Saratoga(SAR) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Consolidated Financial Statements This section presents Saratoga Investment Corp.'s unaudited consolidated financial statements as of November 30, 2021, and for the three and nine months then ended, including statements of assets, operations, net assets, cash flows, investment schedules, and explanatory notes Consolidated Statements of Assets and Liabilities Total assets increased to $811.7 million by November 30, 2021, driven by investments and cash, leading to a rise in total net assets to $342.6 million and NAV per share to $29.17 Consolidated Statements of Assets and Liabilities Highlights | Metric | November 30, 2021 | February 28, 2021 | | :--- | :--- | :--- | | Total Investments at Fair Value | $661.8 million | $554.3 million | | Cash and Cash Equivalents | $120.9 million | $18.8 million | | Total Assets | $811.7 million | $592.2 million | | Total Liabilities | $469.1 million | $288.0 million | | Total Net Assets | $342.6 million | $304.2 million | | NAV Per Share | $29.17 | $27.25 | Consolidated Statements of Operations Net Investment Income for Q3 2021 was $5.2 million, with a $8.3 million net increase in net assets from operations, and a nine-month increase of $37.3 million or $3.30 per share, significantly up from the prior year Key Operating Results (unaudited) | Metric | Q3 2021 (3 months) | Q3 2020 (3 months) | YTD 2021 (9 months) | YTD 2020 (9 months) | | :--- | :--- | :--- | :--- | :--- | | Total Investment Income | $16.5M | $14.3M | $51.8M | $41.4M | | Net Investment Income | $5.2M | $4.5M | $14.1M | $18.8M | | Net Realized and Unrealized Gain (Loss) | $3.9M | $1.9M | $25.5M | ($13.3M) | | Net Increase in Net Assets | $8.3M | $6.4M | $37.3M | $5.5M | | Earnings (Loss) Per Share | $0.73 | $0.57 | $3.30 | $0.49 | Consolidated Statements of Changes in Net Assets Net assets increased by $38.4 million for the nine months ended November 30, 2021, driven by operations and capital share transactions, partially offset by shareholder distributions, contrasting with a prior year decrease Changes in Net Assets for the Nine Months Ended November 30 | Category | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Increase from Operations | $37,330,286 | $5,521,006 | | Distributions to Shareholders | ($15,599,129) | ($9,068,484) | | Net Increase from Capital Share Transactions | $16,684,818 | ($886,485) | | Total Increase (Decrease) in Net Assets | $38,415,975 | ($4,433,963) | | Net Assets, Beginning of Period | $304,185,770 | $304,286,853 | | Net Assets, End of Period | $342,601,745 | $299,852,890 | Consolidated Statements of Cash Flows Net cash used in operating activities was $56.9 million, offset by $171.1 million from financing, resulting in a $114.2 million net increase in cash and equivalents, totaling $144.1 million at period end Cash Flow Summary for the Nine Months Ended November 30 | Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($56,932,682) | ($66,971,071) | | Net Cash Provided by Financing Activities | $171,086,080 | $61,417,606 | | Net Increase (Decrease) in Cash | $114,153,398 | ($5,553,465) | | Cash and Equivalents, End of Period | $144,068,472 | $33,896,887 | Consolidated Schedules of Investments Total investments at fair value reached $661.8 million by November 30, 2021, diversified across industries like Healthcare Software and IT Services, categorized by control level Investment Portfolio Summary (at Fair Value) | Investment Category | November 30, 2021 | February 28, 2021 | | :--- | :--- | :--- | | Non-control/Non-affiliate | $546.8 million | $469.9 million | | Affiliate | $40.4 million | $19.4 million | | Control | $74.6 million | $65.0 million | | Total Investments | $661.8 million | $554.3 million | - As of November 30, 2021, the portfolio consisted of investments in various industries, with the largest concentrations in Healthcare Software (25.3% of net assets), Healthcare Services (12.3%), and Structured Finance Securities (11.8%)[25][28] Notes to Consolidated Financial Statements This section details accounting policies, investment valuation, CLO investments, income tax, related party agreements, borrowings, equity transactions, and dividend declarations Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, covering company overview, accounting policies, investment portfolio analysis, operational performance, liquidity, capital resources, and recent developments including COVID-19 impacts - The company's investment objective is to generate current income and long-term capital appreciation by investing primarily in senior and unitranche leveraged loans and mezzanine debt of private U.S. middle-market companies with EBITDA between $2 million and $50 million[282] - The COVID-19 pandemic presents material uncertainty and risks to the value of portfolio companies and the company's overall financial condition, though economic activity has improved since the beginning of the pandemic[285] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation, impacting floating-rate investment income and liabilities; a 100 basis point rate increase would boost net investment income by approximately $0.5 million annually - The company's primary market risk is interest rate volatility, as a large portion of its investment portfolio consists of floating-rate loans[499][500] Interest Rate Sensitivity Analysis (Annualized) | Basis Point Change | (Increase) Decrease in Interest Income | (Increase) Decrease in Interest Expense | Increase (Decrease) in Net Investment Income | | :--- | :--- | :--- | :--- | | -100 | ($16,000) | $0 | ($16,000) | | +100 | $544,000 | ($43,000) | $501,000 | | +200 | $4,278,000 | ($168,000) | $4,110,000 | | +300 | $9,558,000 | ($293,000) | $9,265,000 | Controls and Procedures Management, including CEO and CFO, concluded that disclosure controls and procedures were effective as of November 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[507] - No material changes in the company's internal control over financial reporting occurred during the quarter ended November 30, 2021[507] PART II. OTHER INFORMATION Legal Proceedings The company and its wholly owned subsidiaries are not currently subject to any material legal proceedings - As of the reporting date, neither Saratoga Investment Corp. nor its subsidiaries were involved in any material legal proceedings[509] Risk Factors This section highlights material risks, including the impact of LIBOR decommissioning on interest rates and the ongoing COVID-19 pandemic's potential effects on portfolio companies and financial performance - The company identifies significant risk related to the planned discontinuation of LIBOR after 2021 (for most tenors) and June 2023 (for key USD tenors), which could impact the value and terms of its floating-rate investments[511][512] - The COVID-19 pandemic continues to create uncertainty and could negatively affect the financial performance and operations of portfolio companies, potentially leading to defaults, reduced valuations, and adverse impacts on the company's results[517][518] Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period - The company reported no unregistered sales of equity securities during the period[519] Defaults Upon Senior Securities This item is not applicable for the reporting period - The company reported no defaults upon its senior securities during the period[520] Mine Safety Disclosures This item is not applicable for the reporting period - The company has no mine safety disclosures to report[521] Other Information There is no other information to report for this period - The company reported no other information for this period[522] Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate documents, key agreements, and CEO/CFO certifications