Saratoga(US:SAR)2026-01-07 21:01Investment 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 [431]. - 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 [431]. - The company has committed to provide up to $50.0 million of financing to SLF JV, with an ownership distribution of 87.5% and 12.5% between the company and TJHA, respectively [438]. - The company’s investment strategy is impacted by various risks, including interest rate volatility, inflation, and geopolitical conditions, which could materially affect financial performance [426]. - The company has no current intention to invest in private equity funds exceeding 15.0% of its net assets, adhering to regulatory definitions under the Investment Company Act [431]. - As of November 30, 2025, the company had 103 investments and 46 portfolio companies, with an average investment per portfolio company of $20.0 million [476]. - During the three months ended November 30, 2025, the company invested $72.1 million in new and existing portfolio companies, resulting in net investments of $(16.2) million for the period [480]. - The portfolio composition at November 30, 2025, included 83.9% in first lien term loans with a weighted average current yield of 10.4% [483]. - At November 30, 2025, 87.0% of the investments had a green CMR color rating, indicating performing credit [488]. Financial Performance - Total investment income for the three months ended November 30, 2025, decreased by $4.2 million, or 11.8%, to $31.6 million from $35.9 million for the same period in 2024 [499]. - Interest income from investments for the nine months ended November 30, 2025, decreased by $23.3 million, or 22.3%, to $81.1 million from $104.4 million for the same period in 2024 [500]. - The weighted average current yield on investments decreased to 9.7% as of November 30, 2025, down from 10.8% at November 30, 2024 [500]. - Net investment income for the three months ended November 30, 2025, was $9.8 million, down from $12.4 million for the same period in 2024 [497]. - The total portfolio value at fair value as of November 30, 2025, was $1,015.95 million, an increase from $978.08 million as of February 28, 2025 [496]. - The healthcare services sector represented 9.2% of the total portfolio as of November 30, 2025, up from 8.5% as of February 28, 2025 [492]. - The banking, finance, insurance, and real estate sector accounted for 19.4% of Saratoga CLO's portfolio as of November 30, 2025, down from 20.9% as of February 28, 2025 [493]. Expenses and Fees - Primary operating expenses include investment advisory fees and costs related to NAV calculations and independent valuations [469]. - Total operating expenses for the three months ended November 30, 2025, were $21.9 million, compared to $23.4 million for the same period in 2024 [497]. - Total operating expenses for the nine months ended November 30, 2025, decreased by $7.0 million, or 9.7%, to $65.6 million compared to $72.6 million for the same period in 2024 [509]. - Interest and debt financing expenses decreased by $1.1 million, or 9.1%, to $11.9 million for the three months ended November 30, 2025, primarily due to an 8.8% decrease in average outstanding debt [510]. - Base management fees for the three months ended November 30, 2025, increased by $0.02 million, or 0.5%, to $4.43 million compared to the same period in 2024 [513]. - Incentive management fees for the three months ended November 30, 2025, decreased by $0.7 million, or 21.3%, to $2.4 million compared to $3.1 million for the same period in 2024 [515]. Debt and Financing - The company has committed $50 million in financing to SLF JV, with a 10% fixed-rate unsecured note due in 2033 [467]. - The Encina Credit Facility allowed borrowings up to $65.0 million, with a minimum drawn amount of $25.0 million effective from April 5, 2022 [556][559]. - The company intends to distribute substantially all of its operating taxable income to satisfy RIC distribution requirements, potentially utilizing stock distributions [551]. - The Live Oak Credit Facility has an initial facility amount of $50.0 million, maturing on March 27, 2027 [570]. - As of November 30, 2025, there was $37.5 million in outstanding borrowings under the Live Oak Credit Facility, with a borrowing base of $81.9 million [584]. - The Valley Credit Facility has an initial facility amount of $85.0 million, maturing on November 6, 2028 [585]. - The Valley Credit Facility requires a minimum drawn amount of the greater of $25.0 million or 38% of the facility amount [588]. - Advances under the Live Oak Credit Facility bear interest at a floating rate of the greater of Adjusted Term SOFR and 0.75%, plus a margin of 3.50% to 4.25% [575]. - The Live Oak Credit Facility requires an Interest Coverage Ratio of at least 175% and an Overcollateralization Ratio of at least 200% [581]. - The priority of payments provisions for both credit facilities limit operating expenses to $200,000 per annum [579][593]. Unrealized Gains and Losses - The net change in unrealized appreciation for the nine months ended November 30, 2025, was $4.1 million, compared to $33.7 million for the same period in 2024 [532]. - The most significant unrealized appreciation for the nine months ended November 30, 2025, was a $4.9 million increase in the investment in Zollege PBC due to improved company performance [533]. - The company experienced a $34.0 million net realized loss from the restructuring of its investment in Pepper Palace, Inc. [531]. - The company recorded a $15.1 million net realized loss from the restructuring of its investment in Zollege PBC for the nine months ended November 30, 2024 [528]. - The company had a net change in unrealized depreciation of $1.1 million in its investment in Identity Automation Systems due to the sale of the equity position [536]. - The company recorded a $2.2 million net change in unrealized depreciation in its investment in Saratoga Investment Corp. CLO driven by the performance of individual credits in the CLO portfolio [534]. Regulatory and Compliance - The company’s SBIC subsidiaries received licenses from the SBA, providing up to $175.0 million in long-term capital in the form of debentures guaranteed by the SBA [433]. - The company is evaluating the impact of new accounting standards, including ASU 2023-09 and ASU 2024-03, on its consolidated financial statements [473][474]. - The company received exemptive relief from the SEC, allowing it to borrow up to $350.0 million more than previously permitted [602].