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, 2021 .
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 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;
? pandemics or other serious public health events, such as the recent global
outbreak of COVID-19;
? the relative and absolute investment performance and operations of our
Investment 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 prospects of our portfolio companies, including
our and their ability to achieve our respective objectives as a result of the
current COVID-19 pandemic;
? the impact of investments that we expect to make and future acquisitions and
divestitures;
? our contractual arrangements and relationships with third parties;
? the dependence of our future success on the general economy and its impact on
the industries in which we invest and the impact of the COVID-19 pandemic
thereon;
? the ability of our portfolio companies to achieve their objectives;
? our expected financings and investments;
? our regulatory structure and tax status, including our ability to operate as a
business development company ("BDC"), or to operate our small business
investment company ("SBIC") subsidiaries, and to continue to qualify to be
taxed as a regulated investment company ("RIC");
75
? the adequacy of our cash resources and working capital;
? the timing of cash flows, if any, from the operations of our portfolio
companies and the impact of the COVID-19 pandemic thereon;
? the impact of interest rate volatility on our results, particularly because we
use leverage as part of our investment strategy;
? the impact of legislative and regulatory actions and reforms 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. 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 or industry
conditions, and changes in the interest rate environment, including with
respect to the anticipated discontinuation of LIBOR, or other conditions
affecting the financial and capital 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 outbreak in
as worldwide, and the magnitude of its impact and time required for economic
recovery, including with respect to the impact of travel restrictions and other
isolation and quarantine measures 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 the current economic downturn as a result of the 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. 76 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.
OVERVIEW We are aMaryland corporation that has elected to be treated as a BDC under the Investment Company Act of 1940, as amended (the "1940 Act"). Our investment objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from our investments. We invest primarily in senior and unitranche leveraged loans and mezzanine debt issued by privateU.S. middle market companies, which we define as companies having earnings before interest, tax, depreciation and amortization ("EBITDA") of between$2 million and$50 million , both through direct lending and through participation in loan syndicates. We may also invest up to 30.0% of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in distressed debt, which may include securities of companies in bankruptcy, foreign debt, private equity, securities of public companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds. Although we have no current intention to do so, to the extent we invest in private equity funds, we will limit our investments in entities that are excluded from the definition of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, which includes private equity funds, to no more than 15.0% of its net assets. We have elected and qualified to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). COVID-19 Update OnMarch 11, 2020 , theWorld Health Organization declared the novel coronavirus, or COVID-19, as a pandemic, and onMarch 13, 2020 the United States declared a national emergency with respect to COVID-19. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has led to, and for an unknown period of time will continue to lead to, disruptions in local, regional, national and global markets and economies affected thereby, includingthe United States . The COVID-19 pandemic and restrictive measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the re-introduction of 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 interruptions and overall economic and financial market instability both globally and inthe United States . In addition, although theU.S. Food and Drug Administration authorized vaccines for emergency use starting inDecember 2020 , it is unclear when "herd immunity" will be achieved and when the restrictions that were imposed to slow the spread of the virus will be lifted entirely. The delay in distributing the vaccines could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time. Even after the COVID-19 pandemic subsides, theU.S. economy and most other major global economies may continue to experience a recession. As a result, COVID-19 presents material uncertainty and risks with respect to the underlying value of the Company's portfolio companies, the Company's business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, company decisions to delay, defer and/or modify the character of dividends in order to preserve liquidity, increased costs of operations, changes in law and/or regulation, and uncertainty regarding government and regulatory policy. 77
We have evaluated subsequent events fromJune 1, 2021 throughJuly 7, 2021 . However, as the discussion in this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations relates to the Company's financial statements for the quarter-endedMay 31, 2021 , the analysis contained herein may not fully account for impacts relating to the COVID-19 pandemic. In that regard, for example, as ofMay 31, 2021 , the Company valued its portfolio investments in conformity withU.S. GAAP based on the facts and circumstances known by the Company at that time, or reasonably expected to be known at that time. Due to the overall volatility that the COVID-19 pandemic has caused during the months that followed ourMay 31, 2021 valuation, any valuations conducted now or in the future in conformity withU.S. GAAP could result in a lower fair value of our portfolio. The potential impact to our results going forward will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of COVID- 19 and the actions taken by authorities and other entities to contain the coronavirus or treat its impact, all of which are beyond our control. Accordingly, the Company cannot predict the extent to which its financial condition and results of operations will be affected at this time. Corporate History We commenced operations, at the time known asGSC Investment Corp. , onMarch 23, 2007 and completed an initial public offering of shares of common stock onMarch 28, 2007 . Prior toJuly 30, 2010 , we were externally managed and advised byGSCP (NJ), L.P. , an entity affiliated withGSC Group, Inc. In connection with the consummation of a recapitalization transaction onJuly 30, 2010 , as described below we engagedSaratoga Investment Advisors to replaceGSCP (NJ), L.P. as our investment adviser and changed our name toSaratoga Investment Corp. As a result of the event of default under a revolving securitized credit facility with Deutsche Bank we previously had in place, inDecember 2008 we engaged the investment banking firm ofStifel, Nicolaus & Company to evaluate strategic transaction opportunities and consider alternatives for us. OnApril 14, 2010 ,GSC Investment Corp. entered into a stock purchase agreement withSaratoga Investment Advisors and certain of its affiliates and an assignment, assumption and novation agreement withSaratoga Investment Advisors , pursuant to whichGSC Investment Corp. assumed certain rights and obligations ofSaratoga Investment Advisors under a debt commitment letterSaratoga Investment Advisors received fromMadison Capital Funding LLC , which indicatedMadison Capital Funding's willingness to provideGSC Investment Corp. with a$40.0 million senior secured revolving credit facility, subject to the satisfaction of certain terms and conditions. In addition,GSC Investment Corp. andGSCP (NJ), L.P. entered into a termination and release agreement, to be effective as of the closing of the transaction contemplated by the stock purchase agreement, pursuant to whichGSCP (NJ), L.P. , among other things, agreed to waive any and all accrued and unpaid deferred incentive management fees up to and as of the closing of the transaction contemplated by the stock purchase agreement but continued to be entitled to receive the base management fees earned through the date of the closing of the transaction contemplated by the stock purchase agreement. OnJuly 30, 2010 , the transactions contemplated by the stock purchase agreement withSaratoga Investment Advisors and certain of its affiliates were completed, the private sale of 986,842 shares of our common stock for$15.0 million in aggregate purchase price toSaratoga Investment Advisors and certain of its affiliates closed, the Company entered into the Credit Facility, and the Company began doing business asSaratoga Investment Corp. We used the net proceeds from the private sale transaction and a portion of the funds available to us under the Credit Facility to pay the full amount of principal and accrued interest, including default interest, outstanding under our revolving securitized credit facility with Deutsche Bank. The revolving securitized credit facility with Deutsche Bank was terminated in connection with our payment of all amounts outstanding thereunder onJuly 30, 2010 . OnAugust 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. 78
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 the NYSE under the trading symbol "SAQ" with a par value of$25.00 per share. The 2020 Notes were redeemed in full onJanuary 13, 2017 and are no longer listed on the NYSE. OnMay 29, 2015 , we entered into a Debt Distribution Agreement withLadenburg Thalmann & Co. through which we may offer for sale, from time to time, up to$20.0 million in aggregate principal amount of the 2020 Notes through an At-the-Market ("ATM") offering. Prior to the 2020 Notes being redeemed in full, the Company sold 539,725 bonds with a principal of$13.5 million at an average price of$25.31 for aggregate net proceeds of$13.4 million (net of transaction costs).
OnDecember 21, 2016 , we issued$74.5 million in aggregate principal amount of our 6.75% fixed-rate unsecured notes due 2023 (the "2023 Notes") for net proceeds of$71.7 million after deducting underwriting commissions of approximately$2.3 million and offering costs of approximately$0.5 million . The issuance included the exercise of substantially all of the underwriters' option to purchase an additional$9.8 million aggregate principal amount of 2023 Notes within 30 days. The 2023 Notes were listed on the NYSE under the trading symbol "SAB" with a par value of$25.00 per share. OnDecember 21, 2019 andFebruary 7, 2020 , the Company redeemed$50.0 million and$24.5 million , respectively, in aggregate principal amount of the$74.5 million in aggregate principal amount of issued and outstanding 2023 Notes. OnMarch 16, 2017 , we entered into an equity distribution agreement withLadenburg Thalmann & Co. Inc. , through which we may offer for sale, from time to time, up to$30.0 million of our common stock through an ATM offering. Subsequent to this,BB&T Capital Markets andB. Riley FBR, Inc. were also added to the agreement. OnJuly 11, 2019 , the amount of the common stock to be offered through this offering was increased to$70.0 million , and onOctober 8, 2019 , the amount of the common stock to be offered was increased to$130.0 million . As ofMay 31, 2021 , the Company sold 3,922,018 shares for gross proceeds of$97.1 million at an average price of$24.77 for aggregate net proceeds of$95.9 million (net of transaction costs). During the three months endedMay 31, 2021 , there was no activity related to the ATM offering. 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 aggregate principal amount of 6.25% 2025 Notes within 30 days. Interest on the 6.25% 2025 Notes is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.25% per year, beginningNovember 30, 2018 . The 6.25% 2025 Notes mature onAugust 31, 2025 and commencingAugust 28, 2021 , may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.6 million related to the 6.25% 2025 Notes have been capitalized and are being amortized over the term of the 6.25% 2025 Notes. 79 OnDecember 14, 2018 , the Company completed the third refinancing of the Saratoga CLO (the "2013-1 Reset CLO Notes"). This refinancing, among other things, extended the Saratoga CLO reinvestment period toJanuary 2021 , and extended its legal maturity toJanuary 2030 . A non-call period ofJanuary 2020 was also added. In addition to and as part of the refinancing, the Saratoga CLO has also been upsized from$300 million in assets to approximately$500 million . As part of this refinancing and upsizing, the Company invested an additional$13.8 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased$2.5 million in aggregate principal amount of the Class F-R-2 Notes tranche and$7.5 million in aggregate principal amount of the Class G-R-2 Notes tranche at par. Concurrently, the existing$4.5 million of Class F notes were repaid. OnFebruary 5, 2019 , the Company completed a re-opening and up-sizing of its existing 6.25% 2025 Notes by issuing an additional$20.0 million in aggregate principal amount for net proceeds of$19.2 million after deducting underwriting commissions of approximately$0.6 million and discount of$0.2 million . Offering costs incurred were approximately$0.2 million . The issuance included the full exercise of the underwriters' option to purchase an additional$2.5 million aggregate principal amount of 6.25% 2025 Notes within 30 days. Interest rate, interest payment dates and maturity remain unchanged from the existing 6.25% 2025 Notes issued inAugust 2018 . The net proceeds from this offering were used for general corporate purposes in accordance with our investment objective and strategies. The financing costs and discount of$1.0 million related to the 6.25% 2025 Notes have been capitalized and are being amortized over the term of the 6.25% 2025 Notes. As ofNovember 30, 2020 , the total 6.25% 2025 Notes outstanding was$60.0 million . The 6.25% 2025 Notes are listed on the NYSE under the trading symbol "SAF" with a par value of$25.00 per share. OnAugust 14, 2019 , our wholly-owned subsidiary,Saratoga Investment Corp. SBIC II LP ("SBIC II LP "), also received an SBIC license from the SBA. The new license will provide up to$175.0 million in additional long-term capital in the form of SBA debentures. 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 . Interest on the 7.25% 2025 Notes is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 7.25% per year, beginningAugust 31, 2020 . The 7.25% 2025 Notes mature onJune 30, 2025 and commencingJune 24, 2022 , may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.6 million related to the 7.25% 2025 Notes have been capitalized and are being amortized over the term of the 7.25% 2025 Notes. The Company has received an investment grade private rating of "BBB" fromEgan-Jones Ratings Company , an independent, unaffiliated rating agency. As ofNovember 30, 2020 , the total 7.25% 2025 Notes outstanding was$43.1 million . The 7.25% 2025 Notes are listed on the NYSE under the trading symbol "SAK" with a par value of$25.00 per share. OnJuly 9, 2020 , the Company issued$5.0 million 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 Notes. As ofNovember 30, 2020 , the total 7.25% 2025 Notes outstanding was$5.0 million . The 7.75% 2025 Notes are unlisted and has a par value of$25.00 per share. OnDecember 29, 2020 , the Company issued$5.0 million 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 Notes. The 6.25% 2027 Notes are unlisted and have a par value of$25.00 per share. 80 OnJanuary 28, 2021 , the Company issued$10.0 million 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, beginningFebruary 28, 2021 . 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 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. As ofMay 31, 2021 , there remained an outstanding receivable of$2.6 million for such transaction costs which is presented as due from affiliate on the Company's consolidated statement of assets and liabilities. OnMarch 10, 2021 , the Company issued$50.0m 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 or from time to time at the Company's option at par plus a "make-whole" premium, if applicable. 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 Notes. Critical Accounting Policies Basis of Presentation The preparation of financial statements in accordance withU.S. generally accepted accounting principles ("U.S. GAAP") requires management to make certain estimates and assumptions affecting amounts reported in the Company's consolidated financial statements. We have identified investment valuation, revenue recognition and the recognition of capital gains incentive fee expense as our most critical accounting estimates. We continuously evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows. Investment Valuation The Company accounts for its investments at fair value in accordance with theFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that its investments are to be sold or its liabilities are to be transferred at the balance sheet date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. 81 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
conclusions are documented and discussed with our senior management; and
? An independent valuation firm engaged by our board of directorsindependently reviews a selection of these preliminary valuations each
quarter so that the valuation of each investment for which market quotes
are not readily available is reviewed by the independent valuation firm at
least once each fiscal year. We use a third-party independent valuation
firm to value our investment in the subordinated notes of Saratoga CLO and
the Class F-R-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 fairvalue of each investment, in good faith, based on the input of Saratoga
and the audit committee of our board of directors.
Our investment in Saratoga CLO is carried at fair value, which is based on a discounted cash 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 rate 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 a valuation for our investment in Saratoga CLO. 82 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 of LIBOR plus 8.75% and LIBOR plus 10.00%, respectively. As part of this refinancing, we also redeemed our existing$4.5 million aggregate amount of the Class F notes tranche at par. 83 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. As ofMay 31, 2021 , there remained an outstanding receivable of$2.6 million for such transaction costs which is presented as due from affiliate on the Company's consolidated statement of assets and liabilities.
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. Expenses Our primary operating expenses include the payment of investment advisory and management fees, professional fees, directors and officers insurance, fees paid to independent directors and administrator expenses, including our allocable portion of our administrator's overhead. Our investment advisory and management fees compensate our 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;
84
? transfer agent and custodial fees;
? federal and state registration fees;
? all costs of registration and listing our common stock on any securities
exchange;
? federal, state and local taxes;
? independent directors' fees and expenses;
? costs of preparing and filing reports or other documents required by
governmental bodies (including the
("SEC") and the SBA);
? costs of any reports, proxy statements or other notices to common stockholders
including printing costs;
? our fidelity bond, directors and officers errors and omissions liability
insurance, and any other insurance premiums;
? direct costs and expenses of administration, including printing, mailing, long
distance telephone, copying, secretarial and other staff, independent auditors
and outside legal costs; and
? administration fees and all other expenses incurred by us or, 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)).
Pursuant to the investment advisory and management agreement that we had withGSCP (NJ), L.P. , our former investment adviser and administrator, we had agreed to payGSCP (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 former 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 our former 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. 85
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.
New 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 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. 86
Portfolio and Investment Activity
Investment Portfolio Overview
May 31, 2021 February 28, 2021
($ in millions)
Number of investments(1) 90 81
Number of portfolio companies(2) 44 40
Average investment per portfolio company(2) $ 14.2 $ 12.6
Average investment size(1) $ 7.1 $ 6.5
Weighted average maturity(3) 3.1 yrs 3.2 yrs
Number of industries 31 31Non-performing or delinquent investments (fair value) $ 2.2 $
2.1
Fixed rate debt (% of interest earning portfolio)(3) $ 23.2 (4.1% ) $ 23.3(4.8% )
Fixed rate debt (weighted average current coupon)(3) 9.7 % 9.8 %
Floating rate debt (% of interest earning portfolio)(3)
7.8 % 7.4 %
(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 of Saratoga CLO.
Excludes our investment in the subordinated notes of Saratoga CLO and equity (3) interests.
(4) Calculation uses either 1-month or 3-month LIBOR, depending on the
contractual terms, and after factoring in any existing LIBOR floors.
During the three months ended May 31, 2021 , we invested $119.2 million in new or
existing portfolio companies and had $14.9 million in aggregate amount of exits
and repayments resulting in net investments of $104.3 million for the period.
During the three months ended May 31, 2020 , we invested $39.0 million in new or
existing portfolio companies and had $9.4 million in aggregate amount of exits
and repayments resulting in net exits and repayments of $29.6 million for the
period.
87
Portfolio Composition
Our portfolio composition at May 31, 2021 and February 28, 2021 at fair value
was as follows:
May 31, 2021 February 28, 2021
Weighted Weighted
Percentage Average Percentage Average
of Total Current of Total Current
Portfolio Yield Portfolio Yield
First lien term loans 76.2 % 9.4 % 79.5 % 9.5 %
Second lien term loans 3.7 12.0 4.4 12.3
Unsecured term loans 0.3 - 0.4 -
Structured finance securities 7.9 13.3 9.0 11.6
Equity interests 11.9 - 6.7 -
Total 100.0 % 8.6 % 100.0 % 9.1 %
AtMay 31, 2021 , our investment in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value of$35.5 million and constituted 5.2% of our portfolio. This investment constitutes a first loss position in a portfolio that, as ofMay 31, 2021 andFebruary 28, 2021 , was composed of$685.6 million and$603.7 million , respectively, in aggregate principal amount of primarily senior secured first lien term loans. In addition, as ofMay 31, 2021 , we also own$17.9 million in aggregate principal of the F-R-3 Notes in the Saratoga CLO, that 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 endedFebruary 28, 2021 ). 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, atMay 31, 2021 ,$667.0 million or 98.9% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and one Saratoga CLO portfolio investments were in default with a fair value of$0.002 million . AtFebruary 28, 2021 ,$584.6 million or 98.7% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and four Saratoga CLO portfolio investments were in default with a fair value of$0.8 million . For more information relating to the Saratoga CLO, see the audited financial statements for Saratoga in our Annual Report on Form 10-K for the fiscal year endedFebruary 28, 2021 .
88
Portfolio CMR distribution
The CMR distribution for our investments at
May 31, 2021 February 28, 2021
Investments Percentage Investments Percentage
at of Total at of Total
Color Score Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Green $ 521,723 77.0 % $ 453,297 81.8 %
Yellow 39,897 5.9 32,559 5.9
Red - 0.0 - 0.0
N/A(1) 116,153 17.1 68,457 12.3
Total $ 677,773 100.0 % $ 554,313 100.0 %
(1) Comprised of our investment in the subordinated notes of Saratoga CLO and
equity interests.
The change in reserve from
The CMR distribution of Saratoga CLO investments at
Saratoga CLO
May 31, 2021 February 28, 2021
Investments Percentage Investments Percentage
at of Total at of Total
Color Score Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Green $ 602,161 89.4 % $ 514,183 86.8 %
Yellow 64,878 9.6 70,415 11.9
Red 5,928 0.9 6,921 1.2
N/A(1) 467 0.1 501 0.1
Total $ 673,434 100.0 % $ 592,020 100.0 %
(1) Comprised of Saratoga CLO's equity interests.
89
Portfolio composition by industry grouping at fair value
The following table shows our portfolio composition by industry grouping at fair
value at
Saratoga Investment Corp. May 31, 2021 February 28, 2021 Investments Percentage Investments Percentage At of Total At of Total Fair Value Portfolio Fair Value Portfolio ($ in thousands) IT Services$ 91,661 13.5 %$ 73,087 13.2 % Education Software 89,699 13.2 88,090 15.9 Healthcare Software 69,263 10.2 28,972 5.2 Education Services 59,528 8.8 40,384 7.1
Structured Finance Securities(1) 53,420 7.9
49,779 9.0
Healthcare Services 41,953 6.2 42,410 7.7
Sports Management 25,550 3.8 25,469 4.6Dental Practice Management Software 23,890 3.5
23,659 4.3
Consumer Services 20,742 3.1 181 0.0
HVAC Services and Sales 19,950 2.9 14,894 2.7
Cyber Security 19,131 2.8 13,174 2.4
Payroll Services 18,346 2.7 18,333 3.3
Real Estate Services 18,186 2.7 18,032 3.3
Corporate Governance 17,598 2.6 13,265 2.4
Hospitality/Hotel 17,586 2.6 17,080 3.1
Marketing Services 17,467 2.6 17,372 3.1
Facilities Maintenance 10,731 1.6 6,193 1.1Public Safety/Local Government Software 10,205 1.5
- 0.0
Industrial Products 9,032 1.3 9,047 1.6
Waste Services 9,000 1.3 9,000 1.6
Dental Practice Management 8,808 1.3 7,133 1.3
Non-profit Services 5,500 0.8 5,554 1.0
Healthcare Supply 5,329 0.8 5,422 1.0
Field Service Management 4,021 0.6 4,018 0.7
Office Supplies 3,399 0.5 3,610 0.7
Corporate Education Software 3,108 0.5 1,050 0.2
Restaurant 2,169 0.3 2,141 0.4
Staffing Services 969 0.1 925 0.2Healthcare Products Manufacturing 564 0.1
567 0.1
Consumer Products 522 0.1 475 0.1
Financial Services 446 0.1 419 0.1
Property Management - 0.0 14,578 2.6
Total $ 677,773 100.0 % $ 554,313 100.0 %
(1) Comprised of our investment in the subordinated notes, Class F-R-3 Notes of
Saratoga CLO.
90
The following table shows Saratoga CLO's portfolio composition by industry
grouping at fair value at
Saratoga CLO
May 31, 2021 February 28, 2021
Investments Percentage Investments Percentage
at of Total at of Total
Fair Value Portfolio Fair Value Portfolio
($ inthousands)
Banking, Finance, Insurance & Real Estate$ 117,906 17.5
%$ 105,326 17.9 % Services: Business 69,543 10.3 55,588 9.4 High Tech Industries 56,509 8.5 50,106 8.5
Healthcare & Pharmaceuticals 48,618 7.2
46,689 7.9
Services: Consumer 45,182 6.7 31,604 5.4
Telecommunications 32,173 4.8 29,878 5.1
Aerospace & Defense 28,600 4.3 25,952 4.4
Automotive 26,524 3.9 19,159 3.2Chemicals, Plastics, & Rubber 23,117 3.4 23,302 3.9 Hotel, Gaming & Leisure 22,315 3.3 20,515 3.4 Media: Advertising, Printing & Publishing 21,700 3.3 19,826 3.3 Containers, Packaging & Glass 19,347 2.9
18,822 3.2
Beverage, Food & Tobacco 19,687 2.9 17,998 3.1
Consumer goods: Non-durable 19,129 2.8 19,343 3.3
Consumer goods: Durable 17,146 2.5 13,143 2.1
Capital Equipment 12,406 1.8 9,961 1.7
Construction & Building 12,081 1.8 5,362 0.9
Retail 11,686 1.7 12,880 2.1Media: Broadcasting & Subscription 8,958 1.3
9,426 1.6
Forest Products & Paper 8,937 1.3 6,954 1.2
Utilities: Oil & Gas 8,166 1.2 8,235 1.3Media: Diversified & Production 7,912 1.2
6,035 1.0
Metals & Mining 7,475 1.1 6,127 1.0
Transportation: Consumer 5,891 0.9 6,183 1.0
Wholesale 5,804 0.9 5,841 1.0
Transportation: Cargo 5,234 0.8 5,812 1.0
Energy: Electricity 3,820 0.6 4,547 0.8
Utilities: Electric 4,175 0.6 4,209 0.7
Energy: Oil & Gas 1,912 0.3 2,208 0.4
Environmental Industries 1,481 0.2 989 0.2
Total $ 673,434 100.0 % $ 592,020 100.0 %
91
Portfolio composition by geographic location at fair value
The following table shows our portfolio composition by geographic location at
fair value at May 31, 2021 and February 28, 2021 . The geographic composition is
determined by the location of the corporate headquarters of the portfolio
company.
May 31, 2021 February 28, 2021
Investments Percentage Investments Percentage
at of Total at of Total
Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Southeast $ 192,393 28.4 % $ 167,397 30.2 %
West 171,118 25.2 145,907 26.3
Midwest 114,942 17.0 110,125 19.9
Other 74,616 11.0 39,334 7.1
Northeast 39,931 5.9 13,174 2.4
Northwest 19,131 2.8 7,314 1.3
Southwest(1) 65,642 9.7 71,062 12.8
Total $ 677,773 100.0 % $ 554,313 100.0 %
(1) Comprised of our investment in the subordinated notes, Class F-R-2 Notes and
Class G-R-2 Notes of Saratoga CLO,
Warehouse 2, Ltd and foreign investments.
Results of operations
Operating results for the three months ended May 31, 2021 and May 31, 2020 was
as follows:
For the three months ended
May 31, 2021 May 31, 2020
($ in thousands)
Total investment income $ 16,816 $ 13,297
Total operating expenses 14,260 4,279
Net investment income 2,556 9,018
Net realized gain (loss) from investments 1,910 8
Income tax (provision) benefit from realized gain on
investments - -
Net change in unrealized appreciation (depreciation) on investments
16,813 (31,950 )
Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments
(230 ) 268
Net increase (decrease) in net assets resulting from
operations $ 21,049 $ (22,656 )
92
Investment income
The composition of our investment income for three months ended May 31, 2021 and
May 31, 2020 was as follows:
For the three months ended
May 31, 2021 May 31, 2020
($ in thousands)
Interest from investments $ 13,687 $ 12,150 Interest from cash and cash equivalents - 12 Management fee income 818 635 Structuring and advisory fee income 1,302 313 Other income 1,009 187 Total investment income$ 16,816 $ 13,297 For the three months endedMay 31, 2021 , total investment income increased$3.5 million , or 26.5% to$16.8 million from$13.3 million for the three months endedMay 31, 2020 . Interest income from investments increased$1.5 million , or 12.6%, to$13.7 million for the three months endedMay 31, 2021 from$12.2 million for the three months endedMay 31, 2020 . This reflects the impact of the increase of$195.0 million , or 40.3% in total investments atMay 31, 2021 from$482.9 million atMay 31, 2020 , offset by (i) the reduction in LIBOR during this same period and (ii) the increase in equity positions that are not interest-bearing. AtMay 31, 2021 , the weighted average current yield on investments was 8.6%, down from 9.6% atMay 31, 2020 , which offset some of the impact resulting from the increased investments.
For the three months ended
Management fee income reflects the fee income received for managing the Saratoga CLO. For the three months endedMay 31, 2021 andMay 31, 2020 , total management fee income was$0.8 million and$0.6 million , respectively, with the increase reflecting the upsizing of the CLO last quarter and greater management fees being earned on the increased assets under management in the CLO. For the three months endedMay 31, 2021 and 2020, total structuring and advisory fee income was$1.3 million and$0.3 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 months endedMay 31, 2021 and 2020, other income was$1.0 million and$0.2 million , respectively. Other income includes dividends received, origination fees and prepayment income fees and is recorded in the consolidated statements of operations when earned. 93 Operating expenses
The composition of our operating expenses for the three months ended
For the three months ended
May 31, 2021 May 31, 2020
($ in thousands)
Interest and debt financing expenses
2,759 2,160
Incentive management fees expense (benefit) 5,263 (1,858 ) Professional fees 507 387 Administrator expenses 694 556 Insurance 86 68 Directors fees and expenses 92 60
General & administrative and other expenses 491
351
Income tax expense (benefit) 28
(9 ) Total operating expenses$ 14,260 $ 4,279
For the three months ended
For the three months endedMay 31, 2021 , interest and debt financing expenses increased$1.8 million , or 69.3% compared to the three months endedMay 31, 2020 . The increase is primarily attributable to a increase in average outstanding debt from$217.4 million for the three months endedMay 31, 2020 to$286.2 million for the three months endedMay 31, 2021 , primarily reflecting the issuance of various Notes during the year endedFebruary 28, 2021 , including the 7.25% 2025 Notes, the 7.75% 2025 Notes and the 6.25% 2027 Notes, and the issuance of the 4.375% 2026 Notes during the quarter endedMay 31, 2021 . For the three months endedMay 31, 2021 , the weighted average interest rate on our outstanding indebtedness was 5.27% compared to 4.01% for the three months endedMay 31, 2020 . The increase in weighted average interest rate was primarily driven by the issuance of the various higher-rate Notes noted above over the past year.
As of
For the three months endedMay 31, 2021 , base management fees increased$0.6 million , or 27.7% from$2.2 million to$2.8 million compared to the three months endedMay 31, 2020 . The increase in base management fees results from the 27.7% increase in the average value of our total assets, less cash and cash equivalents, from$489.8 million for the three months endedMay 31, 2020 to$625.5 million for the three months endedMay 31, 2021 . For the three months endedMay 31, 2021 , incentive management fees increased$7.1 million , or 383.2%, compared to the three months endedMay 31, 2020 . The first part of the incentive management fees increased from$1.4 million for the three months endedMay 31, 2020 to$1.6 million for the three months endedMay 31, 2021 , reflecting the increased performance during this quarter. The incentive management fees related to capital gains increased from a$(3.3) million benefit for the three months endedMay 31, 2020 to a$3.7 million expense for the three months endedMay 31, 2021 , reflecting the incentive fee income on net unrealized depreciation recognized last year and the incentive fee expense on net unrealized appreciation this quarter across numerous investments.
For the three months ended
For the three months endedMay 31, 2021 , administrator expenses increased$0.1 million , or 24.7%, compared to the three months endedMay 31, 2020 . These increases during the period are primarily attributable to an increase to the cap on the payment or reimbursements of expenses by the Company. 94 As discussed above, the increase in interest and debt financing expenses for the three months endedMay 31, 2021 compared to the three months endedMay 31, 2020 is primarily attributable to a increase in the average dollar amount of outstanding debt. During the three months endedMay 31, 2021 andMay 31, 2020 , the average borrowings outstanding under the Credit Facility was$4.1 million and$0.0 million , respectively. For the three months endedMay 31, 2021 andMay 31, 2020 , the average borrowings outstanding of SBA debentures was$158.4 million and$157.4 million , respectively. For the three months endedMay 31, 2021 andMay 31, 2020 , the weighted average interest rate on the outstanding borrowings of the SBA debentures was 2.93% and 3.16%, respectively. During the three months endedMay 31, 2021 andMay 31, 2020 , the average dollar amount of our 6.25% fixed-rate 2025 Notes outstanding was$60.0 million and$60.0 million , respectively. During the three months endedMay 31, 2021 andMay 31, 2020 , the weighted average dollar amount of our 7.25% fixed-rate 2025 Notes outstanding was$43.1 million and$0.0 million , respectively. During the three months endedMay 31, 2021 andMay 31, 2020 , the weighted average dollar amount of our 7.75% fixed-rate 2025 Notes outstanding was$5.0 million and$0.0 million , respectively. During the three months endedMay 31, 2021 andMay 31, 2020 , the average dollar amount of our 6.25% fixed-rate 2027 Notes outstanding was$15.0 million and$0.0 million , respectively. During the three months endedMay 31, 2021 andMay 31, 2020 , the average dollar amount of our 4.375% fixed-rate 2026 Notes outstanding was$50.0 million and$0.0 million , respectively. For the three months endedMay 31, 2021 andMay 31, 2020 , there were income tax expense (benefits) of$0.03 million and$(0.01) million , respectively. This relates to net deferred federal and state income tax expense (benefit) with respect to operating gains and losses and income derived from equity investments held in the taxable blockers.
Net realized gains (losses) on sales of investments
For the three months endedMay 31, 2021 , the Company had$14.9 million of sales, repayments, exits or restructurings resulting in$1.9 million of net realized gains. Three Months ended May 31, 2021 Net Realized Issuer Asset Type Gross Proceeds Cost Gain (Loss) V Rental Holdings LLC Equity Interests$ 2,276,055 $ 365,914 $ 1,910,141
The
For the three months endedMay 31, 2020 , the Company had$9.4 million of sales, repayments, exits or restructurings resulting in$0.01 million of net realized gains.
Net change in unrealized appreciation (depreciation) on investments
For the three months endedMay 31, 2021 , our investments had a net change in unrealized appreciation of$16.8 million versus a net change in unrealized depreciation of$32.0 million for the three months endedMay 31, 2020 . The most significant cumulative net change in unrealized appreciation (depreciation) for the three months endedMay 31, 2021 were the following (dollars in thousands): Three Months ended May 31, 2021 Total YTD Change Unrealized in Unrealized Appreciation Appreciation Issuer Asset Type Cost Fair Value (Depreciation) (Depreciation) Saratoga Investment Structured Finance Corp. CLO 2013-1, Securities Ltd.$ 33,412 $ 35,546 $ 2,134 $ 4,531 Passageways, Inc. First Lien Term Loan & Equity Interests 10,954 17,598 6,645 4,333
Netreo Holdings, LLC First Lien Term
Loan & Equity
Interests 23,792 33,604 9,812 4,224
Schoox, Inc. Equity Interests 1,050 3,108 2,058 2,058
Loan & Equity
Interests 14,032 19,131 5,098 1,996
Top Gun Pressure First Lien Term
Washing, LLC Loan & Equity
Interests 10,902 10,731 (171 ) 896
Destiny Solutions First Lien Term
Inc. Loan & Equity
Interests 45,709 47,395 1,686 659
V Rental Holdings Equity Interests
LLC - - - (1,843 )
95
The
The
The
The
The
The
The
The
The most significant cumulative net change in unrealized appreciation for the
three months ended
Three Months ended May 31, 2020
Total YTD Change
Unrealized in Unrealized
Issuer Asset Type Cost Fair Value Appreciation Appreciation
Knowland Group, LLC Second Lien Term
Loans $ 15,379 $ 11,445 $ (3,934 ) $ (3,827 )
C2 Educational First Lien Term
Systems Loan 15,987 12,872 (3,115 ) (3,134 )
Saratoga Investment Structured Finance
Corp. CLO 2013-1, Securities
Ltd. 22,160 18,085 (4,075 ) (3,112 )
Elyria Foundry Second Lien Term
Company, L.L.C. Loan & Equity
Interests 10,921 1,417 (9,504 ) (1,759 )
Destiny Solutions First Lien Term
Inc. Loan & Equity
Interests 38,178 37,077 (1,101 ) (1,640 )
ArbiterSports, LLC First Lien Term
Loan 26,777 25,126 (1,651 ) (1,625 )
Village Realty First Lien Term
Holdings LLC Loan 11,025 9,763 (1,262 ) (1,390 )
Texas Teachers of First Lien Term
Tomorrow, LLC Loan & Equity
Interests 19,533 18,520 (1,013 ) (1,144 )
Identity Automation First Lien Term
Systems Loan & Equity
Interests 17,742 17,546 (196 ) (959 )
Kev Software Inc. First Lien Term
Loan 21,047 20,210 (837 ) (952 )
EMS LINQ, Inc. First Lien Term
Loan 14,771 13,875 (896 ) (939 )
inMotionNow, Inc. First Lien Term
Loan 14,084 13,273 (811 ) (935 )
CLEO Communications First Lien Term
Holding, LLC Loan 33,882 33,728 (154 ) (924 )
96
The net changes in unrealized depreciation noted above primarily relate to the impact of COVID-19, resulting in changes to market spreads, EBITDA multiples and/or revised portfolio company performance, following the events sinceMarch 2020 .
Changes in net assets resulting from operations
For the three months endedMay 31, 2021 , we recorded a net increase in net assets resulting from operations of$21.0 million . Based on 11,170,045 weighted average common shares outstanding as ofMay 31, 2021 , our per share net increase in net assets resulting from operations was$1.88 for the three months endedMay 31, 2021 . For the three months endedMay 31, 2020 , we recorded a net decrease in net assets resulting from operations of$22.7 million . Based on 11,217,545 weighted average common shares outstanding as ofMay 31, 2020 , our per share net decrease in net assets resulting from operations was$2.02 for the three months endedMay 31, 2020 .
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We intend to continue to generate cash primarily from cash flows from operations, including interest earned from our investments in debt in middle market companies, interest earned from the temporary investment of cash inU.S. government securities and other high-quality debt investments that mature in one year or less, future borrowings and future offerings of securities. Although we expect to fund the growth of our investment portfolio through the net proceeds from future equity offerings, including our dividend reinvestment plan ("DRIP"), and issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act, we cannot assure you that our plans to raise capital will be successful. In this regard, because our common stock has historically traded at a price below our current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we have been and may continue to be limited in our ability to raise equity capital. In addition, we intend to distribute to our stockholders substantially all of our 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 non-interested board of directors onApril 16, 2018 . This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 251.0% as ofMay 31, 2021 and 347.1% as ofFebruary 28, 2021 . 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.
Madison revolving credit facility
Below is a summary of the terms of the senior secured revolving credit facility we entered into withMadison Capital Funding LLC (the "Credit Facility") onJune 30, 2010 , which was most recently amended onSeptember 14, 2020 . (See Recent Developments). Availability. The Company can draw up to the lesser of (i)$40.0 million (the "Facility Amount") and (ii) the product of the applicable advance rate (which varies from 50.0% to 75.0% depending on the type of loan asset) and the value, determined in accordance with the Credit Facility (the "Adjusted Borrowing Value"), of certain "eligible" loan assets pledged as security for the loan (the "Borrowing Base"), in each case less (a) the amount of any undrawn funding commitments the Company has under any loan asset and which are not covered by amounts in the Unfunded Exposure Account referred to below (the "Unfunded Exposure Amount") and outstanding borrowings. Each loan asset held by the Company as of the date on which the Credit Facility was closed was valued as of that date and each loan asset that the Company acquires after such date will be valued at the lowest of its fair value, its face value (excluding accrued interest) and the purchase price paid for such loan asset. Adjustments to the value of a loan asset will be made to reflect, among other things, changes in its fair value, a default by the obligor on the loan asset, insolvency of the obligor, acceleration of the loan asset, and certain modifications to the terms of the loan asset. 97 The Credit Facility contains limitations on the type of loan assets that are "eligible" to be included in the Borrowing Base and as to the concentration level of certain categories of loan assets in the Borrowing Base such as restrictions on geographic and industry concentrations, asset size and quality, payment frequency, status and terms, average life, and collateral interests. In addition, if an asset is to remain an "eligible" loan asset, the Company may not make changes to the payment, amortization, collateral and certain other terms of the loan assets without the consent of the administrative agent that will either result in subordination of the loan asset or be materially adverse to the lenders. Collateral. The Credit Facility is secured by substantially all of the assets of the Company (other than assets held by our SBIC subsidiary) and includes the subordinated notes ("CLO Notes") issued by Saratoga CLO and the Company's rights under the CLO Management Agreement (as defined below). Interest Rate and Fees. Under the Credit Facility, funds are borrowed from or through certain lenders at the greater of the prevailing LIBOR rate and 1.00%, plus an applicable margin of 4.75%. At the Company's option, funds may be borrowed based on an alternative base rate, which in no event will be less than 2.00%, and the applicable margin over such alternative base rate is 3.75%. In addition, the Company pays the lenders a commitment fee of 0.75% per year on the unused amount of the Credit Facility for the duration of the Revolving Period (defined below). Accrued interest and commitment fees are payable monthly. The Company was also obligated to pay certain other fees to the lenders in connection with the closing of the Credit Facility. Revolving Period and Maturity Date. The Company may make and repay borrowings under the Credit Facility for a period of three years following the closing of the Credit Facility (the "Revolving Period"). The Revolving Period may be terminated at an earlier time by the Company or, upon the occurrence of an event of default, by action of the lenders or automatically. All borrowings and other amounts payable under the Credit Facility are due and payable in full five years after the end of the Revolving Period. Collateral Tests. It is a condition precedent to any borrowing under the Credit Facility that the principal amount outstanding under the Credit Facility, after giving effect to the proposed borrowings, not exceed the lesser of the Borrowing Base or the Facility Amount (the "Borrowing Base Test"). In addition to satisfying the Borrowing Base Test, the following tests must also be satisfied (together with Borrowing Base Test, the "Collateral Tests"):
? Interest Coverage Ratio. The ratio (expressed as a percentage) of interest
collections with respect to pledged loan assets, less certain fees and expenses
relating to the Credit Facility, to accrued interest and commitment fees and
any breakage costs payable to the lenders under the Credit Facility for the
last 6 payment periods must equal at least 175.0%.
? Overcollateralization Ratio. The ratio (expressed as a percentage) of the
aggregate Adjusted Borrowing Value of "eligible" pledged loan assets plus the
fair value of certain ineligible pledged loan assets and the CLO Notes (in each
case, subject to certain adjustments) to outstanding borrowings under the
Credit Facility plus the Unfunded Exposure Amount must equal at least 200.0%.
? Weighted Average FMV Test. The aggregate adjusted or weighted value of
"eligible" pledged loan assets as a percentage of the aggregate outstanding
principal balance of "eligible" pledged loan assets must be equal to or greater
than 72.0% and 80.0% during the one-year periods prior to the first and second
anniversary of the closing date, respectively, and 85.0% at all times
thereafter.
The Credit Facility also requires payment of outstanding borrowings or
replacement of pledged loan assets upon the Company's breach of its
representation and warranty that pledged loan assets included in the Borrowing
Base are "eligible" loan assets. Such payments or replacements must equal the
lower of the amount by which the Borrowing Base is overstated as a result of
such breach or any deficiency under the Collateral Tests at the time of
repayment or replacement. Compliance with the Collateral Tests is also a
condition to the discretionary sale of pledged loan assets by the Company.
Priority of Payments. During the Revolving Period, the priority of payments
provisions of the Credit Facility require, after payment of specified fees and
expenses and any necessary funding of the Unfunded Exposure Account, that
collections of principal from the loan assets and, to the extent that these are
insufficient, collections of interest from the loan assets, be applied on each
payment date to payment of outstanding borrowings if the Borrowing Base Test,
the Overcollateralization Ratio and the Interest Coverage Ratio would not
otherwise be met. Similarly, following termination of the Revolving Period,
collections of interest are required to be applied, after payment of certain
fees and expenses, to cure any deficiencies in the Borrowing Base Test, the
Interest Coverage Ratio and the Overcollateralization Ratio as of the relevant
payment date.
Reserve Account. The Credit Facility requires the Company to set aside an amount
equal to the sum of accrued interest, commitment fees and administrative agent
fees due and payable on the next succeeding three payment dates (or
corresponding to three payment periods). If for any monthly period during which
fees and other payments accrue, the aggregate Adjusted Borrowing Value of
"eligible" pledged loan assets which do not pay cash interest at least quarterly
exceeds 15.0% of the aggregate Adjusted Borrowing Value of "eligible" pledged
loan assets, the Company is required to set aside such interest and fees due and
payable on the next succeeding six payment dates. Amounts in the reserve account
can be applied solely to the payment of administrative agent fees, commitment
fees, accrued and unpaid interest and any breakage costs payable to the lenders.
98
Unfunded Exposure Account. With respect to revolver or delayed draw loan assets,
the Company is required to set aside in a designated account (the "Unfunded
Exposure Account") 100.0% of its outstanding and undrawn funding commitments
with respect to such loan assets. The Unfunded Exposure Account is funded at the
time the Company acquires a revolver or delayed draw loan asset and requests a
related borrowing under the Credit Facility. The Unfunded Exposure Account is
funded through a combination of proceeds of the requested borrowing and other
Company funds, and if for any reason such amounts are insufficient, through
application of the priority of payment provisions described above.
Operating Expenses. The priority of payments provision of the Credit Facility
provides for the payment of certain operating expenses of the Company out of
collections on principal and interest during the Revolving Period and out of
collections on interest following the termination of the Revolving Period in
accordance with the priority established in such provision. The operating
expenses payable pursuant to the priority of payment provisions is limited to
$350,000 for each monthly payment date or $2.5 million for the immediately
preceding period of twelve consecutive monthly payment dates. This ceiling can
be increased by the lesser of 5.0% or the percentage increase in the fair market
value of all the Company's assets only on the first monthly payment date to
occur after each one-year anniversary following the closing of the Credit
Facility. Upon the occurrence of a Manager Event (described below), the consent
of the administrative agent is required in order to pay operating expenses
through the priority of payments provision.
Events of Default. The Credit Facility contains certain negative covenants,
customary representations and warranties and affirmative covenants and events of
default. The Credit Facility does not contain grace periods for breach by the
Company of certain covenants, including, without limitation, preservation of
existence, negative pledge, change of name or jurisdiction and separate legal
entity status of the Company covenants and certain other customary covenants.
Other events of default under the Credit Facility include, among other things,
the following:
? an Interest Coverage Ratio of less than 150.0%;
? an Overcollateralization Ratio of less than 175.0%;
? the filing of certain ERISA or tax liens;
? the occurrence of certain "Manager Events" such as:
? failure by
collectively, directly or indirectly, a cash equity investment in the Company
in an amount equal to at least
anniversary of the closing date;
? failure of the Management Agreement between
the Company to be in full force and effect;
? 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
? 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
? occurrence of any event constituting "cause" under the Collateral Management
Agreement between the Company and Saratoga CLO (the "CLO Management
Agreement"), delivery of a notice under Section 12(c) of the CLO Management
Agreement with respect to the removal of the Company as collateral manager or
the Company ceases to act as collateral manager under the CLO Management Agreement.
Conditions to Acquisitions and Pledges of Loan Assets. The Credit Facility imposes certain additional conditions to the acquisition and pledge of additional loan assets. Among other things, the Company may not acquire additional loan assets without the prior written consent of the administrative agent until such time that the administrative agent indicates in writing its satisfaction withSaratoga Investment Advisors' policies, personnel and processes relating to the loan assets. Fees and Expenses. The Company paid certain fees and reimbursedMadison Capital Funding LLC for the aggregate amount of all documented, out-of-pocket costs and expenses, including the reasonable fees and expenses of lawyers, incurred byMadison Capital Funding LLC in connection with the Credit Facility and the carrying out of any and all acts contemplated thereunder up to and as of the date of closing of the stock purchase transaction withSaratoga Investment Advisors and certain of its affiliates. These amounts totaled$2.0 million .
99
On
? expand the borrowing capacity under the Credit Facility from
$45.0 million ;
? extend the period during which we may make and repay borrowings under the
Credit Facility from
Period"). The Revolving Period may, upon the occurrence of an event of default,
by action of the lenders or automatically, be terminated. All borrowings and
other amounts payable under the Credit Facility are due and payable five years
after the end of the Revolving Period; and
? remove the condition that we may not acquire additional loan assets without the
prior written consent of the administrative agent.
On
? extend the commitment termination date from
2017;
? extend the maturity date of the Revolving Facility from
? reduce the applicable margin rate on base rate borrowings from 4.50% to 3.75%,
and on LIBOR borrowings from 5.50% to 4.75%; and
? reduce the floor on base rate borrowings from 3.00% to 2.25%; and on LIBOR
borrowings from 2.00% to 1.25%.
On
? extend the commitment termination date from
2020;
? extend the final maturity date of the Credit Facility from
toSeptember 17, 2025 ;
? reduce the floor on base rate borrowings from 2.25% to 2.00%;
? reduce the floor on LIBOR borrowings from 1.25% to 1.00%; and
? reduce the commitment fee rate from 0.75% to 0.50% for any period during which
the ratio of advances outstanding to aggregate commitments, expressed as a
percentage, is greater than or equal to 50%.
On
? permit certain amendments related to the Paycheck Protection Program
("Permitted PPP Amendment") to Loan Asset Documents;
? exclude certain debt and interest amounts allowed by the Permitted PPP
Amendments from certain calculations related to Net Leverage Ratio, Interest
Coverage Ratio and EBITDA; and
? exclude such Permitted PPP Amendments from constituting a Material
Modification.
On
? extend the commitment termination date of the Credit Facility from September
17, 2020 to
September 17, 2025 .
? provide for the transition away from the LIBOR Rate in the market, and
? expand the definition of "Eligible Loan Asset" to allow investments with
certain recurring revenue features to qualify as Collateral and be included in
the borrowing base.
100
As of May 31, 2021 , we had $39.0 million outstanding borrowings under the Credit
Facility and $168.0 million of SBA-guaranteed debentures outstanding (which are
discussed below). As of February 28, 2021 , we had no outstanding borrowings
under the Credit Facility and $158.0 million of SBA-guaranteed debentures
outstanding. Our borrowing base under the Credit Facility at May 31, 2021 and
February 28, 2021 was $51.1 million and $38.9 million , respectively.
Our asset coverage ratio, as defined in the 1940 Act, was 251.0% as of
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. The new license will provide up to$175.0 million in additional long-term capital in the form of SBA-guaranteed debentures.The SBIC LP andSBIC II LP are regulated by the SBA. As a result of the 2016 omnibus spending bill signed into law inDecember 2015 , the maximum amount of SBA-guaranteed debentures that affiliated SBIC funds can have outstanding was increased from$225.0 million to$350.0 million . Our wholly-owned SBIC subsidiaries are able to borrow funds from the SBA against regulatory capital (which approximates equity capital) that is paid in and is subject to customary regulatory requirements including but not limited to an examination by the SBA. With this license approval, Saratoga 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 debt of our SBIC subsidiaries guaranteed by the SBA from the definition of senior securities in the asset coverage test under the 1940 Act. This allows us increased flexibility under the asset coverage test by permitting us to borrow up to$325.0 million more than we would otherwise be able to absent the receipt of this exemptive relief. OnApril 16, 2018 , as permitted by the Small Business Credit Availability Act, which was signed into law onMarch 23, 2018 , our non-interested board of directors approved of our becoming subject to a minimum asset coverage ratio of 150.0% from 200% under Sections 18(a)(1) and 18(a)(2) of the Investment Company Act, as amended. The 150.0% asset coverage ratio became effective onApril 16, 2019 . As ofMay 31, 2021 , ourSBIC LP subsidiary had$75.0 million in regulatory capital and$124.0 million in SBA-guaranteed debentures outstanding and ourSBIC II LP subsidiary had$84.0 million in regulatory capital and$44.0 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. 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 onJanuary 13, 2017 , which amounted to$61.8 million , and for general corporate purposes in accordance with our investment objective and strategies. OnDecember 21, 2019 andFebruary 7, 2020 , the Company redeemed$50.0 million and$24.5 million , respectively, in aggregate principal amount of the$74.5 million in aggregate principal amount of issued and outstanding 2023 Notes and are no longer listed on the NYSE. 101
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 aggregate principal amount of 6.25% 2025 Notes within 30 days. Interest on the 6.25% 2025 Notes is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 6.25% per year, beginningNovember 30, 2018 . The 6.25% 2025 Notes mature onAugust 31, 2025 and commencingAugust 28, 2021 , may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.6 million related to the 6.25% 2025 Notes have been capitalized and are being amortized over the term of the 6.25% 2025 Notes. The 6.25% 2025 Notes are listed on the NYSE under the trading symbol "SAF" with a par value of$25.00 per share. OnFebruary 5, 2019 , the Company completed a re-opening and up-sizing of its existing 6.25% 2025 Notes by issuing an additional$20.0 million in aggregate principal amount for net proceeds of$19.2 million after deducting underwriting commissions of approximately$0.6 million and discount of$0.2 million . Offering costs incurred were approximately$0.2 million . The issuance included the full exercise of the underwriters' option to purchase an additional$2.5 million aggregate principal amount of 6.25% 2025 Notes within 30 days. Interest rate, interest payment dates and maturity remain unchanged from the existing 6.25% 2025 Notes issued inAugust 2018 . The net proceeds from this offering were used for general corporate purposes in accordance with our investment objective and strategies. The financing costs and discount of$1.0 million related to the 6.25% 2025 Notes have been capitalized and are being amortized over the term of the 6.25% 2025 Notes.
AtMay 31, 2021 , the total 6.25% 2025 Notes outstanding was$60.0 million .
In connection with the issuance of the 6.25% 2025 Notes, we agreed to the following covenants for the period of time during which the notes are outstanding:
? we will not violate (whether or not we are subject to) Section 18(a)(1)(A) as
modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but
giving effect to any exemptive relief granted to us by the
provisions generally prohibit us from making additional borrowings, including
through the issuance of additional debt or the sale of additional debt
securities, unless our asset coverage, as defined in the 1940 Act, equals at
least 200% after such borrowings, or, if we obtain the required approvals from
our independent directors and/or stockholders, 150% (after deducting the amount
of such dividend, distribution or purchase price, as the case may be).
? we will not declare any dividend (except a dividend payable in our stock), or
declare any other distribution, upon a class of our capital stock, or purchase
any such capital stock, unless, in every such case, at the time of the
declaration of any such dividend or distribution, or at the time of any such
purchase, we have an asset coverage (as defined in the 1940 Act) of at least
150.0%, as such obligation may be amended or superseded, after deducting the
amount of such dividend, distribution or purchase price, as the case may be,
and in each case giving effect to (i) any exemptive relief granted to us by the
us if we determine to seek such similar no-action or other relief) permitting
the BDC to declare any cash dividend or distribution notwithstanding the
prohibition contained in Section 18(a)(1)(B) as modified by such provisions of
Section 61(a) of the 1940 Act as may be applicable to us from time to time, as
such obligation may be amended or superseded, in order to maintain such BDC's
status as a regulated investment company under Subchapter M of the Code.
? if, at any time, we are not subject to the reporting requirements of Sections
13 or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, to
file any periodic reports with the
6.25% 2025 Notes and the Trustee, for the period of time during which the 6.25%
2025 Notes are outstanding, our audited annual consolidated financial
statements, within 90 days of our fiscal year end, and unaudited interim
consolidated financial statements, within 45 days of our fiscal quarter end
(other than our fourth fiscal quarter). All such financial statements will be
prepared, in all material respects, in accordance with applicable
generally accepted accounting principles. 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 . Interest on the 7.25% 2025 Notes is paid quarterly in arrears onFebruary 28 ,May 31 ,August 31 andNovember 30 , at a rate of 7.25% per year, beginningAugust 31, 2020 . The 7.25% 2025 Notes mature onJune 30, 2025 and commencingJune 24, 2022 , may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.6 million related to the 7.25% 2025 Notes have been capitalized and are being amortized over the term of the 7.25% 2025 Notes. The Company has received an investment grade private rating of "BBB" fromEgan-Jones Ratings Company , an independent, unaffiliated rating agency. The 7.25% 2025 Notes are listed on the NYSE under the trading symbol "SAK" with a par value of$25.00 per share. AtNovember 30, 2020 , the total 7.25% 2025 Notes outstanding was$43.1 million . 102
OnJuly 9, 2020 , the Company issued$5.0 million 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 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 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 Notes. OnJanuary 28, 2021 , the Company issued$10.0m 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 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 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 6.25% Notes 2027 have been capitalized and are being amortized over the term of the Notes. AtMay 31, 2021 , the total 6.25% 2025 Notes outstanding was$15.0 million . OnMarch 10, 2021 , the Company issued$50.0m 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 or from time to time at the Company's option at par plus a "make-whole" premium, if applicable. The net proceeds from the offering were used for general corporate purposes in accordance with our investment objective and strategies. Financing costs of$1.2 million related to the 4.375% Notes 2026 have been capitalized and are being amortized over the term of the Notes.
At
AtMay 31, 2021 andFebruary 28, 2021 , the fair value of investments, cash and cash equivalents and cash and cash equivalents, reserve accounts were as follows: May 31, 2021 February 28, 2021 Percentage of Percentage of Fair Value Total Fair Value Total ($ in thousands) Cash and cash equivalents$ 318 0.0 %$ 18,828 3.2 % Cash and cash equivalents, reserve accounts 19,660
2.8 11,087 1.9 First lien term loans 516,154 74.0 440,456 75.4 Second lien term loans 25,422 3.6 24,930 4.3 Unsecured term loans 2,169 0.3 2,141 0.4
Structured finance securities 53,421
7.7 49,779 8.5 Equity interests 80,607 11.6 37,007 6.3 Total$ 697,751 100.0 %$ 584,228 100.0 % 103 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. OnMarch 16, 2017 , we entered into an equity distribution agreement withLadenburg Thalmann & Co. Inc. , through which we may offer for sale, from time to time, up to$30.0 million of our common stock through an ATM offering. Subsequent to this,BB&T Capital Markets andB. Riley FBR, Inc. were also added to the agreement. OnJuly 11, 2019 , the amount of the common stock to be offered through this offering was increased to$70.0 million , and onOctober 8, 2019 , the amount of the common stock to be offered was increased to$130.0 million . As ofMay 31, 2021 , the Company sold 3,922,018 shares for gross proceeds of$97.1 million at an average price of$24.77 for aggregate net proceeds of$95.9 million (net of transaction costs). During the three months endedMay 31, 2021 , there was no activity related to the ATM offering. 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. As ofMay 31, 2021 , the Company purchased 448,812 shares of common stock, at the average price of$18.49 for approximately$8.3 million pursuant to the Share Repurchase Plan. During the three months endedMay 31, 2021 , the Company purchased 40,000 shares of common stock, at the average price of$25.09 for approximately$1.0 million pursuant to the Share Repurchase Plan. 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 33,099 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. 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. 104
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. 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. 105 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. 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 and
September 1 and 2, 2016. 106 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. 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. 107
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 shareholderswho 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 shareholderswho 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 shareholderswho 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. 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 shareholderswho 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 shareholderswho elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of$1.5099 per share, which equaled 95% of the volume weighted average trading price per share of the common stock onDecember 24 and 28, 2009.
We cannot provide any assurance that these measures will provide sufficient sources of liquidity to support our operations and growth.
108
Contractual obligations
The following table shows our payment obligations for repayment of debt and
other contractual obligations at
Payment Due by Period
Less Than 1 More Than 5
Long-Term Debt Obligations Total Year 1 - 3 Years 3 - 5 Years Years
($ in thousands)
Revolving credit facility $ 39,000 $ - $ - $ 39,000 $ -
SBA debentures 168,000 - 24,000 53,660 90,340
6.25% 2025 Notes 60,000 - - 60,000 -
7.25% 2025 Notes 43,125 - - 43,125 -
7.75% 2025 Notes 5,000 - - 5,000 -
4.375% 2026 Notes 50,000 - - 50,000 -
6.25% 2027 Notes 15,000 - - - 15,000
Total Long-Term Debt Obligations
Off-balance sheet arrangements
As ofMay 31, 2021 andFebruary 28, 2021 , the Company's off-balance sheet arrangements consisted of$55.0 million and$58.8 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
May 31, 2021 February 28, 2021
At Company's discretion
Artemis Wax Corp. $ 15,000 $ -
Book4Time, Inc. 2,000 2,000
CLEO Communications Holding, LLC 630 630
Granite Comfort, LP 5,000 -
GreyHeller LLC 11,000 15,000
Netreo Holdings, LLC 1,000 10,000
Passageways, Inc. 5,000 5,000
Top Gun Pressure Washing, LLC 175 3,175
Village Realty Holdings LLC - 10,000
Total 39,805 45,805
At portfolio company's discretion - satisfaction of certain
financial and nonfinancial covenants required
3,404 -
GoReact 800 2,000
HemaTerra Holding Company, LLC 2,000 2,000
New England Dental Partners 4,500 6,000
Passageways, Inc. 2,000 2,000
Procurement Partners, LLC 1,000 1,000
Zollege PBC 1,500 -
15,204 13,000
Total $ 55,009 $ 58,805
109
Recent Developments
Subsequent toMay 31, 2020 , the global outbreak of the coronavirus pandemic has adversely affected some of the Company's investments and continues to have adverse consequences on theU.S. and global economies. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual portfolio companies, remains uncertain. At the time of this filing, there is no indication of a reportable subsequent event impacting the Company's financial statements for the three months endedMay 31, 2021 . The Company cannot predict the extent to which its financial condition and results of operations will be adversely affected at this time. The potential impact to our results will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of COVID-19. The Company continues to observe and respond to the evolving COVID-19 environment and its potential impact on areas across its business.
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