• Adjusted Net Investment Income (NII): $18.2 million, up 38.3% from last year and 26.9% from last quarter.
• Adjusted NII Per Share: $1.33, up 23.2% from $1.08 last year and 26.7% from $1.05 last quarter.
• Dividend: $0.74 per share, implying a 12.7% yield based on a stock price of $23.26.
• Net Asset Value (NAV) Per Share: $27.07, down 4.8% from last year and up 0.8% from last quarter.
• Total Portfolio Fair Value: $1.04 billion, 0.2% above cost.
• Cash Position: $162 million at quarter end.
• Investment Originations: $2.6 million this quarter, with subsequent $56.7 million in new originations post-quarter end.
• Portfolio Leverage: Effective leverage at 172.0% net leverage.
• Return on Equity (ROE): 5.8%, down from 9.6% last year and up from 4.4% last quarter.
• Available Liquidity: $385.5 million, including $136 million from SBIC III license and $87.5 million from revolving credit facilities.

• Warning! GuruFocus has detected 4 Warning Signs with SAR.

Release Date: October 09, 2024

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

Positive Points

• Saratoga Investment Corp (NYSE:SAR) successfully resolved all four non-accrual investments, improving portfolio stability.
• The company reported a significant increase in adjusted net investment income (NII), up 38.3% from last year.
• Saratoga's NAV per share increased by 0.8% from the previous quarter, indicating growth in shareholder value.
• The company maintained a strong liquidity position with $385.5 million in investment capacity, supporting future growth.
• Saratoga's portfolio is predominantly composed of first lien debt, providing a strong foundation in challenging economic conditions.

Negative Points

• Saratoga's total return over the last 12 months was only 2%, underperforming the BDC index of 15%.
• The company faced markdowns in its CLO and JV investments, resulting in a $2.7 million unrealized depreciation.
• Lower middle market deal activity remains historically low, impacting new investment opportunities.
• The company did not originate any new portfolio company investments during the quarter, reflecting market challenges.
• Saratoga's stock is trading at a discount to NAV, raising questions about potential share repurchases.

Q & A Highlights

Q: Could you provide more color on why certain new investments did not meet your criteria this quarter? A: Michael Grisius, Co-Managing Partner and Chief Investment Officer, explained that the issues were unique to each credit. For example, some had customer concentration levels that were too high for comfort. Each investment had distinct elements that did not align with Saratoga's investment standards.

Q: How sensitive is the portfolio to changes in interest rates, and what impact would a 25 basis point reduction have on NII? A: Henri Steenkamp, Chief Financial Officer, stated that a 25 basis point reduction in short-term rates would impact NII by approximately $0.03 per share on a quarterly basis. This is a static view and does not account for potential refinancing of debt or new investment opportunities.

Q: In a scenario of a hard landing recession, how confident are you in managing through without risking the dividend? A: Henri Steenkamp expressed confidence in managing through such a scenario, citing the company's strong cash position and the fact that rate changes do not impact immediately due to the timing of asset resets. He emphasized that they are currently overearning the dividend significantly.

Q: What is the outlook for recovering value from the restructured investments in Zollege and Pepper Palace? A: Michael Grisius noted that while it's early in the process, Saratoga has brought in strong management teams to recapture value. The recovery will take time, but the company is optimistic about the potential for improvement in these investments.

Q: With the stock trading at a discount to NAV, why hasn't Saratoga repurchased its stock recently? A: Christian Oberbeck, Chairman and CEO, explained that while repurchasing stock is attractive, the company is focused on maintaining liquidity for potential asset growth and managing leverage prudently. They are prepared for both offensive and defensive opportunities in the market.

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