Saratoga Investment Corp 8.00% Q3 FY2025 earnings call

• Adjusted NII had changes due to factors like nonrecurring Knowland interest reserve reversal, SOFR base rate decreases, and higher yields from repayments. - NAV had increases and changes in NAV per share. - Originations included new and follow-on investments. - Portfolio companies are generally healthy with some nonaccrual investments that have been restructured. - Management is focused on deploying capital, maintaining relationships, and managing the portfolio through credit cycles.

In the fiscal third quarter ended November 30, 2024, adjusted NII was $12.4 million, down 5.3% from last year and 31.7% from last quarter. Adjusted NII per share was $0.90, down 10.9% from last year and 32.3% from last quarter. Excluding the nonrecurring Knowland interest reserve reversal, adjusted NII per share increased $0.01 per share. NAV per share was $26.95, down 1.7% from last year and 0.4% from last quarter. NAV was $374.9 million, up from $359.6 million last year and $372.1 million last quarter. Originations were elevated with $85 million in 2 new portfolio company investments and 8 follow-on investments in existing portfolio companies. Quarter end cash position grew to $250 million due to outsized repayments. The core non-CLO portfolio was 3% above cost, while the CLO and JV were marked down by $4 million. The portfolio fair value was 0.7% below cost.

• Management is confident in the ability to achieve healthy portfolio growth despite market challenges. - Expectations regarding origination and repayment paces are not precisely predictable, but they believe in the long-term potential. - Evaluate the use of call options on debt to reduce current debt based on interest rate and cash position. - Anticipate potential resurgence in M&A activity in the lower middle market which could impact future growth.

• Uncertainty in M&A volumes and interest rate levels affecting investment opportunities. - Potential for continued credit challenges in some portfolio companies. - Impact of outsized repayments not fully reflected in current results yet. - Volatility in equity marks compared to debt marks in the portfolio.

Q: About the pace of repayments and future expectations, A: Repayments are lumpy, hard to predict precisely, but management is confident in long-term origination outpacing repayments with relationships and business development.

Q: About SBIC debentures and calling them, A: Decision to call or not depends on reinvestment period, cash needs for follow-ons, and arbitrage assessment.

Q: About realizing equity gains, A: Typically realize returns when companies are sold, as minority investors, but thorough work on businesses helps assess equity co-investment opportunities.

Q: About refinancing risk, A: Hard to predict, but no high vulnerability seen currently, expecting M&A activity to pick up origination pace.

Q: About spillover taxable income and special dividends, A: Spillover taxable income is in current tax year, excise tax is a factor, and Board considers financing costs and origination pace in decisions.

Q: About marks in consumer-related businesses, A: Modest write-downs in some consumer-facing investments are specific to those businesses' dynamics, not broader macro trends.