Saratoga Investment Corp 8.125% Q3 FY2025 earnings call

• Sequential quarterly increase of adjusted NII (excluding onetime Knowland interest reserve reversal), improved latest 12 months return on equity of 9.2%. • Healthy originations in new and existing portfolio companies, outsized redemptions of successful investments. • Substantial over-earning of dividend supports current dividends, NAV, portfolio growth. • Impact of decreasing interest rates and spreads on floating rate assets, management evaluating callable debt to reduce current debt. • Early stages of potential increase in M&A in lower middle market, strong reputation and sponsor relationships create investment opportunities. • Resolved challenges in 4 portfolio companies through sales and restructurings. • Originations elevated due to declining interest rates and M&A activity, deployments included $85 million in new and follow-on investments. • Quarter end cash position grew to $250 million from outsized repayments. • Credit quality steady with 99.7% of credits in highest category, 2 investments on nonaccrual but combined value small. • Substantial investment capacity to support portfolio companies.

Adjusted NII is $12.4 million this quarter, down 5.3% from last year and 31.7% from last quarter. Adjusted NII per share is $0.90 this quarter, 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 is 26.95, down 1.7% from last year and 0.4% from last quarter. Quarter end NAV is $374.9 million, up from last year and last quarter. Originations this quarter were elevated with $85 million in 2 new portfolio company investments and 8 follow-on investments. Cash position grew to $250 million due to outsized repayments. Core non-CLO portfolio was marked down slightly by $1.4 million, CLO and JV marked down by $4 million, offset by net realized gains.

• Difficult to predict precise origination and redemption pace. • Hopeful for uptick in M&A activity as market conditions potentially improve. • Confident in ability to capitalize on M&A activity with strong origination efforts and relationships. • Uncertainty around timing and pace of deal activity, but confident in long-term portfolio growth and performance.

• Uncertainty in M&A activity affecting origination and redemption patterns. • Potential impact of interest rate changes on portfolio performance. • Risk associated with discrete portfolio company challenges despite resolutions. • Volatility in equity marks compared to debt marks in certain portfolio companies.

Q: Eric Zwick asked about expectations for repayments and new growth balance, future M&A outlook.

A: Christian Oberbeck and Michael Grisius discussed that origination was robust, repayments can be lumpy, hard to predict precisely, but confident in long-term portfolio growth with strong origination efforts.

Q: Casey Alexander asked about rationale for selling equity despite high cash balance.

A: Christian Oberbeck explained that selling equity is a strategic long-term decision to take advantage of opportunity to raise permanent capital when available, viewing equity as permanent and important for long-term growth.

Q: Mickey Schleien asked about spillover taxable income and excise tax, debt call considerations.

A: Henri Steenkamp and Christian Oberbeck discussed spillover taxable income status, excise tax as a good financing source, and considerations around calling debt including yield curve and origination pace.

Q: Bryce Rowe asked about health of consumer-related businesses and origination pipeline.

A: Michael Grisius said marks in consumer-related businesses were specific to individual businesses, not broader macro trends, and origination pipeline includes upsizing of existing portfolio company opportunities.