Saratoga Investment Corp 8.00% Q2 FY2026 earnings call

• Continued NAV growth from previous quarter and year, with NAV per share growth. Strong return on equity, net originations of $22.4 million. Core BDC portfolio performed well in volatile macro environment, with Xolage returning to accrual status reducing nonaccruals.
• Announced a base dividend of $0.25 per share per month or $0.75 per share annually. Annualized third-quarter dividend of $0.75 per share offers a 12.3% yield. Adjusted NII per share $0.58 reflects impact of short-term rate decreases and repayments, with $201 million cash available for deployment.
• Originated $52.2 million including new investments in CLO debt securities. Had three new portfolio companies closed or in closing in Q3. Core non-CLO portfolio marked up by $3.9 million, CLO and JV marked down by $300,000, with net appreciation in new CLO debt investments and realized gains from escrow payment.
• NAV was $410.5 million, up $14.1 million from previous quarter and $38.4 million from same quarter last year. $11.4 million new equity raised through ATM program. Historical NAV per share increased 23 of past 32 quarters.
• Dry powder available totaled $406.8 million, including cash, undrawn SBA debentures, and undrawn secured credit facility. Baby bonds callable, providing protection against interest rate decreases.

Saratoga Investment Corp's fiscal second quarter 2026 had a quarter-end NAV of $410.5 million, up 10.3% from the same quarter last year and 3.6% from the previous quarter. NAV per share was $25.61. Adjusted NII per share was $0.58, down from last year and the previous quarter. The weighted average interest rate on the core BDC portfolio was 11.3% this quarter. The core non-CLO portfolio was marked up by $3.9 million, while CLO and JV were marked down by $300,000. Nonaccrual investments were just 0.2% of portfolio fair value, with Xolage returning to accrual status reducing nonaccruals to one.

• Confident in deploying capital as pipeline grows, with three new portfolio companies in closing post quarter-end. Expect deal volume pickup as M&A activity reverts to historical levels. Intend to deploy available cash into strong credit opportunities meeting underwriting standards to support dividend coverage.

• Volatile macro environment posing challenges. Competition from larger market participants offering more relaxed terms. Potential impact of lower short-term rates on earnings. Geopolitical tensions affecting market dynamics.

Q: Erik Edward Zwick asked about levers to improve dividend coverage and its priority.

A: Christian Oberbeck mentioned portfolio solidity, pipeline growth, and ability to deploy available capital, while Michael Joseph Grisius discussed doubling business development efforts, expanding team, and growing pipeline.

Q: Casey Alexander questioned the thought process behind investing in CLO structured securities.

A: Christian Oberbeck explained the difference between equity and debt tranches, the attractiveness of the securities due to yield, liquidity, and fit with available cash, and how they complement the core portfolio.

Q: Robert James Dodd asked about the expected size of CLO debt strategy in the next twelve months.

A: Michael Joseph Grisius stated they are open to deploying significantly more, but it's opportunistic and depends on opportunities relative to the core business.

Q: Christopher Nolan asked about spillover income, CLO yields, and AI impact on software companies.

A: Henri J. Steenkamp discussed spillover income and CLO yields, while Michael Joseph Grisius noted AI is a focus in underwriting, affecting software companies in both disruptive and enhancing ways.

Q: Mickey Schleien asked about strategies to get cash out of SBICs and what attracts to Comfort Care.

A: Henri J. Steenkamp mentioned levers like undistributable reserves and prefunding in SBICs, while Michael Joseph Grisius explained Comfort Care's strong tailwinds, franchisor economics, and successful sponsor relationships as attractions.