Saratoga Investment Corp 8.50% Q1 FY2026 earnings call

• Saratoga's highlights include 17.9% increase in adjusted NII per share, continued NAV growth, strong ROE, 2 new portfolio company investments, solid core BDC portfolio performance. - Announced base dividend of $0.25 per share per month or $0.75 per share aggregate for second quarter of fiscal 2026. - Slower deal volume and M&A activity in lower middle market due to tariff developments and slowdown in new debt issuances. - Portfolio had multiple debt repayments, equity realization, healthy new originations generating realized gains and new investments. - Strong reputation and differentiated market positioning, ongoing development of sponsor relationships. - High-quality nature and resilience of $968.3 million portfolio, all challenged portfolio company situations resolved. - Net interest margin expanded driven by increase in non-CLO interest income and decrease in interest expense. - Weighted average common shares outstanding increased. - Assets under management steadily risen despite recent repayments. - Quality of credits remain strong with only 2 recently restructured on nonaccrual. - Management team working to deploy available capital into pipeline cautiously. - Chief Investment Officer provided market update, spoke about staying disciplined on asset selection, expanding business development efforts, existing portfolio as deal flow source, investing in BB and BBB CLO debt securities, deal flow increasing with business development efforts, portfolio credit quality and returns solid, second SBIC license fully funded and deployed, ramping up new SBIC III license.

Adjusted NII per share increased 17.9% from previous quarter. NAV was $396.4 million, up 7.8% from last year and 0.9% from last quarter. Adjusted NII was $10.1 million, down 29.3% from last year and up 26.2% from last quarter. Adjusted NII per share was $0.66, down 37.1% from last year and up 17.9% from last quarter. Adjusted NII yield was 10.3%, down from 15.5% last year and up from 8.4% last quarter. Latest 12 months return on equity was 9.3%, above industry average of 7%. NAV per share was $25.52, down from last year and last quarter. Portfolio fair value was 2.1% below cost, core non-CLO portfolio was 1.7% above cost. Net interest margin expanded to $15.6 million from $13.7 million last quarter. Cash available at quarter end was $224 million. Portfolio had $50.1 million invested in 2 new portfolio companies, 6 follow-ons and new investments in multiple BB CLO debt securities. Core BDC portfolio was marked up by $2.6 million, CLO and JV marked down by $0.2 million. Net realized appreciation was $3.8 million during the quarter. Credit quality remained steady at 99.7% in highest category, 2 investments on nonaccrual restructured.

• Expectations of continued growth in portfolio size, quality and investment performance over long term. - Confidence in experienced management team, robust pipeline, strong leverage structure and high underwriting standards to deliver exceptional risk adjusted returns. - Prudent deployment of available capital into strong credit opportunities meeting high underwriting standards. - Belief in being favorably situated for potential future economic opportunities and challenges. - Reinvigorated new business effort with hiring and robust pipeline expected to drive growth over time. - Confidence in ability to achieve healthy portfolio growth in accretive manner to shareholders.

• Volatile macro environment including tariff developments, slowdown in new debt issuances. - Uncertainty in geopolitical landscape affecting underwriting and macro environment. - Difficulty in predicting redemption activity and M&A volume. - Potential market dislocations affecting CLO BB investments. - Risks associated with deploying capital in challenging market conditions if not done prudently.

Q: Erik Zwick of Lucid Capital Markets asked about commitment to AUM expansion, near-term growth challenges, spillover level, liability and funding side, and new CLO BB investments.

A: Christian Oberbeck and Michael Grisius discussed AUM expansion efforts, disciplined asset selection, hiring for business development, unpredictable redemptions, spillover levels, flexible approach to debt management and refinancing, and details on CLO BB investments origin and potential size.

Q: Robert Dodd of Raymond James asked about bias in using cash for deployments or paying down debt.

A: Christian Oberbeck and Henri Steenkamp responded that they try to optimize situations without bias, have a flexible revolver position, and focus on creating liquidity and being prepared for various eventualities.