Saratoga(SAR) - 2025 Q4 - Annual Report

Investment Strategy - The company has invested primarily in senior and unitranche leveraged loans and mezzanine debt issued by private U.S. middle-market companies, defined as those with EBITDA between $2 million and $50 million[360]. - The company has the ability to invest up to 30.0% of its portfolio in opportunistic investments to enhance returns, including distressed debt and structured finance vehicles[360]. - The company has no current intention to invest in private equity funds exceeding 15.0% of its net assets[360]. - The company’s SBIC subsidiaries provide up to $175.0 million in long-term capital in the form of debentures guaranteed by the SBA[363]. Financing Activities - The company completed the fourth refinancing of the Saratoga CLO, increasing its assets from $500 million to approximately $650 million and investing an additional $14.0 million in subordinated notes[364]. - The company formed Saratoga Investment Funding II LLC to enter into a $50.0 million senior secured revolving credit facility, which can be increased to $75.0 million within the first two years[366]. - The Live Oak Credit Facility was closed with a commitment of $50.0 million, which can be increased to $75.0 million, and bears interest at a floating rate of Adjusted Term SOFR plus an applicable margin[368]. - The company and TJHA have committed to provide up to a combined $50.0 million of financing to SLF JV, with the company contributing $43.75 million[371]. Investment Performance - The company’s investment in SLF JV includes an unsecured note with a fair value of $16.5 million as of February 28, 2025[371]. - The fair value of Class E Notes held by the company was $12.3 million as of February 28, 2025, and February 29, 2024[374]. - The company expects its debt investments to have terms of up to ten years and to bear interest at either a fixed or floating rate[384]. - The Saratoga CLO portfolio increased from approximately $300.0 million to approximately $500.0 million following the third refinancing[386]. - Non-performing or delinquent investments at fair value decreased to $2.6 million as of February 28, 2025, from $18.9 million in the previous year[404]. Financial Results - Total investment income for the fiscal year ended February 28, 2025, was $148.855 million, an increase from $143.720 million in 2024[422]. - Net investment income decreased to $53.003 million in 2025 from $56.874 million in 2024[422]. - The total operating expenses rose to $95.852 million in 2025, compared to $86.846 million in 2024[422]. - The net change in unrealized appreciation on investments was $18.974 million in 2025, a significant recovery from a depreciation of $47.091 million in 2024[422]. Dividends and Shareholder Returns - The company distributed dividends totaling $1.49 per share for the tax year ended February 28, 2026, and $3.30 per share for the tax year ended February 28, 2025[548]. - The company repurchased 1,035,203 shares of common stock at an average price of $22.05 for approximately $22.8 million as of February 28, 2025[542]. - The company extended its Share Repurchase Plan to January 15, 2026, allowing for the repurchase of up to 1.7 million shares[542]. - The company amended its Equity Distribution Agreement to increase the maximum amount of shares to be sold through the ATM Program to $300.0 million[546]. Debt and Borrowing - The average borrowings outstanding under Credit Facilities were approximately $33.1 million for the fiscal year ended February 28, 2025, with a weighted average interest rate of 9.49%[443]. - The average borrowings outstanding of SBA debentures was $213.8 million for the fiscal year ended February 28, 2025, with a weighted average interest rate of 3.32%[444]. - The Encina Credit Facility has a commitment amount of $50.0 million, with specific eligibility criteria for loan assets included in the Borrowing Base[489]. - The company increased the borrowings available under the Encina Credit Facility from $50.0 million to $65.0 million, and the effective margin rate on borrowings increased from 4.00% to 4.25%[501]. Accounting and Valuation - The company has identified investment valuation, revenue recognition, and capital gains incentive fee expense as its most critical accounting estimates[375]. - The company is currently evaluating the impact of new accounting standards issued by the FASB, including ASU 2023-09 and ASU 2024-03, which require more detailed disclosures on income taxes and expenses[401][402]. - Interest income on the investment in Saratoga CLO is recorded using the effective interest method based on anticipated yield and estimated cash flows[392]. Market and Economic Conditions - The portfolio composition by industry grouping indicated a significant increase in Healthcare Services from 4.5% in 2024 to 8.5% in 2025[416]. - The Midwest region accounted for 37.3% of total investments at fair value in 2025, up from 23.3% in 2024[421].