incentive fee
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 endedAugust 31, 2007 and continued to defer such payments through the quarterly period endedMay 31, 2010 . As ofJuly 30, 2010 , the date on whichGSCP (NJ), L.P. ceased to be our investment adviser and administrator, we owedGSCP (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 withSaratoga Investment Advisors and certain of its affiliates described elsewhere in this Quarterly Report. 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
such time will not be taken into account when calculating the capital gains fee
payable to
Advisors will be entitled to 20.0% of net gains that arise after
In addition, the cost basis for computing realized gains and losses on
investments held by us as of
investment as of such date. Under the investment advisory and management
agreement with our former investment adviser,
gains fee was calculated from
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
amount approaches 2.344% in any quarter, and
receive 20.0% of any additional net investment income. Under the investment
advisory and management agreement with our former investment adviser, GSCP
(NJ)
? We will no longer have deferral rights regarding incentive fees in the event
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.
99
Recent Accounting Pronouncements
InMarch 2020 , the FASB issued ASU 2020-04, Reference Rate Reform ("ASU 2020-04"). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and under the Encina Credit Facility. Many of these agreements (including the credit agreements relating to the Encina Credit Facility) include an alternative successor rate or language for choosing an alternative successor rate when LIBOR reference is no longer considered to be appropriate. With respect to other agreements, the Company intends to work with its portfolio companies to modify agreements to choose an alternative successor rate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The standard is effective as ofMarch 12, 2020 throughDecember 31, 2022 . Management does not believe this optional guidance has a material impact on the Company's consolidated financial statements and disclosures.
Portfolio and Investment Activity
Investment Portfolio Overview
August 31, February 28,
2022 2022
($ in millions)
Number of investments(1) 116 94Number of portfolio companies(2) 52 45 Average investment per portfolio company(2)$ 17.7
$ 17.3 Average investment size(1)$ 8.0 $ 8.4 Weighted average maturity(3) 2.9 yrs 2.9 yrs Number of industries (5) 44 38
Non-performing or delinquent investments (fair value)$ 9.7 $ - Fixed rate debt (% of interest earning portfolio)(3)$ 16.7 (2.0 )%$ 16.9 (2.5 )% Fixed rate debt (weighted average current coupon)(3) 11.4 % 10.0 %
Floating rate debt (% of interest earning portfolio)(3)
6.0 % 7.1 %
(1) Excludes our investment in the subordinated notes of Saratoga CLO.
(2) Excludes our investment in the subordinated notes of Saratoga CLO and Class
F-R-3 Note tranche, as well as the unsecured notes and equity interests in
the SLF JV.
(3) Excludes our investment in the subordinated notes of Saratoga CLO and equity
interests, as well as the unsecured notes and equity interests in the SLF JV.
(4) Calculation uses either 1-month or 3-month LIBOR, depending on the
contractual terms, and after factoring in any existing LIBOR floors.
(5) Our investment in the subordinated notes of Saratoga CLO and Class F-R-3 Note
tranche, as well as the unsecured notes and equity interests in the SLF JV
are included in Structured Finance Securities industry.
During the three months endedAugust 31, 2022 , we invested$140.5 million in new or existing portfolio companies and had$75.1 million in aggregate amount of exits and repayments resulting in net investment of$65.5 million for the period. During the three months endedAugust 31, 2021 , we invested$133.9 million in new or existing portfolio companies and had$152.7 million in aggregate amount of exits and repayments resulting in net repayments of$18.8 million for the period.
During the six months endedAugust 31, 2022 , we invested$237.7 million in new or existing portfolio companies and had$85.1 million in aggregate amount of exits and repayments resulting in net investment of$152.6 million for the period. During the six months endedAugust 31, 2021 , we invested$235.2 million in new or existing portfolio companies and had$149.8 million in aggregate amount of exits and repayments resulting in net investment of$85.4 million
for
the period.
100
Portfolio Composition
Our portfolio composition at August 31, 2022 and February 28, 2022 at fair value
was as follows:
August 31, 2022 February 28, 2022
Weighted Weighted
Percentage Average Percentage Average
of Total Current of Total Current
Portfolio Yield Portfolio Yield
First lien term loans 83.0 % 10.1 % 77.3 % 8.3 %
Second lien term loans 2.5 7.9 5.4 11.1
Unsecured term loans 1.8 9.8 1.9 9.7
Structured finance securities 3.4 8.9
4.7 10.5
Equity interests 9.3 - 10.7 -
Total 100.0 % 9.0 % 100.0 % 7.7 %
At August 31, 2022 , our investment in the subordinated notes of Saratoga CLO, a
collateralized loan obligation fund, had a fair value of $23.4 million and
constituted 2.5% of our portfolio. This investment constitutes a first loss
position in a portfolio that, as of August 31, 2022 and February 28, 2022 , was
composed of $653.4 million and $660.2 million , respectively, in aggregate
principal amount of primarily senior secured first lien term loans. In addition,
as of August 31, 2022 , we also own $9.4 million in aggregate principal of the
F-2-R-3 Notes in the Saratoga CLO, which only rank senior to the subordinated
notes.
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" in our Annual Report on Form 10-K for the
fiscal year ended February 28, 2022 ).
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, at August 31, 2022 , $591.7 million
or 98.0% of the Saratoga CLO portfolio investments in terms of market value had
a CMR (as defined below) color rating of green or yellow. At February 28, 2022 ,
$630.3 million or 98.7% of the Saratoga CLO portfolio investments in terms of
market value had a CMR color rating of green or yellow and four Saratoga CLO
portfolio investments were in default with a fair value of $2.8 million . For
more information relating to the Saratoga CLO, see the audited financial
statements for Saratoga in our Annual Report on Form 10-K for the fiscal year
ended February 28, 2022 .
101
Portfolio CMR distribution
The CMR distribution for our investments at August 31, 2022 and February 28,
2022 was as follows:
Saratoga Investment Corp.
August 31, 2022 February 28, 2022
Percentage Percentage
Investments at of Total Investments at of Total
Color Score Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Green $ 805,740 84.4 % $ 690,672 84.5 %
Yellow 36,704 3.8 10,593 1.3
Red - 0.0 - 0.0
N/A(1) 112,220 11.8 116,302 14.2
Total $ 954,664 100.0 % $ 817,567 100.0 %
(1) Comprised of our investment in the subordinated notes of Saratoga CLO and
equity interests.
The change in reserve from $0.0 million as of February 28, 2022 to $1.2 million
as of August 31, 2022 was related to the non-accrual of interest income related
to the Knowland Group .
The CMR distribution of Saratoga CLO investments at August 31, 2022 and February
28, 2022 was as follows:
Saratoga CLO
August 31, 2022 February 28, 2022
Percentage of Percentage of
Investments at Total Investments at Total
Color Score Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Green $ 558,144 92.4 % $ 595,324 93.2 %
Yellow 33,580 5.6 34,983 5.5
Red 12,307 2.0 8,622 1.3
N/A(1) - 0.0 34 0.0
Total $ 604,031 100.0 % $ 638,963 100.0 %
(1) Comprised of Saratoga CLO's equity interests.
102
Portfolio composition by industry grouping at fair value
The following table shows our portfolio composition by industry grouping at fair
value at
August 31, 2022 February 28, 2022
Percentage Percentage
Investments of Total Investments of Total
At Fair Value Portfolio At Fair Value Portfolio
($ in thousands)
Healthcare Software $ 92,467 9.7 % $ 90,126 11.0 %
IT Services 83,506 8.7 80,804 9.9
HVAC Services and Sales 64,701 6.8 29,976 3.7
Education Software 61,262 6.4 33,656 4.1
Consumer Services 58,657 6.1 38,234 4.7
Real Estate Services 53,105 5.6 53,506 6.6
Education Services 34,372 3.6 35,309 4.3Structured Finance Securities(1) 32,327 3.4 38,030 4.7 Marketing Orchestration Software 28,544
3.0 28,777 3.5 Specialty Food Retailer 26,992 2.8 34,013 4.2 Sports Management 26,549 2.8 26,654 3.3 Healthcare Services 26,169 2.7 42,054 5.1 Talent Acquisition Software 25,940 2.7 19,652 2.4 Direct Selling Software 25,936 2.7 - 0.0 Financial Services 24,906 2.6 23,540 2.9 Restaurant 24,808 2.6 15,686 1.9 Hospitality/Hotel 21,833 2.3 19,925 2.4 Mentoring Software 20,937 2.2 18,321 2.2 Legal Software 20,930 2.2 7,425 0.9 Investment Fund 20,799 2.2 25,140 3.1 Marketing Services 17,200 1.8 17,327 2.1 Payroll Services 15,423 1.6 17,000 2.1 Insurance Software 14,907 1.6 10,921 1.3 Corporate Education Software 14,880 1.6 - 0.0
Employee Collaboration Software 12,086
1.3 10,000 1.2 Lead Management Software 11,896 1.2 - 0.0 Research Software 10,493 1.1 - 0.0 Non-profit Services 10,000 1.0 10,039 1.2
Alternative Investment Management Software 9,920
1.0 - 0.0 Waste Services 9,000 0.9 9,000 1.1 Dental Practice Management 8,626 0.9 8,403 1.0 Mental Healthcare Services 8,419 0.9 - 0.0 Industrial Products 8,263 0.9 8,427 1.0 Financial Services Software 8,040 0.8 5,940 0.7 Field Service Management 6,888 0.7 6,981 0.9 Corporate Education Software 3,653 0.4 3,306 0.4 Office Supplies 3,628 0.4 3,726 0.5 Cyber Security 2,418 0.3 1,636 0.2 Staffing Services 2,061 0.2 1,912 0.2 Consumer Products 921 0.1 693 0.1 Facilities Maintenance 617 0.1 482 0.1
Healthcare Products Manufacturing 585 0.1 714 0.1 Healthcare Supply - 0.0 5,194 0.6 Dental Practice Management Software -
0.0 35,038 4.3 Total$ 954,664 100.0 %$ 817,567 100.0 %
(1) As of
the subordinated notes and F-2-R-3 Notes of Saratoga CLO, as well as the
unsecured notes and equity interests in the SLF JV.
103
The following table shows Saratoga CLO's portfolio composition by industry
grouping at fair value at
Saratoga CLO
August 31, 2022 February 28, 2022
Percentage Percentage
Investments at of Total Investments at of Total
Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Banking, Finance, Insurance & Real Estate $ 112,361 18.6 % $ 123,124 19.4 %
Services: Business 58,705 9.7 69,491 10.9
High Tech Industries 58,162 9.6 60,048 9.4
Healthcare & Pharmaceuticals 38,153 6.3 43,136 6.9
Services: Consumer 34,169 5.7 41,393 6.5
Telecommunications 24,895 4.1 27,058 4.2
Consumer goods: Durable 24,604 4.1 21,085 3.2
Retail 22,691 3.8 16,050 2.5
Chemicals, Plastics, & Rubber 21,604 3.6 22,669 3.5
Automotive 21,069 3.5 24,207 3.7
Media: Advertising, Printing & Publishing 20,087 3.3 19,660 3.1
Containers, Packaging & Glass 18,478 3.1 15,253 2.4
Beverage, Food & Tobacco 17,748 2.9 22,086 3.4
Aerospace & Defense 13,459 2.2 14,369 2.2
Consumer goods: Non-durable 13,308 2.2 14,359 2.2
Media: Broadcasting & Subscription 11,628 1.9 11,539 1.8
Construction & Building 11,279 1.9 11,102 1.7
Hotel, Gaming & Leisure 11,156 1.8 16,572 2.6
Capital Equipment 9,876 1.6 10,062 1.6
Utilities: Oil & Gas 8,048 1.3 8,095 1.3
Health Care Equipment & Supplies 7,215 1.2 - 0.0
Media: Diversified & Production 6,949 1.2 9,203 1.4
Transportation: Consumer 6,755 1.1 4,891 0.8
Transportation: Cargo 4,397 0.7 3,752 0.6
Wholesale 3,833 0.6 4,155 0.7
Forest Products & Paper 3,560 0.6 9,367 1.5
Energy: Electricity 3,376 0.6 3,660 0.6
Metals & Mining 3,336 0.6 6,846 1.1
Diversified Financial Services 2,903 0.5 - 0.0
Software 2,613 0.4 - 0.0
Utilities: Electric 2,325 0.4 4,026 0.6
Media 1,861 0.3 - 0.0
Environmental Industries 967 0.2 1,550 0.2
Diversified Telecommunication Services 935 0.2 - 0.0
Real Estate Investment Trusts (REITs) 872 0.1 - 0.0
Leisure Products 483 0.1 - 0.0
Energy: Oil & Gas 171 0.0 155 0.0
Total $ 604,031 100.0 % $ 638,963 $ 100 %
104
Portfolio composition by geographic location at fair value
The following table shows our portfolio composition by geographic location at
fair value at August 31, 2022 and February 28, 2022 . The geographic composition
is determined by the location of the corporate headquarters of the portfolio
company.
August 31, 2022 February 28, 2022
Investments at Percentage Percentage
Fair of Total Investments at Fair of Total
Value Portfolio Value Portfolio
($ in thousands)
Southeast $ 280,946 29.4 % $ 257,199 31.5 %
West 168,044 17.6 183,643 22.5
Midwest 180,607 18.9 160,718 19.7
Northwestt 2,418 0.3 62,475 7.6
Northeast 134,643 14.1 85,414 10.4
Southwest 114,628 12.0 1,636 0.2
Other(1) 73,378 7.7 66,482 8.1
Total $ 954,664 100.0 % $ 817,567 100.0 %
(1) Comprised of our investment in the subordinated notes and F-2-R-3 Notes of
Saratoga CLO, as well as the unsecured notes and equity interests in the SLF
JV.
Results of operations
Operating results for the three and six months ended August 31, 2022 and August
31, 2021 was as follows:
For the three months ended For the six months ended
August 31, August 31, August 31, August 31,
2022 2021 2022 2021
($ in thousands)
Total investment income $ 21,853 $ 18,441 $ 40,532 $ 35,257
Total operating expenses 14,155 12,048 24,858 26,308
Net investment income 7,698 6,393 15,674 8,949
Net realized gain (loss) from
investments 7,944 1,502 8,106 3,412
Income tax (provision) benefit from
realized gain on investments - (449 ) 69 (449 )
Net change in unrealized appreciation
(depreciation) on investments (13,259 ) 3,377 (22,591 ) 20,189
Net change in provision for deferred
taxes on unrealized (appreciation)
depreciation on investments (230 ) (1,329 ) (592 ) (1,559 )
Realized losses on extinguishment of
debt (1,205 ) (1,552 ) (1,205 ) (1,552 )
Net increase (decrease) in net assets
resulting from operations $ 948 $ 7,942 $ (539 ) $ 28,990
Investment income
The composition of our investment income for three and six months ended
For the three months ended For the six months ended
August 31, August 31, August 31, August 31,
2022 2021 2022 2021
($ in thousands)
Interest from investments $ 19,233 $ 15,114 $ 35,839 $ 28,801
Interest from cash and cash equivalents 34 1 35 2 Management fee income 817 814 1,633 1,633 Dividend Income 213 659 513 1,057 Structuring and advisory fee income 1,408 1,038 2,260 2,340 Other income 148 815 252 1,425 Total investment income$ 21,853 $ 18,441 $ 40,532 $ 35,258 105 For the three months endedAugust 31, 2022 , total investment income increased$3.4 million , or 18.5%, to$21.9 million from$18.4 million for the three months endedAugust 31, 2021 . Interest income from investments increased$4.1 million , or 27.3%, to$19.2 million for the three months endedAugust 31, 2022 from$15.1 million for the three months endedAugust 31, 2021 . Interest income from investment increased due to the increase of$288.6 million , or 43.3%, in total investments atAugust 31, 2022 from$666.1 million atAugust 31, 2021 to$954.7 million as ofAugust 31, 2022 , combined with the increase in the weighted average current yield on investments to 9.0%, up from 8.2% atAugust 31, 2021 . For the six months endedAugust 31, 2022 , total investment income increased$5.3 million , or 15.0%, to$40.5 million from$35.3 million for the six months endedAugust 31, 2021 . Interest income from investments increased$7.0 million , or 24.4%, to$35.8 million for the six months endedAugust 31, 2022 from$28.8 million for the six months endedAugust 31, 2021 . Interest income from investment increased due to the increase of$288.6 million , or 30.2%, in total investments atAugust 31, 2022 from$666.1 million atAugust 31, 2021 to$954.7 million as ofAugust 31, 2022 . For the three and six months endedAugust 31, 2022 andAugust 31, 2021 , total PIK income was$0.2 million and$0.8 million , respectively and$0.4 million
and$1.1 million respectively. Management fee income reflects the fee income received for managing the Saratoga CLO. For the three months endedAugust 31, 2022 andAugust 31, 2021 , total management fee income was$0.8 million and$0.8 million , respectively. For the six months endedAugust 31, 2022 andAugust 31, 2021 , total management fee income was$1.6 million and$1.6 million , respectively. For the three and six months endedAugust 31, 2022 andAugust 31, 2021 , total dividend income was$0.2 million and$0.7 million , respectively, and$0.5 million and$1.1 million , respectively. Dividends received is recorded in the consolidated statements of operations when earned, and the decrease primarily reflects dividend income received on various preferred equity investments last year that were not received this year. For the three and six months endedAugust 31, 2022 andAugust 31, 2021 , total structuring and advisory fee income was$1.4 million and$1.0 million , respectively, and$2.3 million and$2.3 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 three and six months endedAugust 31, 2022 andAugust 31, 2021 , other income was$0.2 million and$0.8 million , respectively, and$0.3 million and$1.4 million , respectively. Other income includes origination fees and prepayment income fees and is recorded in the consolidated statements of operations when earned. The decrease was driven primarily by prepayment penalties earned from certain redemptions in the prior year that did not recur this year. Operating expenses
The composition of our operating expenses for the three and six months ended
For the three months ended For the three months ended
August 31, August 31, August 31, August 31,
2022 2021 2022 2021
($ in thousands)
Interest and debt financing expenses $ 7,922 $ 5,184 $ 14,794 $ 9,525
Base management fees 4,104 3,002 7,906 5,761
Incentive management fees expense (benefit) 590 2,018 (1,314 ) 7,281
Professional fees 368 461 785 968
Administrator expenses 773 713 1,523 1,406
Insurance 90 86 178 173
Directors fees and expenses 110 101 220 192General & administrative and other expenses 300
453 967 944 Income tax expense (benefit) (102 ) 30 (201 ) 58 Total operating expenses$ 14,155 $ 12,048 $ 24,858 $ 26,308 106 For the three months endedAugust 31, 2022 , total operating expenses increased$2.1 million , or 17.5%, compared to the three months endedAugust 31, 2021 . For the six months endedAugust 31, 2022 , total operating expenses decreased$1.5 million , or 5.5%, compared to the six months endedAugust 31, 2021 . For the three months endedAugust 31, 2022 , interest and debt financing expenses increased$2.7 million , or 52.8%, compared to the three months endedAugust 31, 2021 . The increase is primarily attributable to an increase in average outstanding debt from$425.9 million for the three months endedAugust 31, 2021 to$626.7 million for the three months endedAugust 31, 2022 , primarily reflecting (i) the issuance of the 4.375% 2026 Notes and the 4.35% 2027 Notes during the year endedFebruary 28, 2022 , and (ii) the issuance of the 6.00% 2027 Notes during the three months endedAugust 31, 2022 . For the six months endedAugust 31, 2022 , interest and debt financing expenses increased$5.3 million , or 55.3%, compared to the six months endedAugust 31, 2021 . The increase is primarily attributable to an increase in average outstanding debt from$378.3 million for the six months endedAugust 31, 2021 to$609.0 million for the six months endedAugust 31, 2022 , primarily reflecting (i) the issuance of the 4.375% 2026 Notes and the 4.35% 2027 Notes during the year endedFebruary 28, 2022 , and (ii) the issuance of the 6.00% 2027 Notes during the six months endedAugust 31, 2022 . For the three and six months endedAugust 31, 2022 andAugust 31, 2021 , the weighted average interest rate on our outstanding indebtedness was 4.46% and 4.26%, respectively and 4.45% and 4.39%, respectively. The decrease in weighted average interest rate was primarily driven by the issuance of the lower-rate 4.375% 2026 Notes and 4.35% 2026 Notes, the redemption of the 6.25% 2025 Notes, the redemption of the 7.25% 2027 Notes and the issuance of lower cost SBA debentures over the past year.
As of
For the three months endedAugust 31, 2022 , base management fees increased$1.1 million , or 36.7%, from$3.0 million to$4.1 million compared to the three months endedAugust 31, 2021 . The increase in base management fees results from the 36.7% increase in the average value of our total assets, less cash and cash equivalents, from$680.6 million for the three months endedAugust 31, 2021 to$930.4 million for the three months endedAugust 31, 2022 . For the six months endedAugust 31, 2022 , base management fees increased$2.1 million , or 37.2%, from$5.8 million to$7.9 million compared to the six months endedAugust 31, 2021 . The increase in base management fees results from the 37.2% increase in the average value of our total assets, less cash and cash equivalents, from$653.0 million for the three months endedAugust 31, 2021 to$896.2 million
for
the three months ended
For the three months endedAugust 31, 2022 , incentive management fees decreased$1.4 million , or 70.8%, compared to the three months endedAugust 31, 2021 . The incentive fee on income remained relatively unchanged at$1.7 million for the three months endedAugust 31 , 2021and 2022. The incentive fee on capital gains decreased from a$0.3 million expense for the three months endedAugust 31, 2021 to a$(1.1) million benefit for the three months endedAugust 31, 2022 , both reflecting the incentive fee income on net unrealized appreciation and depreciation recognized during both these periods. For the six months endedAugust 31, 2022 , incentive management fees decreased$8.6 million , or 118.0%, compared to the six months endedAugust 31, 2021 . The incentive fee on income decreased from$3.2 million for the three months endedAugust 31, 2021 to$1.7 million for the three months endedAugust 31, 2022 , reflecting the Company's net investment income being below the hurdle based on net asset value for incentive fee purposes for part of the six months. The incentive fee on capital gains decreased from a$4.0 million expense for the three months endedAugust 31, 2021 to a$(3.0) million benefit for the three months endedAugust 31, 2022 , both reflecting the incentive fee income on net unrealized appreciation and depreciation recognized during both these periods.
For the three and six months ended
For the three and six months ended
107
As discussed above, the increase in interest and debt financing expenses for the
three months ended August 31, 2022 compared to the three months ended August 31,
2021 is primarily attributable to an increase in the average dollar amount of
outstanding debt. During the three months ended August 31, 2022 and August 31,
2021 , the average borrowings outstanding under the Encina Credit Facility and
the Madison Credit Facility was $25.0 million and $23.8 million , respectively,
and the average weighted average interest rate on the outstanding borrowing
under the Credit Facility was 5.83% and 6.37%, respectively. For the three
months ended August 31, 2022 and August 31, 2021 , the average borrowings
outstanding of SBA debentures was $222.0 million and $181.1 million ,
respectively. For the three months ended August 31, 2022 and August 31, 2021 ,
the weighted average interest rate on the outstanding borrowings of the SBA
debentures was 2.75% and 2.65%, respectively. During the three months ended
August 31, 2022 and August 31, 2021 , the average dollar amount of our 6.25%
fixed-rate 2025 Notes outstanding was $0.0 million and $60.0 million ,
respectively. During the three months ended August 31, 2022 and August 31, 2021 ,
the weighted average dollar amount of our 7.25% fixed-rate 2025 Notes
outstanding was $10.8 million and $43.1 million , respectively. During the three
months ended August 31, 2022 and August 31, 2021 , the weighted average dollar
amount of our 7.75% fixed-rate 2025 Notes outstanding was $5.0 million and $5.0
million , respectively. During the three months ended August 31, 2022 and August
31, 2021 , the average dollar amount of our 6.25% fixed-rate 2027 Notes
outstanding was $15.0 million and $15.0 million , respectively. During the three
months ended August 31, 2022 and August 31, 2021 , the average dollar amount of
our 4.375% fixed-rate 2026 Notes outstanding was $175.0 million and
$115.2 million , respectively. During the three months ended August 31, 2022 and
August 31, 2021 , the average dollar amount of our 4.35% fixed-rate 2027 Notes
outstanding was $75.0 million and $0.0 million , respectively. During the three
months ended August 31, 2022 and August 31, 2021 , the average dollar amount of
our 6.00% fixed-rate 2027 Notes outstanding was $99.0 million and $0.0 million ,
respectively.
As discussed above, the increase in interest and debt financing expenses for the
six months ended August 31, 2022 compared to the six months ended August 31,
2021 is primarily attributable to an increase in the average dollar amount of
outstanding debt. During the six months ended August 31, 2022 and August 31,
2021 , the average borrowings outstanding under the Encina Credit Facility and
the Madison Credit Facility was $22.5 million and $9.5 million , respectively,
and the average weighted average interest rate on the outstanding borrowing
under the Credit Facility was 5.40% and 4.02%, respectively. For the six months
ended August 31, 2022 and August 31, 2021 , the average borrowings outstanding of
SBA debentures was $218.4 million and $169.8 million , respectively. For the six
months ended August 31, 2022 and August 31, 2021 , the weighted average interest
rate on the outstanding borrowings of the SBA debentures was 2.67% and 2.78%,
respectively. During the six months ended August 31, 2022 and August 31, 2021 ,
the average dollar amount of our 6.25% fixed-rate 2025 Notes outstanding was
$0.0 million and $58.7 million , respectively. During the six months ended August
31, 2022 and August 31, 2021 , the weighted average dollar amount of our 7.25%
fixed-rate 2025 Notes outstanding was $27.0 million and $43.1 million ,
respectively. During the six months ended August 31, 2022 and August 31, 2021 ,
the weighted average dollar amount of our 7.75% fixed-rate 2025 Notes
outstanding was $5.0 million and $5.0 million , respectively. During the six
months ended August 31, 2022 and August 31, 2021 , the average dollar amount of
our 6.25% fixed-rate 2027 Notes outstanding was $15.0 million and $15.0 million ,
respectively. During the six months ended August 31, 2022 and August 31, 2021 ,
the average dollar amount of our 4.375% fixed-rate 2026 Notes outstanding was
$175.0 million and $84.3 million , respectively. During the six months ended
August 31, 2022 and August 31, 2021 , the average dollar amount of our 4.35%
fixed-rate 2027 Notes outstanding was $75.0 million and $0.0 million ,
respectively. During the six months ended August 31, 2022 and August 31, 2021 ,
the average dollar amount of our 6.00% fixed-rate 2027 Notes outstanding was
$44.0 million and $60.0 million , respectively
For the three months ended August 31, 2022 and August 31, 2021 , there were
income tax expense (benefits) of $(0.1) million and $0.03 million , respectively.
For the six months ended August 31, 2022 and August 31, 2021 , there were income
tax expense (benefits) of $(0.2) million and $0.06 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, as well as current federal and state income taxes
on those operating gains and losses when realized.
Net realized gains (losses) on sales of investments
For the three months ended
Six Months ended August 31, 2022
Net
Realized
Issuer Asset Type Gross Proceeds Cost Gain (Loss)
PDDS Buyer, LLC Equity Interests $ 9,943,838 $ 2,000,000 $ 7,943,838
Censis Technologies Equity Interests - - 68,731Texas Teachers of Tomorrow, LLC Equity Interests -
- 24,977
V Rental Holdings LLC Equity Interests - - 68,800
The
The Company received escrow payments from the prior sales of its investments in
108
For the six months ended August 31, 2021 , the Company had $149.8 million of
sales, repayments, exits or restructurings resulting in $3.4 million of net
realized gains.
Six Months ended August 31, 2021
Net
Realized
Issuer Asset Type Gross Proceeds Cost GainMy Alarm Center, LLC Equity Interests $ -$ 4,867,102 $ (4,837,102 ) Passageways, Inc. Equity Interests 7,439,802
1,000,000 6,439,802
8,360,133 8,500,000 (139,867 )
V Rental Holdings LLC Equity Interests 2,344,817
365,814 1,978,903
The
The
The
The
Net change in unrealized appreciation (depreciation) on investments
For the six months endedAugust 31, 2022 , our investments had a net change in unrealized depreciation of$22.6 million versus a net change in unrealized appreciation of$20.2 million for the six months endedAugust 31, 2021 . The most significant cumulative net change in unrealized appreciation (depreciation) for the six months endedAugust 31, 2022 were the following (dollars in thousands): Six Months ended August 31, 2022 YTD Total Change in Unrealized Unrealized Appreciation Appreciation Issuer Asset Type Cost Fair Value (Depreciation) (Depreciation) First Lien Term Loan & Equity Artemis Wax Corp. Interests$ 55,023 $ 58,657 $ 3,634 $ 2,174 First Lien Term Loan & Equity Netreo Holdings, LLC Interests 31,330 40,506 9,176 (1,468 ) First Lien Term Loan & Equity PDDS Buyer, LLC Interests - - - (5,094 ) First Lien Term Loan & Equity Pepper Palace, Inc. Interests 34,383 26,992 (7,391 ) (6,872 ) Structured Saratoga Investment Finance Corp. CLO 2013-1, Ltd. Securities 39,489 32,327 (7,162 ) (3,543 ) Saratoga Senior Loan Fund I JV, LLC Equity Interests 14,072 6,727 (7,345 ) (6,236 ) First Lien Term Loan & Equity Zollege PBC Interests 16,635 15,211 (1,424 ) (1,289 ) 109
The
The
The$5.1 million of unrealized depreciation in our investmentPDDS Buyer, LLC was driven by the sale of that investment, resulting in a reversal of previously recognized unrealized appreciation reclassified to realized gains.
The
The
The
The
The most significant cumulative net change in unrealized appreciation (depreciation) for the six months endedAugust 31, 2021 were the following (dollars in thousands): Six Months ended August 31, 2021 YTD Total Change in Unrealized Unrealized Issuer Asset Type Cost Fair Value Appreciation Appreciation
My Alarm Center, LLC Equity Interests $ - $ - $ -$ 4,686 GreyHeller LLC First Lien Term Loan & Equity Interests 14,034 21,816 7,782 4,680 Netreo Holdings, LLC First Lien Term Loan & Equity Interests 23,942 33,770 9,828 4,240 Saratoga Investment Structured Corp. CLO 2013-1, Ltd. Finance Securities 34,505 35,061 556 2,953 Schoox, Inc. Equity Interests 476 3,258 2,783 2,783 Texas Teachers of First Lien Term Tomorrow, LLC Loan & Equity Interests 26,274 29,324 3,050 2,663 Destiny Solutions Inc. First Lien Term Loan & Equity Interests 3,969 6,217 2,248 1,221Village Realty Holdings LLC Equity Interests 366 2,209 1,843 (1,843 ) Passageways, Inc. First Lien Term Loan & Equity Interests 10,953 17,598 6,645 (2,311 )
The$4.7 million net change in unrealized appreciation in our investment inMy Alarm Center, LLC was primarily driven by the reversal of previously recognized unrealized depreciation reclassified to realized losses.
The
The
The
The
The
The
The
The$2.3 million net change in unrealized depreciation in our investment inPassageways, Inc. was primarily driven by the sale of that investment, resulting in a reversal of previously recognized unrealized appreciation reclassified
to
realized gains.
110
Changes in net assets resulting from operations
For the three months endedAugust 31, 2022 , we recorded a net increase in net assets resulting from operations of$1.0 million . Based on 11,963,276 weighted average common shares outstanding as ofAugust 31, 2022 , our per share net increase in net assets resulting from operations was$0.08 for the three months endedAugust 31, 2022 . For the three months endedAugust 31, 2021 , we recorded a net increase in net assets resulting from operations of$7.9 million . Based on 11,175,436 weighted average common shares outstanding as ofAugust 31, 2021 , our per share net increase in net assets resulting from operations was$0.71 for the three months endedAugust 31, 2021 . For the six months endedAugust 31, 2022 , we recorded a net decrease in net assets resulting from operations of$0.5 million . Based on 12,037,855 weighted average common shares outstanding as ofAugust 31, 2022 , our per share net decrease in net assets resulting from operations was$0.04 for the six months endedAugust 31, 2022 . For the six months endedAugust 31, 2021 , we recorded a net increase in net assets resulting from operations of$29.0 million . Based on 11,172,787 weighted average common shares outstanding as ofAugust 31, 2021 , our per share net decrease in net assets resulting from operations was$2.59 for the six months endedAugust 31, 2021 .
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, the Encina Credit Facility, our continued access to the SBA debentures, future borrowings and future offerings of debt and equity 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 our equity ATM program, 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 operating 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 board of directors, including a majority of our independent directors, onApril 16, 2018 . This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 184.2% as ofAugust 31, 2022 and 209.2% as ofFebruary 28, 2022 . 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, to pay dividends 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. Due to the diverse capital sources available to us at this time, we believe we have adequate liquidity to support our near-term capital requirements. As the impact of COVID-19 continues to evolve, we will continually evaluate our overall liquidity position and take proactive steps to maintain that position based on the current circumstances. This "Financial Condition, Liquidity and Capital Resources" section should be read in conjunction with "Recent COVID-19 Developments" above, as well as with the notes of our consolidated financial statements. 111
Madison Revolving Credit Facility
The senior secured revolving credit facility we entered into withMadison Capital Funding LLC (the "Madison Credit Facility") onJune 30, 2010 , was most recently amended onSeptember 3, 2021 and then fully repaid and terminated
onOctober 4, 2021 . Encina Credit Facility
Below is a summary of the terms of the senior secured revolving credit facility
we entered into with
Commitment. The Company entered into a senior secured revolving credit facility in the initial facility amount of$50.0 million (the "Facility Amount"). The Company has the ability to request an increase in the Facility Amount during the first two years following the closing date to up to$75.0 million . The commitment termination date isOctober 4, 2024 . Availability. The Company can draw up to the lesser of (i) the Facility Amount and (ii) the Borrowing Base. The Borrowing Base is an amount equal to (i) the difference of (A) the product of the applicable advance rate which varies from 50.0% to 75.0% depending on the type of loan asset (Defaulted Loans being excluded in that they carry an advance rate of 0%) and the value, determined in accordance with the Encina Credit Facility (the "Adjusted Borrowing Value"), of certain "eligible" loan assets pledged as security for the loan (the "Borrowing Base Value") and (B) the Excess Concentration Amount, as calculated in accordance with the Encina Credit Facility, plus (ii) any amounts held in the Prefunding Account and, without duplication, Excess Cash held in the Collection Account, less (iii) the product of (a) the amount of any undrawn funding commitments the Company has under any loan asset and (b) the Unfunded Exposure Haircut Percentage, and less (iv)$100,000 . Each loan asset held by the Company as of the date on which the Encina 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 and under certain circumstances, 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. The Encina 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.
The Encina Credit Facility requires certain minimum drawn amounts. For the
period beginning on the closing date and ended
Collateral. The Encina Credit Facility is secured by assets ofSaratoga Investment Funding II LLC ("SIF II") and pledged to the lender under the credit facility. SIF II is a wholly owned special purpose entity formed by the Company for the purpose of entering into the Encina Credit Facility. Interest Rate and Fees. Under the Encina Credit Facility, funds are borrowed from or through certain lenders at the greater of the prevailing LIBOR rate and 0.75%, plus an applicable margin of 4.00%. The Encina Credit Facility includes benchmark replacement provisions which permit the Administrative Agent and the Borrower to select a replacement rate upon the unavailability of LIBOR. In addition, the Company pays the lenders a commitment fee of 0.75% per year (or 0.50% if the ratio of advances outstanding to aggregate commitments is greater than or equal to 50%) on the unused amount of the Encina Credit Facility for the duration of the term of the credit facility. Accrued interest and commitment fees are payable monthly in arrears. The Company was also obligated to pay certain other fees to the lenders in connection with the closing of the Encina Credit Facility. Collateral Tests. It is a condition precedent to any borrowing under the Encina Credit Facility that the principal amount outstanding under the Encina Credit Facility, after giving effect to the proposed borrowings, not exceed the Borrowing Base (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"):
o 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 Encina Credit Facility, to accrued interest and commitment fees
payable to the lenders under the Encina Credit Facility for the last 6 payment
periods must equal at least 175.0%.
112
o 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 (in each case, subject to
certain adjustments) to outstanding borrowings under the Encina Credit Facility
plus the Unfunded Exposure Amount must equal at least 200.0%. The Encina Credit Facility also may require 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 ineligible collateral loans will be excluded from the calculation of the Borrowing Base and may lead to a Borrowing Base Deficiency, which may be cured by effecting one or more (or any combination thereof) of the following actions: (A) deposit into or credit to the collection account cash and eligible investments, (B) repay outstanding borrowings (together with certain costs and expenses), (C) sell or substitute loan assets in accordance with the Encina Credit Facility, or (D) pledge additional loan assets as collateral. Compliance with the Collateral Tests is also a condition to the discretionary sale of pledged loan assets by the Company. Priority of Payments. The priority of payments provisions of the Encina Credit Facility require, after payment of specified fees and expenses, that collections of interest from the loan assets and, to the extent that these are insufficient, collections of principal 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.
Operating Expenses. The priority of payments provision of the Encina Credit Facility provides for the payment of certain operating expenses of the Company out of collections on interest and principal in accordance with the priority established in such provision. The operating expenses payable pursuant to the priority of payment provisions is limited to$200,000 per annum. Covenants; Representations and Warranties; Events of Default. The Encina Credit Facility contains customary representations and warranties, affirmative covenants, negative covenants and events of default. The Encina Credit Facility does not contain grace periods for breach by the Company of any negative covenants or of certain of the affirmative covenants, including, without limitation, those related to preservation of the existence and separateness of the Company. Other events of default under the Encina Credit Facility include, among other things, the following:
o failure of the Company to maintain an Interest Coverage Ratio of less than
175.0%;
o failure of the Company to maintain an Overcollateralization Ratio of less than
200.0%;
o the filing of certain ERISA or tax liens on assets of the Company or the
Equityholder;
o failure by Specified Holders to collectively, directly or indirectly, own and
control at least 51% of the outstanding equity interests of
Advisor, or (y) possess the right to elect (through contract, ownership of
voting securities or otherwise) at all times a majority of the board of
directors (or similar governing body) of Saratoga Investment Advisor and to
direct the management policies and decisions of Saratoga Investment Advisor, or
(ii) the dissolution, termination or liquidation in whole or in part, transfer
or other disposition, in each case, of all or substantially all of the assets
of, Saratoga Investment Advisor;
o indictment or conviction of
for a felony offense, or any fraud, embezzlement or misappropriation of funds
by
persons," without a reputable, experienced individual reasonably satisfactory
to Encina Lender Finance appointed to replace such key person within 30 days;
o resignation, termination, disability or death of a "key person" or failure of
any "key person" to provide active participation in
Advisors' daily activities, all without a reputable, experienced individual
reasonably satisfactory to Encina Lender Finance appointed within 30 days.
Fees and Expenses. The Company paid certain fees and reimbursedEncina Lender Finance, LLC for the aggregate amount of all documented, out-of-pocket costs and expenses, including the reasonable fees and expenses of lawyers, incurred byEncina Lender Finance, LLC in connection with the Encina Credit Facility and the carrying out of any and all acts contemplated thereunder up to and as of the date of closing. These amounts totaled$1.4 million .
As of
113
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 licenses 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.SBIC II LP's SBIC license provides 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 , subject to SBA approval. Our wholly owned SBIC subsidiaries are able to borrow funds from the SBA against regulatory capital (which generally approximates equity capital in the respective SBIC) and is subject to customary regulatory requirements, including, but not limited to, a periodic examination by the SBA. With this license approval, Saratoga can 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 senior securities issued by of our SBIC subsidiaries from the definition of senior securities in the asset coverage requirement applicable to the Company under the 1940 Act. This allows us increased flexibility under the asset coverage requirement 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 independent directors approved of our becoming subject to a reduced minimum asset coverage ratio of 150.0% from 200% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act. The 150% asset coverage ratio became effective onApril 16, 2019 . 114 As ofAugust 31, 2022 , ourSBIC LP subsidiary had$75.0 million in regulatory capital and$67.7 million in SBA-guaranteed debentures outstanding and ourSBIC II LP subsidiary had$87.5 million in regulatory capital and$166.0 million in SBA-guaranteed debentures outstanding. Unsecured notes
InMay 2013 , the Company issued$48.3 million in aggregate principal amount of 7.50% fixed-rate notes due 2020 (the "2020 Notes"). The 2020 Notes were redeemed in full onJanuary 13, 2017 and are no longer listed on the NYSE. OnMay 29, 2015 , we entered into a Debt Distribution Agreement withLadenburg Thalmann & Co Inc. 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 net proceeds from the offering were used to repay all of the outstanding indebtedness under the 2020 Notes (as described above), 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 the 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 the 6.25% 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 in aggregate principal amount of 6.25% 2025 Notes within 30 days. 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 6.25% 2025 Notes have been capitalized and were amortized over the term
of the 6.25% 2025 Notes. OnFebruary 5, 2019 , the Company issued an additional$20.0 million in aggregate principal amount of the 6.25% 2025 Notes for net proceeds of$19.2 million after deducting underwriting commissions of approximately$0.6 million and discount of$0.2 million . The additional 6.25% 2025 Notes were treated as a single series with the existing 6.25% 2025 Notes under the indenture and had the same terms as the existing 6.25% 2025 Notes. 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 in aggregate principal amount of 6.25% 2025 Notes within 30 days. 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 6.25% 2025 Notes have been capitalized and were amortized over the term of the 6.25% 2025 Notes. OnAugust 31, 2021 , the Company redeemed$60.0 million in aggregate principal amount of the issued and outstanding 6.25% 2025 Notes at par. The 6.25% 2025 Notes were listed on the NYSE under the trading symbol of "SAF" with a par value of$25.00 per share and have been delisted following the full redemption onAugust 31, 2021 . OnJune 24, 2020 , the Company issued$37.5 million in aggregate principal amount of our 7.25% fixed-rate notes due 2025 (the "7.25% 2025 Notes") for net proceeds of$36.3 million after deducting underwriting commissions of approximately$1.2 million . Offering costs incurred were approximately$0.3 million . OnJuly 6, 2020 , the underwriters exercised their option in full to purchase an additional$5.625 million in aggregate principal amount of its 7.25% unsecured notes due 2025. Net proceeds to the Company were$5.4 million after deducting underwriting commissions of approximately$0.2 million . 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 7.25% 2025 Notes have been capitalized and were amortized over the term of the 7.25% 2025 Notes. 115
OnJuly 14, 2022 , the Company redeemed$43.1 million in aggregate principal amount of the issued and outstanding 7.25% 2025 Notes. The 7.25% 2025 Notes were listed on the NYSE under the trading symbol of "SAK", and have been delisted following the full redemption onJuly 14, 2022 . OnJuly 9, 2020 , the Company issued$5.0 million in aggregate principal amount of our 7.75% fixed-rate Notes due in 2025 (the "7.75% 2025 Notes") for net proceeds of$4.8 million after deducting underwriting commissions of approximately$0.2 million . Offering costs incurred were approximately$0.1 million . Interest on the 7.75% Notes 2025 is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 7.75% per year, beginningAugust 31, 2020 . The 7.75% Notes 2025 mature onJuly 9, 2025 and 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$0.3 million related to the 7.75% Notes 2025 have been capitalized and are being amortized over the term of the 7.75% 2025 Notes. The 7.75% 2025 Notes are unlisted and have a par value of$25.00 per share.
At
OnDecember 29, 2020 , the Company issued$5.0 million in aggregate principal amount of our 6.25% fixed-rate notes due in 2027 (the "6.25% Notes 2027"). Offering costs incurred were approximately$0.1 million . Interest on the 6.25% Notes 2027 is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.25% per year, beginningFebruary 28, 2021 . The 6.25% Notes 2027 mature onDecember 29, 2027 and may be redeemed in whole or in part at any time or from time to time at our option, on or afterDecember 29, 2024 . The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$0.1 million related to the 6.25% Notes 2027 have been capitalized and are being amortized over the term of the 6.25% Notes 2027. OnJanuary 28, 2021 , the Company issued$10.0 million in aggregate principal amount of the 6.25% Notes 2027 for net proceeds of$9.7 million after deducting underwriting commissions of approximately$0.3 million . Offering costs incurred were approximately$0.0 million . Interest on the 6.25% Notes 2027 is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.25% per year. The 6.25% Notes 2027 mature onJanuary 28, 2027 and commencingJanuary 28, 2023 , may be redeemed in whole or in part at any time or from time to time at our option on or afterDecember 29, 2024 . The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$0.3 million related to the 6.25% Notes 2027 have been capitalized and are being amortized over the term of the 6.25% Notes 2027.
At
OnMarch 10, 2021 , the Company issued$50.0 million in aggregate principal amount of the 4.375% Notes 2026 for net proceeds of$49.0 million after deducting underwriting commissions of approximately$1.0 million . Offering costs incurred were approximately$0.2 million . Interest on the 4.375% Notes 2026 is paid semi-annually in arrears onFebruary 28 andAugust 28 , at a rate of 4.375% per year. The 4.375% Notes 2026 mature onFebruary 28, 2026 and may be redeemed in whole or in part at any time on or afterNovember 28, 2025 at par plus a "make-whole" premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.2 million related to the 4.375% Notes 2026 have been capitalized and are being amortized over the term of the 4.375% Notes 2026. OnJuly 15, 2021 , the Company issued an additional$125.0 million in aggregate principal amount of the Company's 4.375% Notes 2026 (the "Additional 4.375% 2026 Notes") for net proceeds for approximately$123.5 million , based on the public offering price of 101.00% of the aggregate principal amount of the Additional 4.375% 2026 Notes, after deducting the underwriting discount of$2.5 million and offering expenses of$0.2 million payable by the Company. The net proceeds from the offering were used to redeem all of the outstanding 6.25% 2025 Notes (as described above), and for general corporate purposes in accordance with our investment objective and strategies. The Additional 4.375% 2026 Notes were treated as a single series with the existing 4.375% 2026 Notes under the indenture and had the same terms as the existing 4.375% 2026 Notes.
At
OnJanuary 19, 2022 , the Company issued$75.0 million in aggregate principal amount of our 4.35% fixed-rate Notes due in 2027 (the "4.35% Notes 2027") for net proceeds of$73.0 million , based on the public offering price of 99.317% of the aggregate principal amount of the 4.35% Notes 2027, after deducting the underwriting commissions of approximately$1.5 million . Offering costs incurred were approximately$0.2 million . Interest on the 4.35% Notes 2027 is paid semi-annually in arrears onFebruary 28 andAugust 28 , at a rate of 4.35% per year, beginningAugust 28, 2022 . The 4.35% Notes 2027 mature onFebruary 28, 2027 and may be redeemed in whole or in part at the Company's option at any time prior toNovember 28, 2026 , at par plus a "make-whole" premium, and thereafter at par. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.7 million related to the 4.35% Notes 2027 have been capitalized and are being amortized over the term of the Notes. 116
At
OnApril 27, 2022 , the Company issued$87.5 million in aggregate principal amount of our 6.00% fixed-rate notes due 2027 (the "6.00% Notes 2027") for net proceeds of$84.8 million after deducting underwriting commissions of approximately$2.7 million . Offering costs incurred were approximately$0.1 million . OnMay 10, 2022 , the underwriters partially exercised their option to purchase an additional$10.0 million in aggregate principal amount of its 6.00% Notes 2027. Net proceeds to the Company were$9.7 million after deducting underwriting commissions of approximately$0.3 million . Interest on the 6.00% Notes 2027 is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.00% per year, beginningAugust 31, 2022 . The 6.00% Notes 2027 mature onApril 30, 2027 and commencingApril 27, 2024 , may be redeemed in whole or in part at any time or from time to time at our option. Financing costs of$3.0 million related to the 6.00% Notes 2027 have been capitalized and are being amortized over the term of the 6.00% 2027 Notes. The 6.00% 2027 Notes are listed on the NYSE under the trading symbol "SAT" with a par value of$25.00 per share. OnAugust 15, 2022 , the Company issued$8.0 million in aggregate principal amount of our 6.00% fixed-rate notes due 2027 (the "6.00% 2027 Notes") for net proceeds of$7.8 million , based on the public offering price of 97.80% of the aggregate principal amount of the 6.00% Notes 2027. Additional offering costs incurred were approximately$0.03 million . Additional financing costs of$0.03 million related to the 6.00% 2027 Notes have been capitalized and are being amortized over the term of the 6.00% 2027 Notes.
At
AtAugust 31, 2022 andFebruary 28, 2022 , the fair value of investments, cash and cash equivalents and cash and cash equivalents, reserve accounts were as follows: August 31, 2022 February 28, 2022 Percentage Percentage Fair Value of Total Fair Value of Total ($ in
thousands)
Cash and cash equivalents$ 3,068 0.3 %$ 47,258 5.4 % Cash and cash equivalents, reserve accounts 9,579 1.0
5,613 0.6
First lien term loans 793,011 80.5 631,573 72.6
Second lien term loans 23,662 4.5 44,385 5.1
Unsecured term loans 16,841 1.8 38,030 4.4Structured finance securities 32,327 3.4
15,931 1.8
Equity interests 82,096 8.5 87,648 10.1
Total $ 960,584 100.0 % $ 870,438 100.0 %
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. 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 added to the equity ATM program. OnJuly 11, 2019 , the amount of the common stock to be offered 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 . This agreement was terminated as ofJuly 29, 2021 , and as of that date, the Company had 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). OnJuly 30, 2021 , we entered into an equity distribution agreement withLadenburg Thalmann & Co. Inc. andCompass Point Research and Trading, LLC (the "Agents"), through which we may offer for sale, from time to time, up to$150.0 million of our common stock through the Agents, or to them, as principal for their account. As ofAugust 31, 2022 , the Company sold 4,840,361 shares for gross proceeds of$124.0 million at an average price of$25.61 for aggregate net proceeds of$122.4 million (net of transaction costs). During the three and six months endedAugust 31, 2022 , there were no shares sold pursuant to the equity distribution agreement with the Agents. 117
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 (the "Share Repurchase Plan"). OnOctober 7, 2015 , our board of directors extended the 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 , our board of directors extended the 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 , our board of directors extended the 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 , our board of directors increased the Share Repurchase Plan to 1.3 million shares of common stock. OnJanuary 5, 2021 , our board of directors extended the Shares Repurchase Plan for another year toJanuary 15, 2022 , leaving the number of shares unchanged at 1.3 million shares of common stock. OnJanuary 4, 2022 , our board of directors extended the Shares Repurchase Plan for another year toJanuary 15, 2023 , leaving the number of shares unchanged at 1.3 million shares of common stock. As ofAugust 31, 2022 , the Company purchased 803,963 shares of common stock, at the average price of$21.47 for approximately$17.3 million pursuant to the Share Repurchase Plan. During the three months endedAugust 31, 2022 , the Company purchased 153,350 shares of common stock, at the average price of$24.04 for approximately$3.7 million pursuant to the Share Repurchase Plan. During the six months endedAugust 31, 2022 , the Company purchased 295,527 shares of common stock, at the average price of$25.11 for approximately$7.4 million pursuant to the Share Repurchase Plan. OnAugust 29, 2022 , the Company declared a dividend of$0.54 per share payable onSeptember 29, 2022 , to common stockholders of record onSeptember 14, 2022 . Shareholders have 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$5.3 million in cash and 52,313 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$22.00 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onSeptember 16, 19 , 20, 21, 22, 23, 26, 27, 28 and 29, 2022. OnMay 26, 2022 , the Company declared a dividend of$0.53 per share payable onJune 29, 2022 , to common stockholders of record onJune 14, 2022 . Shareholders have 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$5.1 million in cash and 48,590 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$22.40 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onJune 15, 16 , 17, 21, 22, 23, 24, 27, 28 and 29, 2022. OnFebruary 24, 2022 , the Company declared a dividend of$0.53 per share payable onMarch 28, 2022 , to common stockholders of record onMarch 14, 2022 . Shareholders have 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$5.3 million in cash and 42,825 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$25.89 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onMarch 15, 16 , 17, 18, 21, 22, 23, 24, 25 and 28, 2022. OnNovember 30, 2021 , the Company declared a dividend of$0.53 per share payable onJanuary 19, 2022 , to common stockholders of record onJanuary 4, 2021 . Shareholders have 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$5.3 million in cash and 41,520 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$26.85 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onJanuary 5 , 6, 7, 10, 11, 12, 13, 14, 18 and 19, 2022. OnAugust 26, 2021 , the Company declared a dividend of$0.52 per share payable onSeptember 28, 2021 , to common stockholders of record onSeptember 14, 2021 . Shareholders have 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$4.9 million in cash and 38,016 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$26.76 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onSeptember 15, 16 , 17, 20, 21, 22, 23, 24, 27 and 28, 2021. OnMay 27, 2021 , the Company declared a dividend of$0.44 per share payable onJune 29, 2021 , to common stockholders of record onJune 15, 2021 . Shareholders have 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$4.1 million in cash and 33,100 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$25.03 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onJune 16, 17 , 18, 21, 22, 23, 24, 25, 28 and 29, 2021. 118 OnMarch 22, 2021 , the Company declared a dividend of$0.43 per share payable onApril 22, 2021 , to common stockholders of record onApril 8, 2021 . Shareholders have 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$3.9 million in cash and 38,580 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$23.69 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onApril 9,12 , 13, 14, 15, 16, 19, 20, 21 and 22, 2021. OnJanuary 5, 2021 , our board of directors declared a dividend of$0.42 per share, which was paid onFebruary 10, 2021 , to common stockholders of record as ofJanuary 26, 2021 . Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately$3.8 million in cash and 41,388 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$21.75 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onJanuary 28 , 29 andFebruary 1 , 2, 3, 4, 5,
8, 9 and 10, 2021.
OnOctober 7, 2020 , our board of directors declared a dividend of$0.41 per share, which was paid onNovember 10, 2020 , to common stockholders of record as ofOctober 26, 2020 . Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the DRIP. Based on shareholder elections, the dividend consisted of approximately$3.8 million in cash and 45,706 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$17.63 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onOctober 28 , 29, 30 andNovember 2 , 3, 4, 5, 6, 9 and 10, 2020.
OnJuly 7, 2020 , the Company declared a dividend of$0.40 per share payable onAugust 12, 2020 , to common stockholders of record onJuly 27, 2020 . Shareholders have 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$3.7 million in cash and 47,098 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$16.45 per share, which equaled 95.0% of the volume weighted average trading price per share of the common stock onJuly 30 , 31 andAugust 3 , 4, 5, 6, 7, 10, 11 and 12, 2020. OnJanuary 8, 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 the 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% 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 the 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% 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. 119 OnNovember 27, 2018 , our board of directors declared a dividend of$0.53 per share, which was paid 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 the 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. 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 the 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 the 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% 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, which was paid 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 the 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% 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, which was paid 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 the 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% 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 the 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% 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 the 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% 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. 120 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 the 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% 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.
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 the 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% 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 the 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% 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 the 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% 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 the 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% 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 the 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% 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 the 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% 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 the 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% 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. 121 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 the 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% 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 the 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% 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 the 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% 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 the 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% 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 95% of 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 95% of the volume weighted average trading price per share of the common stock onDecember 14, 17 and
19, 2012. 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 95% of the volume weighted average trading price per share of the common stock onDecember 20 , 21 and 22, 2011. 122 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 95% of 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 95% of 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.
Our asset coverage ratio, as defined in the 1940 Act, was 184.2% as of
Subsequent Events
OnJuly 9, 2020 , the Company entered into the Notes Purchase Agreement (the "Notes Purchase Agreement") governing the issuance of its 7.75% Notes due 2025 in the aggregate principal amount of$5.0 million to an institutional investor (the "Purchaser") in a private placement. Pursuant to the terms of the Notes Purchase Agreement, upon the mutual agreement of the Company and the Purchaser, the Company may issue additional notes with modified pricing terms, in the aggregate, up to a maximum of$50.0 million in one or more private offerings. OnJanuary 28, 2021 , the Company entered into the First Supplemental Notes Purchase Agreement (the "First Supplemental Agreement") governing the issuance of its 6.25% Notes due 2027 in the aggregate principal amount of$10.0 million to the Purchaser in a private placement. OnSeptember 8, 2022 , the Company entered into the Second Supplemental Notes Purchase Agreement (the "Second Supplemental Agreement") governing the issuance of its 7.00% Notes due 2025 (the "7.00% 2025 Notes") in the aggregate principal amount of$12.0 million to the Purchaser in a private placement. In addition, pursuant to the Second Supplement Agreement, upon the mutual agreement of the Company and the Purchaser, the Purchaser may purchase from the Company up to an additional$8.0 million in aggregate principal amount of the 7.00% 2025 Notes bySeptember 30, 2022 , which did not occur. The 7.00% 2025 Notes were delivered and paid for onSeptember 8, 2022 . Upon the issuance of the 7.00% 2025 Notes, the outstanding aggregate principal amount of the Company's unsecured notes held by the Purchaser under the Notes Purchase Agreement, the First Supplemental Agreement and the Second Supplemental Agreement, collectively, is$27.0 million . OnSeptember 29, 2022 , the Company announced that it received notification from theSmall Business Administration (the "SBA") that the Company's application for a thirdSmall Business Investment Company ("SBIC") license has been approved. The new SBIC license will provide up to$175 million in additional long-term capital in the form of SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA. Under current SBIC regulations, for two or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot exceed$350.0 million with at least$175.0 million in combined regulatory capital. Contractual obligations
The following table shows our payment obligations for repayment of debt and
other contractual obligations at
Payment Due by Period
Less Than More Than
Long-Term Debt Obligations Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years
($ in thousands)
Revolving credit facility $ 25,000 $ - $ 25,000 $ - $ -
SBA debentures 233,660 - 15,000 33,660 185,000
7.75% 2025 Notes 5,000 - 5,000 - -
4.375% 2026 Notes 175,000 - - 175,000 -
4.35% 2027 Notes 75,000 - - 75,000 -
6.25% 2027 Notes 15,000 - - - 15,000
6.00% 2027 Notes 105,500 - - 105,500 -
Total Long-Term Debt Obligations
123
Off-balance sheet arrangements
As ofAugust 31, 2022 andFebruary 28, 2022 , the Company's off-balance sheet arrangements consisted of$90.7 million and$83.4 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
August 31, February 28,
2022 2022
At Company's discretion
ActiveProspect, Inc. $ 10,000 $ -
Artemis Wax 3,000 3,700
Ascend Software LLC 5,000 5,000
Axero Holdings - 3,000
Davisware 2,000 2,000
Granite Comfort 5,000 -
JDXpert 5,000 -Lee's Famous Recipe Chicken 4,000
10,000
Netreo Holdings, LLC - 4,000
Pepper Palace 3,000 3,000
Procrement Partners - 2,800Saratoga Senior Loan Fund I JV LLC 15,606 17,500 Sceptre Hospitality Resources 250
1,000
Book4Time, Inc. - 2,000
Total $ 52,856 $ 54,000
At portfolio company's discretion - satisfaction of certain
financial and nonfinancial covenants required
Ascend Software LLC $ 4,200 $ 6,500
ARC Health 8,500 -
Axero Holdings - 2,000
Axero Holdings - Revolver 500 500
Davisware, LLC 1,000 1,000
Exigo - DDTL 4,167 -
Exigo - Revolver 833 -
GDS Holdings US, Inc. 1,036 2,786
Granite Comfort 5,000 -
GoReact 500 2,500
JDXpert 1,000 -
Madison Logic - Revolver 1,084 1,084
New England Dental Partners 4,500 4,500
Pepper Palace - DDTL 2,000 2,000
Pepper Palace - Revolver 2,500 2,500
Zollege 1,000 1,000
Lee's Famous Recipe Chicken - 3,000
37,820 29,370
Total $ 90,676 $ 83,370
The Company believes its assets will provide adequate coverage to satisfy these
unfunded commitments. As of August 31, 2022 , the Company had cash and cash
equivalents of $12.6 million and $25.0 million in available borrowings under the
Encina Credit Facility.
124© Edgar Online, source
