• Adjusted Net Investment Income (NII): $12.4 million, down 5.3% from last year and 31.7% from last quarter.
• Adjusted NII Per Share: $0.90, down 10.9% from $1.01 last year and down 32.3% from $1.33 last quarter.
• Dividend: $0.74 per share, implying a 12.2% yield based on a stock price of $24.21.
• Net Asset Value (NAV) Per Share: $26.95, down 1.7% from $27.42 last year and down 0.4% from $27.07 last quarter.
• Total NAV: $374.9 million, up from $359.6 million last year and up from $372.1 million last quarter.
• Portfolio Fair Value: $960 million, with a core non-CLO portfolio 3% above cost.
• Cash Position: $250 million at quarter-end.
• Return on Equity (ROE): 9.2%, up from 6.6% last year and 5.8% last quarter.
• Investment Originations: $85 million in two new portfolio companies and eight follow-on investments.
• Repayments: $160 million, including a $4.8 million realized gain from the NVIDA investment.
• Non-Accrual Investments: Zollege and Pepper Palace, representing 0.3% of both fair value and cost.
• Available Investment Capacity: $474 million, including $136 million from SBIC III license and $87.5 million from revolving credit facilities.

• Warning! GuruFocus has detected 5 Warning Signs with SAR.

Release Date: January 09, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Saratoga Investment Corp (NYSE:SAR) reported a sequential quarterly increase in adjusted net investment income (NII), excluding one-time effects.
• The company achieved a 9.2% return on equity over the last 12 months, surpassing the industry average of 8.5%.
• Saratoga Investment Corp (NYSE:SAR) experienced healthy originations in both new and existing portfolio companies, with $85 million deployed in new investments.
• The company maintained a strong cash position of $250 million, enhancing its leverage and liquidity.
• Saratoga Investment Corp (NYSE:SAR) has a robust pipeline and continues to develop sponsor relationships, creating attractive investment opportunities.

Negative Points

• Adjusted NII decreased by 5.3% from last year and 31.7% from the previous quarter.
• The company's NAV per share decreased by 1.7% from last year and 0.4% from the previous quarter.
• Saratoga Investment Corp (NYSE:SAR) faced challenges with four portfolio companies, resulting in two sales and two restructurings.
• The company's debt portfolio is marked down slightly, with a total net reduction in portfolio value of $3.5 million during the quarter.
• The lower middle market deal activity remains down significantly, impacting new platform investments.

Q & A Highlights

Q: Can you provide insights into the pace of repayments and expectations for new growth versus repayments in the coming months? A: Christian Oberbeck, CEO, explained that the recent quarter saw $85 million in originations, with significant redemptions, notably from a five-year NVIDA investment. While predicting exact origination and redemption rates is challenging, the company maintains a robust portfolio and pipeline. Henri Steenkamp, CFO, emphasized the long-term growth perspective over quarterly volatility.

Q: What are the mechanics of calling or repricing SBIC debentures, and what is the current average cost? A: Henri Steenkamp, CFO, clarified that SBIC debentures can be repaid during specific periods (end of August and February). SBIC II is outside its reinvestment period, allowing cash from repayments to be used for follow-ons or debenture repayment. The decision to repay depends on cash needs and interest rate arbitrage.

Q: How does Saratoga approach realizing equity gains, and what factors influence this strategy? A: Michael Grisius, CIO, stated that Saratoga typically realizes equity gains when companies are sold, as they are usually minority investors. The strategy involves thorough due diligence to assess co-investment opportunities, aligning with the company's focus on businesses with strong market positions and cash flow.

Q: With a high cash balance, why did Saratoga decide to sell equity in the market? A: Christian Oberbeck, CEO, explained that selling equity at NAV is a strategic decision for long-term growth, despite current cash levels. Equity sales provide permanent capital and are seen as a long-term strategic move rather than a response to short-term cash needs.

Q: What is the refinancing risk in the portfolio given current market terms? A: Michael Grisius, CIO, noted that while some deals exited due to aggressive market terms, the overall portfolio is not highly vulnerable to refinancing risk. The expectation is that origination will pick up with M&A activity, balancing any potential payoffs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.