Saratoga Investment Corp. Q4 FY2026 earnings call

• Net positive originations from strong pipeline with five new portfolio companies originated in the quarter.
• Sustained long-term AUM growth.
• 9.1% latest twelve months return on equity, beating prior year and more than double industry.
• Announced monthly base dividend of $0.25 per share, $0.75 per share in aggregate for 2027 with 12.6% yield.
• Strong origination activity offset debt repayments, resulting in net originations of $101.1 million.
• Investment in ZOLEDGE performed strongly with $3.3 million unrealized appreciation.
• Core non-CLO portfolio 1.6% above cost, total portfolio valuation 2.4% below cost.
• Added three new associates and two new managing director hires, including Chief Operating Officer and Senior Managing Director David DeSantis.
• Business development activities increased deal flow despite sector headwinds.

Core BDC portfolio had net positive originations with $101.1 million net originations for the quarter from $135.1 million in new originations across five new investments and 15 follow-ons. Adjusted NII was $0.53 per share, including $1.7 million excise tax expense; adjusted for excise tax, NII was $0.61 per share. Core BDC net interest margin decreased by 4% from $13.5 million last quarter to $13 million. Portfolio marked down 1% or $9.6 million during the quarter. Nonaccrual rate was 1.2% of cost, much lower than industry average. Assets under management steadily risen with significant originations outpacing repayments this quarter.

• Macro environment complex with geopolitical tensions, tariff policies, AI and software concerns, and uncertain interest rate environment.
• Focus on underwriting strong credit and long-term growth, deploying available capital into strong credit opportunities meeting high underwriting standards.
• Board of Directors to evaluate dividend level quarterly considering company and general economic factors.

• Geopolitical tensions, evolving U.S. tariff policies, concerns about AI and software create elevated volatility and uncertainty on credit spreads.
• CLO F note put on nonaccrual due to insufficient cash to pay interest, related to underperforming assets in the CLO.
• Negative press and sentiment weighing on public BDC market, though not commensurate with broader private credit market performance.

Q: Outlook for portfolio yield and NII going forward, pressure from repayments and offset by asset base expansion?

A: SOFR rate stabilized, base rates likely to stabilize, but potential squeeze from repayments of higher-yielding assets; business development activities helping grow asset base to offset squeeze.

Q: Success of business development efforts changing mix of pipeline?

A: Generally not controllable, but looking at relatively fewer software and more other secular growing businesses like education, healthcare.

Q: What led to CLO F note being placed on nonaccrual?

A: Insufficient cash at last CLO distribution to pay F note interest for half the quarter due to underperforming assets in the CLO.

Q: Path to recovery in value of CLO F note?

A: Potential refinancing of the CLO, which would involve reinvesting cash into new assets to generate cash flow to help value of F note.

Q: Further push on outreach for originations and adding sponsors?

A: No ceiling on potential, limit is time and effort applied, with a broad universe of sponsors and focus on top-tier relationships.

Q: Industries driving CLO nonaccrual?

A: Less about specific industry group, more about structure and cost of liabilities.

Q: Expectation of CLOs decreasing as percentage of investment portfolio?

A: CLOs have decreased, industry has had negative developments, but underlying dynamic stabilizing with potential to improve as M&A environment comes back