Saratoga(US:SAR)2023-01-11 19:38Financial Data and Key Metrics Changes - Saratoga Investment Corp reported a 33% sequential quarterly increase in adjusted net investment income (NII) per share, significantly outpacing a 26% dividend increase [5][38] - Adjusted NII for the quarter was $9.1 million, reflecting a 31.1% increase from the previous quarter and a 49.8% increase year-over-year [14][38] - The adjusted NII yield rose to 10.8%, up from 8.2% in the previous quarter and 7.3% a year ago [8][41] - NAV per share decreased by 0.1% from the previous quarter to $28.25, and down 3.2% from $29.17 a year ago [7][38] Business Line Data and Key Metrics Changes - The company originated $88 million in new follow-on investments, offset by $57 million in repayments, leading to a total AUM of $982 million, a 3% increase from the previous quarter [6][35] - The current coupon on non-CLO BDC investments increased from 9.9% to 11.7%, contributing to a 59.1% increase in investment income [15][79] Market Data and Key Metrics Changes - The average three-month LIBOR used in the portfolio was 3.59%, with quarter-end LIBOR closing at 4.78%, indicating potential for increased earnings in the upcoming quarters [23][99] - The company’s portfolio is diversified across 39 distinct industries, with a significant focus on healthcare and education software, HVAC services, and IT [50][86] Company Strategy and Development Direction - The company aims to maintain a high level of investment credit quality, with 96% of loan investments retaining the highest credit rating [9][88] - The approval of a third SBIC license allows for continued expansion of investments in support of small businesses [33][93] - The management team is focused on deploying capital into existing portfolio companies while being cautious in the current volatile credit environment [13][60] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's ability to withstand economic pressures, noting that most portfolio companies are performing well despite rising rates [105][106] - The company is closely monitoring inflationary pressures, labor costs, and supply chain issues that could impact portfolio companies [53][94] - Management highlighted the importance of maintaining a conservative balance sheet with long-term fixed-rate debt in a rising rate environment [78][98] Other Important Information - The company declared a quarterly dividend of $0.68 per share, marking a record increase of 26% from the previous quarter [37][95] - Total expenses for Q3, excluding interest and debt financing expenses, were $2.1 million, representing 0.8% of average total assets on an annualized basis [18][19] Q&A Session Summary Question: How is the company positioned regarding interest rates and dividends? - Management indicated that the current dividend level is sustainable in the long run, with plans to build upon it as earnings increase and the rate environment becomes clearer [71][72] Question: How are borrowers reacting to higher rates? - Management noted that portfolio companies are performing well and generating sufficient cash flow to handle increased rates, despite general market pressures [105][106] Question: What is the company's approach to new investments versus follow-ons? - Management confirmed a higher bar for new investments, prioritizing support for existing portfolio companies while remaining open to actionable opportunities [115][116]