Saratoga(US:SAR)2024-10-09 17:10Financial Data and Key Metrics Changes - The annualized second quarter dividend was $0.74 per share, implying a 12.7% dividend yield based on the stock price of $23.26 per share on October 7, 2024 [4] - Adjusted net investment income (NII) was $18.2 million, up 38.3% from last year and 26.9% from last quarter, with adjusted NII per share at $1.33, up 23.2% from $1.08 last year [11][14] - The net asset value (NAV) per share was $27.07, down 4.8% from $28.44 last year but up 0.8% from $26.85 last quarter [12][16] Business Line Data and Key Metrics Changes - The portfolio's fair value was $1.04 billion, with 85.2% in first lien debt, and the core non-CLO portfolio was 3.3% above cost [10][20] - The company originated no new portfolio company investments this quarter but had five smaller follow-on investments totaling $2.6 million, while repayments and amortization amounted to $60.1 million [9][10] Market Data and Key Metrics Changes - The lower middle market deal volumes were down significantly year-to-date, with factors such as elevated interest rates and a disconnect between buyers and sellers impacting activity [23][24] - The overall credit quality increased to 99.7% rated in the highest category, with only two investments on non-accrual status [10][28] Company Strategy and Development Direction - The company is focused on maintaining balance sheet strength, liquidity, and NAV preservation, with $385.5 million of investment capacity available [11][19] - The management team emphasizes a disciplined approach to investment decisions and proactive portfolio management, particularly in the current economic environment [26][31] Management's Comments on Operating Environment and Future Outlook - Management noted that while short-term interest rates have decreased, earnings continue to benefit from elevated rates on floating rate assets [5] - The company remains optimistic about future economic opportunities despite current challenges, with a strong operating performance foundation [6][26] Other Important Information - The company has resolved uncertainties related to all four portfolio companies on its watchlist, with significant actions taken to improve management and capital structures [8][32] - The company recognized a $34 million realized loss this quarter due to the restructuring of Pepper Palace, while the Noland investment was fully repaid, contributing positively to NII [34][35] Q&A Session Summary Question: Commentary on market and investment characteristics - Management indicated that the investments reviewed did not meet quality standards due to unique issues such as customer concentration [42] Question: Impact of interest rate changes on NII - A 25 basis point reduction in short-term rates would impact NII by approximately $0.03 quarterly, with the effect not being immediate [44] Question: Recovery potential for Zollege and Pepper Palace - Management expressed cautious optimism about recovery, noting that it would take time and effort to restore these investments to profitability [50] Question: Current spillover balance and dividend sustainability - The company has over $3 per share of spillover that could be considered for future dividends, providing a cushion against declining interest rates [51]