Saratoga Investment Corp 6.00% Q4 FY2024 earnings call

• Adjusted net investment income per share for the year increased 44% y-o-y; Q4 adjusted NII per share decreased 2.5% y-o-y and 4% q-o-q.
• Substantial year-over-year NII increase due to growth in AUM, strong portfolio performance, and margin improvement from floating rate assets vs fixed financing.
• NAV per share was $27.12, down 7% y-o-y and 1% q-o-q.
• Raised $48 million of equity at NAV since end of Q1, increasing NAV from $338 million to $370 million.
• Portfolio credit quality high: 98.1% of credits in highest category, 86% in first lien debt, and 3 investments on nonaccrual.

Saratoga's adjusted net investment income per share for the year increased 44% compared to the previous year. For Q4, adjusted net investment income per share decreased 2.5% year-over-year and 4% quarter-over-quarter. Assets under management (AUM) are $1.14 billion at fair value, invested in 55 portfolio companies, 1 CLO fund, and 1 joint venture. The first lien percentage is 86% of total investments, with 54% in first lien last out positions. The core BDC yield was up slightly to 12.6% this quarter, and the CLO yield remained unchanged at 8.0%.

• Board will evaluate dividend level quarterly considering company and economic factors.
• Focus on maintaining diversified capital sources and flexible use of facilities for capital raising.
• Confidence in reputation, management team, underwriting standards, and balance sheet to navigate challenges and uncover opportunities.

• Market volatility affecting investment opportunities and portfolio valuations.
• Credit quality risks with some portfolio companies facing stress, leading to markdowns.
• Uncertain economic outlook impacting deal flow and portfolio performance.

Q: Thoughts on portfolio, spreads, leverage, and add-on investments?

A: Mike Grisius discussed spreads tightening, leverage creeping up, and focus on supporting portfolio companies with add-on activity.

Q: Use of equity distribution agreement and liquidity?

A: Christian Oberbeck and Mike Grisius talked about diversified capital sources and flexibility of facilities.

Q: Origination activity and pipeline color?

A: Mike Grisius mentioned quality of businesses in market not meeting credit bar, focus on supporting existing portfolio.

Q: Knowland, Pepper Palace, Zollege updates?

A: Mike Grisius provided updates on restructuring efforts for Pepper Palace and Zollege, and improvement at Knowland.

Q: Repayment from Netreo and reinvestment?

A: Christian Oberbeck said no specific plan yet, but evaluating asset and liability sides.

Q: Undistributed taxable income and excise tax?

A: Christian Oberbeck discussed excise tax implications and ongoing evaluation of how to address undistributed taxable income.