Saratoga(US:SAR)2025-10-07 20:02Investment Strategy - The company has elected to be regulated as a Business Development Company (BDC) under the Investment Company Act of 1940, aiming to generate attractive risk-adjusted returns through investments in senior and unitranche leveraged loans and mezzanine debt from U.S. middle-market companies with EBITDA between $2 million and $50 million [407]. - 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 structured finance vehicles [407]. - The company generates revenue from interest income and capital gains on debt investments, with terms of up to ten years [431]. Financing and Credit Facilities - The company’s SBIC subsidiaries received licenses from the SBA, providing up to $175.0 million in long-term capital through debentures guaranteed by the SBA [409]. - The Encina Credit Facility allows for a commitment amount increase to up to $75.0 million, with a minimum drawn amount of $12.5 million during the first six months [411]. - 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 based on Adjusted Term SOFR plus a margin of 3.50% to 4.25% [412]. - The company has adequate liquidity to support its near-term capital requirements due to diverse capital sources available [524]. - The company is required to maintain an Interest Coverage Ratio of at least 175% and an Overcollateralization Ratio of at least 200% under the Encina Credit Facility [532]. Investment Performance - The total portfolio value as of August 31, 2025, was $995.3 million, a decrease from $1,040.7 million at August 31, 2024 [473]. - The weighted average current yield on investments decreased to 10.4% as of August 31, 2025, down from 11.5% at August 31, 2024 [474]. - The company invested an additional $14.0 million in newly issued subordinated notes of the Saratoga CLO during the fourth refinancing [435]. - The company recorded a net increase in net assets resulting from operations of $13.3 million for the three months ended August 31, 2025, with a per share increase of $0.84 based on 15,775,387 shares outstanding [517]. Income and Expenses - Total investment income for the three months ended August 31, 2025, decreased by $12.4 million, or 28.8%, to $30.6 million from $43.0 million for the same period in 2024 [472]. - Interest income from investments for the three months ended August 31, 2025, decreased by $13.0 million, or 33.0%, to $26.4 million compared to $39.4 million for the same period in 2024 [473]. - Total operating expenses decreased by $3.3 million, or 13.2%, to $21.5 million for the three months ended August 31, 2025, compared to $24.8 million in 2024 [482]. - Incentive management fees decreased by $2.3 million, or 50.4%, to $2.3 million for the three months ended August 31, 2025, reflecting a decrease in net investment income [488]. Dividends and Shareholder Returns - The company distributed dividends totaling $2.24 per share for the tax year ended February 28, 2026, with payments made on various dates [584]. - The company has a 90% distribution requirement to qualify as a RIC, failing which it would be subject to U.S. federal income tax on taxable income [584]. - The company has consistently paid dividends over the years, with the highest dividend recorded at $18.25 per share for the tax year ended February 29, 2020 [587]. - The dividend payment on September 24, 2025, was $0.25 per share, part of a consistent dividend distribution strategy [584]. Market Risks and Management - Interest rate fluctuations are identified as the principal market risk for the company, necessitating robust risk management systems and procedures [599]. - The company has established policies and thresholds to continually monitor market risks, particularly related to interest rates [599]. - The company is focused on ensuring adequate asset coverage to satisfy its unfunded commitments [598].