Saratoga(SAR) - 2025 Q3 - Quarterly Report

Investment Strategy and Portfolio - The company has elected to be regulated as a Business Development Company (BDC) under the Investment Company Act of 1940, aiming for attractive risk-adjusted returns through investments primarily in senior and unitranche leveraged loans and mezzanine debt issued by U.S. middle-market companies with EBITDA between $2 million and$50 million [412]. - The company has the ability to invest up to 30.0% of its portfolio in opportunistic investments to enhance returns, which may include distressed debt and private equity [412]. - The company’s SBIC subsidiaries can provide up to $175.0 million in long-term capital through SBA-guaranteed debentures, with a recent merger allowing access to all undistributed capital [415]. - The company and TJHA have committed to provide up to$50.0 million of financing to SLF JV, with the company providing $43.75 million, resulting in an 87.5$17.6 million and membership interests valued at $17.6 million, with fair values of$16.2 million and $4.8 million as of November 30, 2024 [423]. - The company’s unsecured loan to SLF 2022 was paid in full on June 9, 2023, after being fully repaid on October 28, 2022, as part of the CLO closing [424]. - The fair value of Class E Notes purchased by the company was$12.3 million as of both November 30, 2024 and February 29, 2024 [426]. - The company has identified investment valuation, revenue recognition, and capital gains incentive fee expense as critical accounting estimates [427]. - As of November 30, 2024, the investment portfolio consisted of 133 investments across 48 portfolio companies, with an average investment per company of $19.6 million [462]. - The Company's portfolio composition as of November 30, 2024, included 86.8$2.7 million as of November 30, 2024 [462]. - The weighted average maturity of the investment portfolio was 2.3 years as of November 30, 2024 [462]. - As of November 30, 2024, 98.1% of the Saratoga CLO portfolio investments had a CMR color rating of green or yellow, with two investments in default valued at $0.04 million [469]. - The CMR distribution for Saratoga Investment Corp. shows that 89.3$1,138.8 million on February 29, 2024, to $960.1 million on November 30, 2024 [472]. - The healthcare services sector represented 8.7$525.7 million, with 91.4% rated green as of November 30, 2024 [473]. Financial Performance - During the three months ended November 30, 2024, the Company invested $84.4 million in new and existing portfolio companies, resulting in net investments of$(76.0) million for the period [464]. - For the nine months ended November 30, 2024, the Company invested $126.3 million in new and existing portfolio companies, leading to net investments of$(169.9) million [465]. - Total investment income for the three months ended November 30, 2024 decreased by $0.5 million, or 1.3$35.9 million compared to $36.3 million for the same period in 2023 [483]. - For the nine months ended November 30, 2024, total investment income increased by$11.1 million, or 10.4%, to $117.6 million from$106.5 million for the same period in 2023 [484]. - Interest income from investments for the three months ended November 30, 2024 decreased by $1.9 million, or 5.8$30.8 million compared to $32.7 million for the same period in 2023 [483]. - Total operating expenses for the three months ended November 30, 2024 increased by$1.3 million, or 5.7%, to $23.4 million compared to$22.2 million for the same period in 2023 [493]. - Interest and debt financing expenses for the three months ended November 30, 2024 increased by $0.5 million, or 4.2$2.5 million, or 6.8%, compared to the same period in 2023 [495]. - Incentive management fees for the nine months ended November 30, 2024 increased by $6.4 million, or 132.9$1.1 million, down from $1.8 million for the same period in 2023 [489]. - Other income for the three months ended November 30, 2024 was$0.9 million, up from $0.2 million for the same period in 2023 [492]. - The net increase in net assets resulting from operations for the three months ended November 30, 2024, was$8.8 million, translating to a per share increase of $0.64 based on 13,789,951 weighted average common shares outstanding [535]. - For the nine months ended November 30, 2024, the net increase in net assets resulting from operations was$28.8 million, with a per share increase of $2.09 based on 13,733,008 weighted average common shares outstanding [536]. Debt and Financing - The Encina Credit Facility allows for a commitment increase to up to$75.0 million, with a minimum drawn amount of $12.5 million, and the maturity date extended to January 27, 2026 [418]. - The Live Oak Credit Facility was closed with a commitment amount of up to$150.0 million, requiring a minimum drawn amount of $12.5 million, and was amended to increase borrowings available from$50.0 million to $75.0 million [420]. - The average borrowings under the Encina Credit Facility for the three months ended November 30, 2024 were$33.3 million with an interest rate of 9.73%, compared to $38.9 million and 9.62$214.0 million with a weighted average interest rate of 3.30%, compared to $200.4 million and 3.25$20.0 million with an interest rate of 9.00%, compared to $0.0 million and 0.0$5.0 million [581]. - The total amount of 6.25% 2027 Notes outstanding as of November 30, 2024, was $15.0 million [584]. - The total amount of 4.375$175.0 million [587]. - The total amount of 4.35% 2027 Notes outstanding as of November 30, 2024, was $75.0 million [589]. - The total amount of 6.00$105.5 million [593]. - The total amount of 7.00% 2025 Notes outstanding as of November 30, 2024, was $12.0 million [595]. - The total amount of 8.00$46.0 million [597]. - The total amount of 8.125% 2027 Notes outstanding as of November 30, 2024, was $60.4 million [600]. - On March 31, 2023, the company issued$10.0 million in 8.75% fixed-rate notes due 2024, with net proceeds of $9.7 million after underwriting discounts of approximately$0.4 million [601]. - As of November 30, 2024, the total amount of 8.75% 2025 Notes outstanding was $20.0 million [602]. - On April 14, 2023, the company issued$50.0 million in 8.50% fixed-rate notes due 2028, with net proceeds of $48.4 million after underwriting commissions of approximately$1.6 million [603]. - As of November 30, 2024, the total amount of 8.50% 2028 Notes outstanding was $57.5 million [604]. - The company capitalized financing costs of$0.7 million related to the 8.75% 2025 Notes, amortized over the term of the notes [601]. - The company capitalized financing costs of $2.0 million related to the 8.50$20.6 million unrealized depreciation in its investment in Pepper Palace, Inc., primarily due to declines in company performance [529]. - The unrealized depreciation in Netreo Holdings, LLC amounted to $11.5 million, driven by increased company leverage and decreased performance [530]. - The restructuring of the investment in Pepper Palace, Inc. resulted in a$31.6 million net change in unrealized appreciation, reversing previously recognized unrealized depreciation [520]. - The investment in Zollege PBC saw a $16.3 million net change in unrealized appreciation due to restructuring, reversing previously recognized unrealized depreciation [521]. - The net change in unrealized appreciation for the nine months ended November 30, 2024 was$33.7 million, compared to a net change in unrealized depreciation of $39.9 million for the same period in 2023 [518]. - The asset coverage ratio was 160.1$350.0 million under the asset coverage test [578]. - The company intends to fund growth through net proceeds from future equity offerings, including a dividend reinvestment plan and an equity ATM program [538]. - The company anticipates needing to raise additional capital from various sources to fund growth in its investment portfolio [540]. - The company incurred $0.8 million in fees related to the Live Oak Credit Facility [571]. - The operating expenses payable under both credit facilities are limited to$200,000 per annum [567]. - The Encina Credit Agreement does not allow grace periods for breaches of negative covenants, including those related to the preservation of the company's existence [554]. - The company increased borrowings available under the Encina Credit Facility from $50.0 million to$65.0 million, and extended the revolving period to January 27, 2026 [556]. - The Live Oak Credit Facility requires an Interest Coverage Ratio of at least 175% and an Overcollateralization Ratio of at least 200% [569]. - The company’s SBIC subsidiaries can borrow up to $175.0 million of SBA debentures if they have at least$87.5 million in regulatory capital [577]. - As of November 30, 2024, SBIC II LP had $87.5 million in regulatory capital and$175.0 million in SBA-guaranteed debentures outstanding, while SBIC III LP had $66.7 million in regulatory capital and$39.0 million in SBA-guaranteed debentures outstanding [579].