Saratoga(US:SAR)2022-05-05 21:11Financial Data and Key Metrics Changes - The company's assets under management (AUM) increased significantly to $818 million, a 24% increase from $662 million last quarter and a 47% increase from $554 million year-over-year [12][30] - The net asset value (NAV) per share grew by 0.5% this quarter to $29.33, marking the 17th increase in the past 19 quarters [10][16] - Adjusted net investment income (NII) for the quarter was $6.4 million, up 10% from $5.8 million last year and 5% from $6.1 million last quarter [15][21] - The latest 12 months return on equity (ROE) was 13.9%, up from 5% last year [16] Business Line Data and Key Metrics Changes - The company originated $164 million in new platforms or follow-on investments this quarter, contributing to record originations of $458 million year-to-date [7][8] - The performance of existing portfolio companies drove NAV growth, with over 98% of loan investments retaining the highest credit rating, up from 95% last quarter [11][12] Market Data and Key Metrics Changes - The company reported a gross unlevered internal rate of return (IRR) of 12.2% on total unrealized portfolio investments, with a gross unlevered IRR of 16.4% on total realizations of $764 million [11][60] - The CLO yield decreased to 10.5% quarter-on-quarter, reflecting current market performance [42] Company Strategy and Development Direction - The company aims to maintain a high level of investment credit quality while being opportunistic in capital deployment, focusing on businesses with strong fundamentals [11][55] - The management team is actively engaged with portfolio companies, ensuring all loans are performing according to their terms, with zero nonaccruals across the portfolio [50][64] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating current global market volatility and the ongoing recovery, positioning the company for future economic opportunities [6][64] - The company remains cautious about potential inflationary pressures and interest rate hikes affecting credit markets and the economy [48][64] Other Important Information - The Board of Directors declared a quarterly dividend of $0.53 per share for the quarter ended February 28, 2022, reflecting strong performance in key performance indicators [15][66] - The company has a robust pipeline with approximately $79 million of net originations since quarter end [12][59] Q&A Session Summary Question: Concerns about investments in cyclical industries - Management reassured that they underwrite investments with a mindset towards potential downturns, maintaining confidence in the performance of their restaurant and hospitality investments [73][76] Question: Rationale for adding a senior loan fund - Management highlighted diversification benefits and the ability to attract co-investors as key reasons for adding a senior loan fund instead of expanding the CLO business [78][79] Question: Yield decrease in CLO and potential credit issues - Management clarified that the yield decrease was primarily due to temporary impacts from the rising rate environment, not credit issues, and that valuation assumptions remained unchanged [81][82] Question: Activity post quarter end and balance sheet usage - Management confirmed healthy activity post quarter end, utilizing a combination of SBIC debentures and cash for new investments, along with a recent baby bond issuance [92][93] Question: Expectations for repayment activity - Management indicated that while 25% to 30% of the portfolio typically turns over in a normalized year, they expect repayment speeds to be less in the current rising rate environment [97][98] Question: Targeted size and ROE for the new senior loan fund - Management stated that the joint venture is still in the early stages, with expectations for ROE similar to existing CLO investments [102]