10-Q 1 d37518d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended August 31, 2015

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-33376

 

 

SARATOGA INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   20-8700615
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

535 Madison Avenue
New York, New York
  10022
(Address of principal executive office)   (Zip Code)

(212) 906-7800

(Registrant’s telephone number, including area code)

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large Accelerated Filer   ¨    Accelerated Filer   ¨
Non-Accelerated Filer   x    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of October 13, 2015 was 5,634,115.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

 

 

         Page  

PART I

  FINANCIAL INFORMATION      3   

Item 1.

  Financial Statements      3   
  Consolidated Statements of Assets and Liabilities as of August 31, 2015 (unaudited) and February 28, 2015      3   
  Consolidated Statements of Operations for the three and six months ended August 31, 2015 and August 31, 2014 (unaudited)      4   
  Consolidated Schedules of Investments as of August 31, 2015 (unaudited) and February 28, 2015      5   
  Consolidated Statements of Changes in Net Assets for the six months ended August 31, 2015 and August 31, 2014 (unaudited)      11   
  Consolidated Statements of Cash Flows for the six months ended August 31, 2015 and August 31, 2014 (unaudited)      12   
  Notes to Consolidated Financial Statements as of August 31, 2015 (unaudited)      13   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      36   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      59   

Item 4.

  Controls and Procedures      59   

PART II

  OTHER INFORMATION      60   

Item 1.

  Legal Proceedings      60   

Item 1A.

  Risk Factors      60   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      60   

Item 3.

  Defaults upon Senior Securities      60   

Item 4.

  Mine Safety Disclosures      60   

Item 5.

  Other Information      60   

Item 6.

  Exhibits      61   

Signatures

       62   

 

2


Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Saratoga Investment Corp.

Consolidated Statements of Assets and Liabilities

 

     As of  
     August 31, 2015     February 28, 2015  
     (unaudited)        

ASSETS

    

Investments at fair value

    

Non-control/non-affiliate investments (amortized cost of $236,385,079 and $222,505,383, respectively)

   $ 235,430,731      $ 223,506,589   

Control investments (cost of $14,304,200 and $15,953,001, respectively)

     16,754,160        17,031,146   
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $250,689,279 and $238,458,384, respectively)

     252,184,891        240,537,735   

Cash and cash equivalents

     504,283        1,888,158   

Cash and cash equivalents, reserve accounts

     12,089,017        18,175,214   

Interest receivable, (net of reserve of $393,447 and $309,498, respectively)

     2,689,454        2,469,398   

Management fee receivable

     174,432        171,913   

Other assets

     571,358        317,637   

Receivable from unsettled trades

     100,000        —     
  

 

 

   

 

 

 

Total assets

   $ 268,313,435      $ 263,560,055   
  

 

 

   

 

 

 

LIABILITIES

    

Revolving credit facility

   $ 2,000,000      $ 9,600,000   

Deferred debt financing costs, revolving credit facility

     (555,160     (594,845

SBA debentures payable

     79,000,000        79,000,000   

Deferred debt financing costs, SBA debentures payable

     (2,122,413     (2,340,894

Notes payable

     57,245,175        48,300,000   

Deferred debt financing costs, notes payable

     (1,752,164     (1,847,564

Dividend payable

     731,440        402,200   

Base management and incentive fees payable

     6,037,226        5,835,941   

Accounts payable and accrued expenses

     572,960        835,189   

Interest and debt fees payable

     1,545,272        1,405,466   

Due to manager

     352,679        365,820   
  

 

 

   

 

 

 

Total liabilities

   $ 143,055,015      $ 140,961,313   
  

 

 

   

 

 

 

Commitments and contingencies (See Note 7)

    

NET ASSETS

    

Common stock, par value $.001, 100,000,000 common shares authorized, 5,586,254 and 5,401,899 common shares issued and outstanding, respectively

   $ 5,586      $ 5,402   

Capital in excess of par value

     187,648,418        184,877,680   

Distribution in excess of net investment income

     (27,216,301     (23,905,603

Accumulated net realized loss from investments and derivatives

     (36,674,895     (40,458,088

Accumulated net unrealized appreciation on investments

     1,495,612        2,079,351   
  

 

 

   

 

 

 

Total net assets

     125,258,420        122,598,742   
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 268,313,435      $ 263,560,055   
  

 

 

   

 

 

 

NET ASSET VALUE PER SHARE

   $ 22.42      $ 22.70   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Operations

(unaudited)

 

     For the three months ended
August 31
     For the six months ended
August 31
 
     2015     2014      2015     2014  

INVESTMENT INCOME

         

Interest from investments

         

Non-control/Non-affiliate investments

   $ 5,877,682      $ 5,047,571       $ 11,526,661      $ 9,755,465   

Payment-in-kind interest income from Non-control/Non-affiliate investments

     262,991        329,614         954,143        582,542   

Control investments

     678,706        660,031         1,269,696        1,301,369   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total interest income

     6,819,379        6,037,216         13,750,500        11,639,376   

Interest from cash and cash equivalents

     731        1,120         1,467        1,714   

Management fee income

     373,152        375,459         751,898        767,493   

Other income

     565,055        61,495         815,619        210,830   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total investment income

     7,758,317        6,475,290         15,319,484        12,619,413   
  

 

 

   

 

 

    

 

 

   

 

 

 

EXPENSES

         

Interest and debt financing expenses

     2,147,976        1,809,516         4,111,841        3,597,103   

Base management fees

     1,151,236        1,037,186         2,275,334        2,005,665   

Professional fees

     349,533        275,933         682,977        711,307   

Administrator expenses

     275,000        250,000         525,000        500,000   

Incentive management fees

     (41,279     768,878         1,756,554        1,147,367   

Insurance

     87,316        84,127         174,633        168,614   

Directors fees and expenses

     51,000        55,586         102,000        108,761   

General & administrative

     203,449        100,568         386,369        224,194   

Excise tax expense (credit)

     (123,338     —           (123,338     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total expenses

     4,100,893        4,381,794         9,891,370        8,463,011   
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INVESTMENT INCOME

     3,657,424        2,093,496         5,428,114        4,156,402   
  

 

 

   

 

 

    

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

         

Net realized gain from investments

     3,709,947        360,161         3,783,193        441,841   

Net unrealized appreciation/(depreciation) on investments

     (6,124,708     703,506         (583,739     318,809   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net gain/(loss) on investments

     (2,414,761     1,063,667         3,199,454        760,650   
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ 1,242,663      $ 3,157,163       $ 8,627,568      $ 4,917,052   
  

 

 

   

 

 

    

 

 

   

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE

   $ 0.22      $ 0.59       $ 1.57      $ 0.91   

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED

     5,583,795        5,379,616         5,492,491        5,379,616   

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

August 31, 2015

(unaudited)

 

Company

 

Industry

 

Investment Interest Rate /

Maturity

  Principal/
Number
of Shares
    Cost     Fair Value (c)     % of
Net Assets
 

Non-control/Non-affiliated investments - 187.9% (b)

       

National Truck Protection Co., Inc. (d), (g)

  Automotive Aftermarket     Common Stock     1,116      $ 1,000,000      $ 1,503,856        1.2

National Truck Protection Co., Inc. (d)

  Automotive Aftermarket   First Lien Term Loan 15.50% Cash, 9/13/2018   $ 7,326,770        7,326,770        7,326,770        5.9

Take 5 Oil Change, L.L.C. (d), (g)

  Automotive Aftermarket   Common Stock     7,128        480,535        2,046,963        1.6
       

 

 

   

 

 

   

 

 

 
    Total Automotive Aftermarket       8,807,305        10,877,589        8.7
       

 

 

   

 

 

   

 

 

 

Legacy Cabinets Holdings (d), (g)

  Building Products   Common Stock Voting A-1     2,535        220,900        1,930,656        1.5

Legacy Cabinets Holdings (d), (g)

  Building Products   Common Stock Voting B-1     1,600        139,424        1,218,560        1.0

Polar Holding Company, Ltd. (a), (i)

  Building Products   First Lien Term Loan 10.00% Cash, 8/13/2016   $ 1,000,000        1,000,000        1,000,000        0.8
       

 

 

   

 

 

   

 

 

 
    Total Building Products       1,360,324        4,149,216        3.3
       

 

 

   

 

 

   

 

 

 

BMC Software, Inc. (d)

  Business Services   First Lien Term Loan 5.00% Cash, 9/10/2020   $ 5,701,667        5,660,379        5,233,560        4.2

Dispensing Dynamics International (d)

  Business Services   Senior Secured Note 12.50% Cash, 1/1/2018   $ 12,000,000        12,030,982        11,880,000        9.5

Easy Ice, LLC (d)

  Business Services   First Lien Term Loan 9.50% Cash, 1/15/2020   $ 12,000,000        11,882,170        12,000,000        9.6

Emily Street Enterprises, L.L.C.

  Business Services   Senior Secured Note 10.00% Cash, 1/23/2020   $ 8,400,000        8,282,447        8,400,000        6.7

Emily Street Enterprises, L.L.C. (g)

  Business Services   Warrant Membership Interests     49,318        400,000        477,668        0.4

Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)

  Business Services   First Lien Term Loan 5.50% Cash, 6/28/2019   $ 1,945,152        1,932,637        1,945,152        1.6

Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)

  Business Services   Second Lien Term Loan 9.50% Cash, 6/28/2020   $ 2,000,000        1,976,735        2,000,000        1.6

Knowland Technology Holdings, L.L.C.

  Business Services   First Lien Term Loan 11.00% Cash, 11/29/2017   $ 5,259,171        5,213,077        5,259,171        4.2

Knowland Technology Holdings, L.L.C. (j), (k), (l)

  Business Services   Delayed Draw Term Loan 11.00% Cash, 11/29/2017   $ —          —          —          0.0

Vector Controls Holding Co., LLC (d)

  Business Services   First Lien Term Loan, 14.00% (12.00% Cash/2.00% PIK), 3/6/2018   $ 9,547,641        9,441,522        9,547,641        7.6

Vector Controls Holding Co., LLC (d), (g)

  Business Services   Warrants to Purchase Limited Liability Company Interests     101        —          341,533        0.3
       

 

 

   

 

 

   

 

 

 
    Total Business Services       56,819,949        57,084,725        45.7
       

 

 

   

 

 

   

 

 

 

Targus Group International, Inc. (d)

  Consumer Products   First Lien Term Loan, 14.75% (13.75% Cash/1.00 PIK), 5/24/2016   $ 3,587,304        3,582,481        2,558,915        2.0

Targus Holdings, Inc. (d), (g)

  Consumer Products   Common Stock     62,413        566,765        —          0.0

Targus Holdings, Inc. (d), (m)

  Consumer Products   Unsecured Note 10.00% PIK, 6/14/2019   $ 2,054,158        2,054,158        —          0.0

Targus Holdings, Inc. (d), (m)

  Consumer Products   Unsecured Note 16.00% PIK, 10/26/2018   $ 429,797        425,704        —          0.0
       

 

 

   

 

 

   

 

 

 
    Total Consumer Products       6,629,108        2,558,915        2.0
       

 

 

   

 

 

   

 

 

 

Avionte Holdings, LLC (g)

  Consumer Services   Common Stock     100,000        100,000        162,179        0.1

Avionte Holdings, LLC

  Consumer Services   First Lien Term Loan 9.75% Cash, 1/8/2019   $ 2,406,342        2,372,048        2,406,342        1.9

Avionte Holdings, LLC (j), (l)

  Consumer Services   Delayed Draw Term Loan A 9.75% Cash, 1/8/2019   $ —          —          —          0.0

Expedited Travel L.L.C. (g)

  Consumer Services   Common Stock     1,000,000        1,000,000        1,260,847        1.0

Expedited Travel L.L.C.

  Consumer Services   First Lien Term Loan 10.00% Cash, 10/10/2019   $ 12,346,237        12,244,421        12,593,162        10.1

PrePaid Legal Services, Inc. (d)

  Consumer Services   First Lien Term Loan 6.50% Cash, 7/1/2019   $ 1,629,032        1,617,925        1,622,842        1.3

PrePaid Legal Services, Inc. (d)

  Consumer Services   Second Lien Term Loan 10.25% Cash, 7/1/2020   $ 10,000,000        9,958,843        10,003,000        8.0

Prime Security Services, LLC

  Consumer Services   Second Lien Term Loan 9.75% Cash, 7/1/2022   $ 12,000,000        11,820,000        11,820,000        9.4
       

 

 

   

 

 

   

 

 

 
    Total Consumer Services       39,113,237        39,868,372        31.8
       

 

 

   

 

 

   

 

 

 

M/C Acquisition Corp., L.L.C. (d), (g)

  Education   Class A Common Stock     544,761        30,241        —          0.0

M/C Acquisition Corp., L.L.C. (d)

  Education   First Lien Term Loan 1.00% Cash, 3/31/2016   $ 2,321,073        1,193,790        58,043        0.0
       

 

 

   

 

 

   

 

 

 
    Total Education       1,224,031        58,043        0.0
       

 

 

   

 

 

   

 

 

 

 

5


Table of Contents

Group Dekko, Inc. (d)

  Electronics  

Second Lien Term Loan 11.00%

(10.00% Cash/1.00% PIK), 5/1/2016

  $ 6,812,315        6,812,315        6,744,192        5.4
       

 

 

   

 

 

   

 

 

 
    Total Electronics       6,812,315        6,744,192        5.4
       

 

 

   

 

 

   

 

 

 

TM Restaurant Group L.L.C.

  Food and Beverage   First Lien Term Loan 9.75% Cash, 7/16/2017   $ 9,754,132        9,628,738        9,718,041        7.8
       

 

 

   

 

 

   

 

 

 
    Total Food and Beverage       9,628,738        9,718,041        7.8
       

 

 

   

 

 

   

 

 

 

Bristol Hospice, LLC

  Healthcare Services  

Senior Secured Note 11.00%

(10.00% Cash/1.00% PIK), 11/29/2018

  $ 5,431,872        5,356,895        5,431,872        4.3

Bristol Hospice, LLC (j), (l)

  Healthcare Services  

Delayed Draw Term Loan 11.00%

(10.00% Cash/1.00% PIK), 11/29/2018

  $ —          —          —          0.0

Roscoe Medical, Inc. (d), (g)

  Healthcare Services   Common Stock     5,000        500,000        359,700        0.3

Roscoe Medical, Inc.

  Healthcare Services  

Second Lien Term Loan 11.25%

Cash, 9/26/2019

  $ 4,200,000        4,135,700        4,004,280        3.2

Smile Brands Group Inc. (d)

  Healthcare Services  

First Lien Term Loan 8.50%

Cash, 8/16/2019

  $ 4,421,250        4,358,079        2,941,458        2.3

Surgical Specialties Corporation (US),
Inc. (d)

  Healthcare Services  

First Lien Term Loan 7.25%

Cash, 8/22/2018

  $ 2,232,194        2,217,915        2,209,872        1.8

Zest Holdings, LLC (d)

  Healthcare Services  

First Lien Term Loan 5.25%

Cash, 8/16/2020

  $ 4,230,153        4,158,221        4,240,728        3.4
       

 

 

   

 

 

   

 

 

 
    Total Healthcare Services       20,726,810        19,187,910        15.3
       

 

 

   

 

 

   

 

 

 

HMN Holdco, LLC

  Media  

First Lien Term Loan 10.00%

Cash, 5/16/2019

  $ 9,175,732        9,032,417        9,210,141        7.4

HMN Holdco, LLC (j), (k)

  Media  

Deferred Draw Term Loan

10.00% Cash, 5/16/2020

    1,600,000        1,570,640        1,606,000        1.3

HMN Holdco, LLC

  Media   Class A Series     4,264        61,647        249,615        0.2

HMN Holdco, LLC

  Media   Class A Warrant     30,320        438,353        1,429,891        1.1

HMN Holdco, LLC (g)

  Media  

Warrants to Purchase Limited

Liability Company Interests

(Common)

    57,872        —          2,432,360        1.9

HMN Holdco, LLC (g)

  Media  

Warrants to Purchase Limited

Liability Company Interests

    8,139        —          399,543        0.3
       

 

 

   

 

 

   

 

 

 
    Total Media       11,103,057        15,327,550        12.2
       

 

 

   

 

 

   

 

 

 

Elyria Foundry Company, L.L.C.

  Metals   Common Stock     35,000        9,217,564        3,678,150        2.9

Elyria Foundry Company, L.L.C.

  Metals  

Revolver 10.00% Cash,

12/31/2020

  $ 8,500,000        8,500,000        8,500,000        6.8
       

 

 

   

 

 

   

 

 

 
    Total Metals       17,717,564        12,178,150        9.7
       

 

 

   

 

 

   

 

 

 

Censis Technologies, Inc.

  Software as a Service  

First Lien Term Loan B 11.00%

Cash, 7/24/2019

  $ 11,700,000        11,506,533        11,700,000        9.3

Censis Technologies, Inc. (g), (h)

  Software as a Service   Limited Partner Interests     999        999,000        984,364        0.8

Community Investors, Inc. (g)

  Software as a Service   Common Stock     1,282        1,282        4,389        0.0

Community Investors, Inc.

  Software as a Service  

First Lien, Last Out Term Loan

11.73% Cash, 9/30/2019

  $ 12,000,000        12,000,000        12,231,553        9.8

Community Investors, Inc.

  Software as a Service  

First Lien Term Loan B 12.20%

Cash, 12/31/2020

  $ 2,500,000        2,500,000        2,549,688        2.0

Community Investors, Inc. (g)

  Software as a Service   Preferred Stock 10%     63,463        149,138        217,301        0.2

Community Investors, Inc. (g)

  Software as a Service   Preferred Stock - A Shares 10%     135,584        135,584        464,247        0.4

Community Investors, Inc.

  Software as a Service  

Unsecured Note 10.00% PIK,

3/20/2020

  $ 132,324        132,324        132,324        0.1

Finalsite Holdings, Inc.

  Software as a Service  

Second Lien Term Loan 10.25%

Cash, 11/21/2019

  $ 7,500,000        7,437,277        7,500,000        6.0

Identity Automation Systems (g)

  Software as a Service   Common Stock Class A Units     232,616        232,616        286,118        0.2

Identity Automation Systems

  Software as a Service  

First Lien Term Loan 10.25%

Cash, 8/25/2019

  $ 4,425,000        4,387,968        4,425,000        3.5

Mercury Network, LLC

  Software as a Service  

First Lien Term Loan 10.25%

Cash, 4/20/2020

  $ 9,066,305        8,979,792        9,066,305        7.2

Mercury Network, LLC (g)

  Software as a Service   Common Stock     413,043        413,043        466,739        0.4
       

 

 

   

 

 

   

 

 

 
    Total Software as a Service       48,874,557        50,028,028        39.9
       

 

 

   

 

 

   

 

 

 

Advanced Air & Heat of Florida, LLC

  Utilities  

First Lien Term Loan 9.75%

Cash, 1/31/2019

  $ 7,650,000        7,568,084        7,650,000        6.1
       

 

 

   

 

 

   

 

 

 
    Total Utilities       7,568,084        7,650,000        6.1
       

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliated investments

      236,385,079       235,430,731        187.9
       

 

 

   

 

 

   

 

 

 

Control investments - 13.4% (b)

           

Saratoga Investment Corp. CLO 2013-1, Ltd. (a), (d), (e), (f)

  Structured Finance Securities   Other/Structured Finance Securities 21.11%, 10/17/2023   $ 30,000,000        14,304,200        16,754,160        13.4
       

 

 

   

 

 

   

 

 

 

Sub Total Control investments

          14,304,200        16,754,160        13.4
       

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS - 201.3% (b)

      $   250,689,279      $ 252,184,891        201.3
       

 

 

   

 

 

   

 

 

 

 

6


Table of Contents
    Principal/
Number of Shares
    Cost     Fair Value (c)     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 10.1%

       

U.S. Bank Money Market (n)

  $ 12,593,300      $ 12,593,300      $ 12,593,300        10.1
 

 

 

   

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents and cash and cash equivalents, reserve accounts

  $ 12,593,300      $ 12,593,300      $ 12,593,300        10.1
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Represents a non-qualifying investment as defined under Section 55 (a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 7.0% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.
(b) Percentages are based on net assets of $125,258,420 as of August 31, 2015.
(c) Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors. (see Note 3 to the consolidated financial statements).
(d) These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).
(e) This investment does not have a stated interest rate that is payable thereon. As a result, the 21.11% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.
(f) As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

Company

   Purchases      Redemptions      Sales
(Cost)
     Interest
Income
     Management
Fee Income
     Net Realized
Gains/(Losses)
     Net Unrealized
Appreciation
 

Saratoga Investment Corp. CLO
2013-1, Ltd.

   $ —         $ —         $ —         $ 1,269,696       $ 751,898       $ —         $ 2,449,960   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g) Non-income producing at August 31, 2015.
(h) Includes securities issued by an affiliate of the company.
(i) Non-U.S. company. The principal place of business for Polar Holding Company, Ltd. is Canada.
(j) The investment has an unfunded commitment as of August 31, 2015 (See note 7).
(k) Includes an analysis of the fair value of any unfunded loan commitments.
(l) The entire commitment was unfunded at August 31, 2015. As such, no interest is being earned on this investment.
(m) The investment was on non-accrual status as of August 31, 2015
(n) Included within cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s Consolidated Statements of Assets and Liabilities as of August 31, 2015.

 

7


Table of Contents

Saratoga Investment Corp.

Consolidated Schedule of Investments

February 28, 2015

 

Company

  

Industry

  

Investment Interest Rate / Maturity

  Principal/
Number of
Shares
    Cost     Fair Value (c)     % of
Net Assets
 

Non-control/Non-affiliated investments - 182.3% (b)

          

National Truck Protection Co., Inc. (d), (g)

   Automotive Aftermarket    Common Stock     1,116      $ 1,000,000      $ 1,769,432        1.4

National Truck Protection Co., Inc. (d)

   Automotive Aftermarket    First Lien Term Loan 15.50% Cash, 9/13/2018   $ 7,737,848        7,737,848        7,737,848        6.3

Take 5 Oil Change, L.L.C. (d), (g)

   Automotive Aftermarket    Common Stock     7,128        480,535        1,472,502        1.2
         

 

 

   

 

 

   

 

 

 
      Total Automotive Aftermarket       9,218,383        10,979,782        8.9
         

 

 

   

 

 

   

 

 

 

Legacy Cabinets Holdings (d), (g)

   Building Products    Common Stock Voting A-1     2,535        220,900        1,493,470        1.2

Legacy Cabinets Holdings (d), (g)

   Building Products    Common Stock Voting B-1     1,600        139,424        942,624        0.8

Polar Holding Company, Ltd. (a), (i)

   Building Products    First Lien Term Loan 10.00% Cash, 8/13/2016   $ 1,000,000        1,000,000        1,000,000        0.8
         

 

 

   

 

 

   

 

 

 
      Total Building Products       1,360,324        3,436,094        2.8
         

 

 

   

 

 

   

 

 

 

BMC Software, Inc. (d)

   Business Services    First Lien Term Loan 5.00% Cash, 9/10/2020   $ 5,731,667        5,686,622        5,478,327        4.5

Dispensing Dynamics International (d)

   Business Services    Senior Secured Note 12.50% Cash, 1/1/2018   $ 7,000,000        6,910,112        7,350,000        6.0

Easy Ice, LLC (d)

   Business Services    First Lien Term Loan 9.50% Cash, 1/15/2020   $ 12,000,000        11,872,639        12,000,000        9.6

Emily Street Enterprises, L.L.C.

   Business Services    Senior Secured Note 10.00% Cash, 1/23/2020   $ 8,400,000        8,260,787        8,400,000        6.9
      `        

Emily Street Enterprises, L.L.C. (g)

   Business Services    Warrant Membership Interests     49,318        400,000        391,584        0.3

Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)

   Business Services    First Lien Term Loan 5.50% Cash, 6/28/2019   $ 1,955,051        1,941,417        1,925,725        1.6

Help/Systems Holdings, Inc.(Help/Systems, LLC) (d)

   Business Services    Second Lien Term Loan 9.50% Cash, 6/28/2020   $ 2,000,000        1,975,767        1,965,000        1.6

Knowland Technology Holdings, L.L.C.

   Business Services    First Lien Term Loan 11.00% Cash, 11/29/2017   $ 5,259,171        5,205,142        5,259,171        4.3

Knowland Technology Holdings, L.L.C. (j), (k), (l)

   Business Services    Delayed Draw Term Loan 11.00% Cash, 11/29/2017   $ —          —          —          0.0

Vector Controls Holding Co., LLC (d)

   Business Services   

First Lien Term Loan, 14.00%

(12.00% Cash/2.00% PIK), 3/6/2018

  $ 9,436,991        9,312,095        9,295,437        7.6

Vector Controls Holding Co., LLC (d), (g)

   Business Services    Warrants to Purchase Limited Liability Company Interests     101        —          62,341        0.1
         

 

 

   

 

 

   

 

 

 
      Total Business Services       51,564,581        52,127,585        42.5
         

 

 

   

 

 

   

 

 

 

Targus Group International, Inc. (d)

   Consumer Products   

First Lien Term Loan, 12.00%

(11.00% Cash/1.00 PIK), 5/24/2016

  $ 3,569,127        3,537,732        3,283,597        2.7

Targus Holdings, Inc. (d), (g)

   Consumer Products    Common Stock     62,413        566,765        —          0.0

Targus Holdings, Inc. (d), (g)

   Consumer Products    Unsecured Note 10.00% PIK, 6/14/2019   $ 2,054,158        2,054,158        —          0.0

Targus Holdings, Inc. (d), (g)

   Consumer Products    Unsecured Note 16.00% PIK, 10/26/2018   $ 429,797        425,227        —          0.0
         

 

 

   

 

 

   

 

 

 
      Total Consumer Products       6,583,882        3,283,597        2.7
         

 

 

   

 

 

   

 

 

 

Avionte Holdings, LLC (g)

   Consumer Services    Common Stock     100,000        100,000        163,000        0.1

Avionte Holdings, LLC

   Consumer Services    First Lien Term Loan 9.75% Cash, 1/8/2019   $ 3,000,000        2,951,759        3,000,000        2.4

Avionte Holdings, LLC (j), (l)

   Consumer Services    Delayed Draw Term Loan A 9.75% Cash, 1/8/2019   $ —          —          —          0.0

CFF Acquisition L.L.C. (d)

   Consumer Services    First Lien Term Loan 7.50% Cash, 7/31/2015   $ 716,179        714,270        716,179        0.6

Expedited Travel L.L.C. (g)

   Consumer Services    Common Stock     1,000,000        1,000,000        1,069,157        0.9

Expedited Travel L.L.C.

   Consumer Services    First Lien Term Loan 10.00% Cash, 10/10/2019   $ 13,750,000        13,609,579        13,750,000        11.2

PrePaid Legal Services, Inc. (d)

   Consumer Services    First Lien Term Loan 6.25% Cash, 7/1/2019   $ 3,709,677        3,680,863        3,652,919        3.0

PrePaid Legal Services, Inc. (d)

   Consumer Services    Second Lien Term Loan 9.75% Cash, 7/1/2020   $ 5,000,000        4,937,212        4,981,000        4.1
         

 

 

   

 

 

   

 

 

 
      Total Consumer Services       26,993,683        27,332,255        22.3
         

 

 

   

 

 

   

 

 

 

M/C Acquisition Corp., L.L.C. (d), (g)

   Education    Class A Common Stock     544,761        30,241        —          0.0

M/C Acquisition Corp., L.L.C. (d)

   Education    First Lien Term Loan 1.00% Cash, 3/31/2015   $ 2,362,978        1,235,695        100,951        0.1
         

 

 

   

 

 

   

 

 

 
      Total Education       1,265,936        100,951        0.1
         

 

 

   

 

 

   

 

 

 

Group Dekko, Inc. (d)

   Electronics   

Second Lien Term Loan 11.00%

(10.00% Cash/1.00% PIK), 5/1/2016

  $ 6,950,048        6,950,048        6,667,181        5.4
         

 

 

   

 

 

   

 

 

 
      Total Electronics       6,950,048        6,667,181        5.4
         

 

 

   

 

 

   

 

 

 

 

8


Table of Contents

TB Corp. (d)

   Food and Beverage    First Lien Term Loan 5.76% Cash, 6/19/2018   $ 5,050,436        5,038,131        5,037,810        4.0

TB Corp. (d)

   Food and Beverage    Unsecured Note 13.50% (12.00% Cash/1.50% PIK), 12/20/2018   $ 2,546,121        2,512,732        2,546,121        2.1

TM Restaurant Group L.L.C.

   Food and Beverage    First Lien Term Loan 7.75% Cash, 7/16/2017   $ 2,791,595        2,791,595        2,763,679        2.3
         

 

 

   

 

 

   

 

 

 
      Total Food and Beverage       10,342,458        10,347,610        8.4
         

 

 

   

 

 

   

 

 

 

Bristol Hospice, LLC

   Healthcare Services   

Senior Secured Note 11.00%

(10.00% Cash/1.00% PIK), 11/29/2018

  $ 5,459,134        5,374,249        5,459,134        4.4

Bristol Hospice, LLC (j), (l)

   Healthcare Services   

Delayed Draw Term Loan 11.00%

(10.00% Cash/1.00% PIK), 11/29/2018

  $ —          —          —          0.0

Roscoe Medical, Inc. (d), (g)

   Healthcare Services    Common Stock     5,000        500,000        294,500        0.2

Roscoe Medical, Inc.

   Healthcare Services    Second Lien Term Loan 11.25% Cash, 9/26/2019   $ 4,200,000        4,129,704        3,990,000        3.3

Smile Brands Group Inc. (d)

   Healthcare Services    First Lien Term Loan 7.50% Cash, 8/16/2019   $ 4,443,750        4,373,369        4,159,350        3.4

Surgical Specialties Corporation (US), Inc. (d)

   Healthcare Services    First Lien Term Loan 7.25% Cash, 8/22/2018   $ 2,312,500        2,295,234        2,277,813        1.9

Zest Holdings, LLC (d)

   Healthcare Services    First Lien Term Loan 5.25% Cash, 8/16/2020   $ 4,443,919        4,361,438        4,460,806        3.6
         

 

 

   

 

 

   

 

 

 
      Total Healthcare Services       21,033,994        20,641,603        16.8
         

 

 

   

 

 

   

 

 

 

HMN Holdco, LLC

   Media   

First Lien Term Loan 14.00%

(12.00% Cash/2.00% PIK), 5/16/2019

  $ 9,368,327        9,206,438        9,579,115        7.9

HMN Holdco, LLC

   Media    First Lien Term Loan 12.00% Cash, 5/16/2020   $ 1,600,000        1,569,149        1,576,000        1.3

HMN Holdco, LLC (j), (k)

   Media    Deferred Draw Term Loan 12.00% Cash, 5/16/2020   $ —          —          (36,000     0.0

HMN Holdco, LLC (g)

   Media    Class A Series     4,264        61,647        223,604        0.2

HMN Holdco, LLC (g)

   Media    Class A Warrant     30,320        438,353        1,247,365        1.0

HMN Holdco, LLC (g)

   Media    Warrants to Purchase Limited Liability Company Interests (Common)     57,872        —          2,085,128        1.7

HMN Holdco, LLC (g)

   Media    Warrants to Purchase Limited Liability Company Interests     8,139        —          350,464        0.3
         

 

 

   

 

 

   

 

 

 
      Total Media       11,275,587        15,025,676        12.4
         

 

 

   

 

 

   

 

 

 

Elyria Foundry Company, L.L.C. (d), (g)

   Metals    Common Stock     35,000        9,217,563        6,762,000        5.5

Elyria Foundry Company, L.L.C. (d)

   Metals    Revolver 9.00% Cash, 12/31/2020   $ 8,500,000        8,500,000        8,500,000        6.8
         

 

 

   

 

 

   

 

 

 
      Total Metals       17,717,563        15,262,000        12.3
         

 

 

   

 

 

   

 

 

 

Network Communications, Inc. (d), (g)

   Publishing    Common Stock     380,572        —          300,652        0.2

Network Communications, Inc. (d)

   Publishing    Unsecured Notes 8.60% PIK, 1/14/2020   $ 2,732,976        2,374,260        1,684,118        1.4
         

 

 

   

 

 

   

 

 

 
      Total Publishing       2,374,260        1,984,770        1.6
         

 

 

   

 

 

   

 

 

 

Censis Technologies, Inc.

   Software as a Service    First Lien Term Loan B 11.00% Cash, 7/24/2019   $ 11,850,000        11,634,939        11,850,000        9.7

Censis Technologies, Inc. (g), (h)

   Software as a Service    Limited Partner Interests     999        999,000        981,627        0.8

Community Investors, Inc. (g)

   Software as a Service    Common Stock     1,282        1,282        1,769        0.0

Community Investors, Inc.

   Software as a Service    First Lien, Last Out Term Loan 11.78% Cash, 9/30/2019   $ 12,000,000        12,000,000        12,000,000        9.7

Community Investors, Inc.

   Software as a Service    First Lien Term Loan B 12.25% Cash, 12/31/2020   $ 2,500,000        2,500,000        2,500,000        2.0

Community Investors, Inc. (g)

   Software as a Service    Preferred Stock 10%     63,463        149,138        87,579        0.1

Community Investors, Inc.

   Software as a Service    Preferred Stock - A2 10%     38,641        100,853        53,325        0.0

Community Investors, Inc. (g)

   Software as a Service    Preferred Stock - A Shares 10%     135,584        135,584        187,106        0.2

Finalsite Holdings, Inc.

   Software as a Service    Second Lien Term Loan 10.25% Cash, 11/21/2019   $ 7,500,000        7,429,305        7,500,000        6.1

Identity Automation Systems (g)

   Software as a Service    Common Stock Class A Units     232,616        232,616        225,638        0.2

Identity Automation Systems

   Software as a Service    First Lien Term Loan 10.25% Cash, 8/25/2019   $ 4,475,000        4,433,897        4,475,000        3.7

Pen-Link, Ltd. (d)

   Software as a Service    Second Lien Term Loan 12.50% Cash, 5/26/2019   $ 10,500,000        10,326,376        10,500,000        8.6
         

 

 

   

 

 

   

 

 

 
      Total Software as a Service       49,942,990        50,362,044        41.1
         

 

 

   

 

 

   

 

 

 

Advanced Air & Heat of Florida, LLC

   Utilities    First Lien Term Loan 10.00% Cash, 1/31/2019   $ 5,955,441        5,881,694        5,955,441        5.0
         

 

 

   

 

 

   

 

 

 
      Total Utilities       5,881,694        5,955,441        5.0
         

 

 

   

 

 

   

 

 

 

Sub Total Non-control/Non-affiliated investments

         222,505,383        223,506,589        182.3
         

 

 

   

 

 

   

 

 

 

 

9


Table of Contents

Control investments - 13.9% (b)

             

Saratoga Investment Corp. CLO 2013-1, Ltd. (a), (d), (e), (f)

   Structured Finance Securities    Other/Structured Finance Securities 14.32%, 10/17/2023   $ 30,000,000        15,953,001        17,031,146        13.9
         

 

 

   

 

 

   

 

 

 

Sub Total Control investments

            15,953,001        17,031,146        13.9
         

 

 

   

 

 

   

 

 

 

TOTAL INVESTMENTS - 196.2% (b)

       $ 238,458,384      $ 240,537,735        196.2
         

 

 

   

 

 

   

 

 

 
              Principal/
Number of Shares
    Cost     Fair Value (c)     % of
Net Assets
 

Cash and cash equivalents and cash and cash equivalents, reserve accounts - 16.4%

       

U.S. Bank Money Market (m)

        $ 20,063,372      $ 20,063,372      $ 20,063,372        16.4
       

 

 

   

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents and cash and cash equivalents, reserve accounts

  $ 20,063,372      $ 20,063,372      $ 20,063,372        16.4
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Represents a non-qualifyng investment as defined under Section 55 (a) of the Investment Company Act of 1940, as amended. Non-qualifying assets represent 7.5% of the Company’s portfolio at fair value. As a BDC, the Company can only invest 30% of its portfolio in non-qualifying assets.
(b) Percentages are based on net assets of $122,598,742, as of February 28, 2015.
(c) Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors. (see Note 3 to the consolidated financial statements).
(d) These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).
(e) This investment does not have a stated interest rate that is payable thereon. As a result, the 14.32% interest rate in the table above represents the effective interest rate currently earned on the investment cost and is based on the current cash interest and other income generated by the investment.
(f) As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

Company

   Purchases      Redemptions      Sales
(Cost)
     Interest
Income
     Management
Fee Income
     Net Realized
Gains/(Losses)
     Net Unrealized
Appreciation
 

Saratoga Investment Corp. CLO 2013-1, Ltd.

   $ —         $ —         $ —         $ 2,707,230       $ 1,520,205       $ —         $ 1,078,145   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(g) Non-income producing at February 28, 2015.
(h) Includes securities issued by an affiliate of the company.
(i) Non-U.S. company. The principal place of business for Polar Holding Company, Ltd. is Canada.
(j) The investment has an unfunded commitment as of February 28, 2015 (See note 7).
(k) Includes an analysis of the value of any unfunded loan commitments.
(l) The entire commitment was unfunded at February 28, 2015. As such, no interest is being earned on this investment.
(m) Included within cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s Consolidated Statements of Assets and Liabilities as of February 28, 2015.

 

10


Table of Contents

Saratoga Investment Corp.

Consolidated Statements of Changes in Net Assets

(unaudited)

 

     For the six months ended
August 31, 2015
    For the six months ended
August 31, 2014
 

INCREASE FROM OPERATIONS:

    

Net investment income

   $ 5,428,114      $ 4,156,402   

Net realized gain from investments

     3,783,193        441,841   

Net unrealized appreciation/(depreciation) on investments

     (583,739     318,809   
  

 

 

   

 

 

 

Net increase in net assets from operations

     8,627,568        4,917,052   
  

 

 

   

 

 

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

    

Distributions declared

     (8,738,812     —     
  

 

 

   

 

 

 

Net decrease in net assets from shareholder distributions

     (8,738,812     —     
  

 

 

   

 

 

 

CAPITAL SHARE TRANSACTIONS:

    

Stock dividend distribution

     3,047,190        —     

Repurchases of common stock

     (38,981     —     

Offering costs

     (237,287     —     
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     2,770,922        —     
  

 

 

   

 

 

 

Total increase in net assets

     2,659,678        4,917,052   

Net assets at beginning of period

     122,598,742        113,427,929   
  

 

 

   

 

 

 

Net assets at end of period

   $ 125,258,420      $ 118,344,981   
  

 

 

   

 

 

 

Net asset value per common share

   $ 22.42      $ 22.00   

Common shares outstanding at end of period

     5,586,254        5,379,616   

Distribution in excess of net investment income

   $ (27,216,301   $ (26,967,265

See accompanying notes to consolidated financial statements.

 

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Saratoga Investment Corp.

Consolidated Statements of Cash Flows

(unaudited)

 

     For the six months ended
August 31, 2015
    For the six months ended
August 31, 2014
 

Operating activities

    

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 8,627,568      $ 4,917,052   

ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:

    

Paid-in-kind interest income

     (828,420     (371,527

Net accretion of discount on investments

     (273,250     (382,571

Amortization of deferred debt financing costs

     442,921        512,481   

Amortization of premium on notes

     (1,040     —     

Net realized gain from investments

     (3,783,193     (441,841

Net unrealized (appreciation) depreciation on investments

     583,739        (318,809

Proceeds from sale and redemption of investments

     34,772,774        24,387,382   

Purchase of investments

     (42,118,806     (53,347,634

(Increase) decrease in operating assets:

    

Cash and cash equivalents, reserve accounts

     6,086,197        77,442   

Interest receivable

     (220,056     (742,554

Management fee receivable

     (2,519     (16,925

Other assets

     (228,717     (48,308

Receivable from unsettled trades

     (100,000     —     

Increase (decrease) in operating liabilities:

    

Management and incentive fees payable

     201,285        341,379   

Accounts payable and accrued expenses

     (262,229     (288,213

Interest and debt fees payable

     139,806        162,938   

Due to manager

     (13,141     20,000   
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     3,022,919        (25,539,708
  

 

 

   

 

 

 

Financing activities

    

Borrowings on debt

     10,600,000        27,600,000   

Paydowns on debt

     (18,200,000     (4,700,000.00

Issuance of notes

     8,945,175        —     

Debt financing cost

     (350,607     (382,812

Repurchases of common stock

     (38,981     —     

Payments of cash dividends

     (5,362,381     —     
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     (4,406,794     22,517,188   
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (1,383,875     (3,022,520

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     1,888,158        3,293,898   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 504,283      $ 271,378   
  

 

 

   

 

 

 

Supplemental information:

    

Interest paid during the period

   $ 3,529,114      $ 2,921,683   

Supplemental non-cash information:

    

Paid-in-kind interest income

   $ 828,420      $ 371,527   

Net accretion of discount on investments

   $ 273,250      $ 382,571   

Amortization of deferred debt financing costs

   $ 442,921      $ 512,481   

Stock dividend distribution

   $ 3,047,190      $ —     

See accompanying notes to consolidated financial statements.

 

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SARATOGA INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2015

(unaudited)

Note 1. Organization

Saratoga Investment Corp. (the “Company”, “we”, “our” and “us”) is a non-diversified closed end management investment company incorporated in Maryland that has elected to be treated and is regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). We commenced operations on March 23, 2007 as GSC Investment Corp. and completed our initial public offering (“IPO”) on March 28, 2007. We have elected to be treated as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code (the “Code”). We expect to continue to qualify and to elect to be treated for tax purposes as a RIC. Our investment objective is to generate current income and, to a lesser extent, capital appreciation from our investments.

GSC Investment, LLC (the “LLC”) was organized in May 2006 as a Maryland limited liability company. As of February 28, 2007, the LLC had not yet commenced its operations and investment activities.

On March 21, 2007, the Company was incorporated and concurrently therewith the LLC was merged with and into the Company, with the Company as the surviving entity, in accordance with the procedure for such merger in the LLC’s limited liability company agreement and Maryland law. In connection with such merger, each outstanding limited liability company interest of the LLC was converted into a share of common stock of the Company.

On July 30, 2010, the Company changed its name from “GSC Investment Corp.” to “Saratoga Investment Corp.”.

We are externally managed and advised by our investment adviser, Saratoga Investment Advisors, LLC (the “Manager”), pursuant to the Management Agreement. Prior to July 30, 2010, we were managed and advised by GSCP (NJ), L.P.

On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP (“SBIC LP”), received a Small Business Investment Company (“SBIC”) license from the Small Business Administration (“SBA”).

On April 2, 2015, the SBA issued a “green light” or “go forth” letter inviting us to continue our application process to obtain a license to form and operate its second SBIC subsidiary. If approved, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue $75 million of additional SBA-guaranteed debentures in addition to the $150 million already approved under the first license. Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license and we have received no assurance or indication from the SBA that it will receive an SBIC license, or of the timeframe in which it would receive a license, should one be granted.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its special purpose financing subsidiary, Saratoga Investment Funding, LLC (previously known as GSC Investment Funding LLC). All intercompany accounts and transactions have been eliminated in consolidation. All references made to the “Company,” “we,” and “us” herein include Saratoga Investment Corp. and its consolidated subsidiary, except as stated otherwise.

The Company and SBIC LP are both considered to be investment companies for financial reporting purposes and have applied the guidance in Topic 946, “Financial Services — Investment Companies”. There have been no changes to the Company or SBIC LP’s status as investment companies during the six months ended August 31, 2015.

 

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Use of Estimates in the Preparation of Financial Statements

The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and income, gains (losses) and expenses during the period reported. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value. Per section 12(d)(1)(A) of the 1940 Act, the Company may not invest in another registered investment company such as a money market fund, if such investment would cause the Company to exceed any of the following limitations:

 

    we were to own more than 3.0% of the total outstanding voting stock of the money market fund;

 

    we were to hold securities in the money market fund having an aggregate value in excess of 5.0% of the value of our total assets; or

 

    we were to hold securities in money market funds and other registered investment companies and BDCs having an aggregate value in excess of 10.0% of the value of our total assets.

As of August 31, 2015, the Company did not exceed any of these limitations.

Cash and Cash Equivalents, Reserve Accounts

Cash and cash equivalents, reserve accounts include amounts held in designated bank accounts in the form of cash and short-term liquid investments in money market funds representing payments received on secured investments or other reserved amounts associated with our $45.0 million senior secured revolving credit facility with Madison Capital Funding LLC. The Company is required to use these amounts to pay interest expense, reduce borrowings, or pay other amounts in accordance with the terms of the senior secured revolving credit facility.

Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which we own more than 25.0% of the voting securities or maintain greater than 50.0% of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which we own between 5.0% and 25.0% of the voting securities. Under the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments nor Affiliated Investments.

Investment Valuation

The Company accounts for its investments at fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that its investments are to be sold at the statement of assets and liabilities date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from our Manager, the audit committee of our board of directors and a third party independent valuation firm. Determinations of fair value may involve subjective judgments and estimates. The types of factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow and other relevant factors.

 

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We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

 

    Each investment is initially valued by the responsible investment professionals of our Manager and preliminary valuation conclusions are documented and discussed with the senior management of our Manager; and

 

    An independent valuation firm engaged by our board of directors reviews approximately one quarter of these preliminary valuations each quarter so that the valuation of each investment for which market quotes are not readily available is reviewed by the independent valuation firm at least annually.

In addition, all our investments are subject to the following valuation process:

 

    The audit committee of our board of directors reviews each preliminary valuation and our Manager and independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee; and

 

    Our board of directors discusses the valuations and approves the fair value of each investment, in good faith, based on the input of our Manager, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

Our investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”) is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by our Manager and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rate and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flows analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO.

Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed. Our net asset value could be materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal of such investments.

Derivative Financial Instruments

We account for derivative financial instruments in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires recognizing all derivative instruments as either assets or liabilities on the consolidated statements of assets and liabilities at fair value. The Company values derivative contracts at the closing fair value provided by the counterparty. Changes in the values of derivative contracts are included in the consolidated statements of operations.

Investment Transactions and Income Recognition

Purchases and sales of investments and the related realized gains or losses are recorded on a trade-date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on its investments when it is determined that interest is no longer collectible. Discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortizations of premium on investments.

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as a reduction in principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection.

 

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Interest income on our investment in Saratoga CLO is recorded using the effective interest method in accordance with the provisions of ASC Topic 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, (“ASC 325-40”), based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

Other Income

Other income includes dividends received, origination fees, structuring fees and advisory fees, and is recorded in income when earned.

Paid-in-Kind Interest

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We stop accruing PIK interest if we do not expect the issuer to be able to pay all principal and interest when due.

Deferred Debt Financing Costs

Financing costs incurred in connection with our credit facility are deferred and amortized using the straight line method over the life of their respective facilities. Financing costs incurred in connection with our SBA debentures are deferred and amortized using the effective yield method over the life of the debentures.

In April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented on the consolidated statements of assets and liabilities as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is allowed, and is to be applied on a retrospective basis. The Company has adopted the provisions of ASU 2015-03 as of February 28, 2015, by reclassifying deferred debt financing costs from within total assets to within total liabilities as a contra-liability. The adoption of the provisions of ASU 2015-03 did not materially impact the Company’s consolidated financial position or results of operations. Prior period amounts were reclassified to conform to the current period presentation.

Contingencies

In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote.

In the ordinary course of business, the Company may directly or indirectly be a defendant or plaintiff in legal actions with respect to bankruptcy, insolvency or other types of proceedings. Such lawsuits may involve claims that could adversely affect the value of certain financial instruments owned by the Company.

Income Taxes

The Company has filed an election to be treated for tax purposes as a RIC under Subchapter M of the Code and, among other things, intends to make the requisite distributions to its stockholders which will relieve the Company from federal income taxes. Therefore, no provision has been recorded for federal income taxes.

In order to qualify as a RIC, among other requirements, the Company is required to timely distribute to its stockholders at least 90.0% of its investment company taxable income, as defined by the Code, for each fiscal tax year. The Company will be subject to a nondeductible U.S. federal excise tax of 4.0% on undistributed income if it does not distribute at least 98.0% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31.

 

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Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4.0% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.

In accordance with certain applicable Treasury regulations and private letter rulings issued by the Internal Revenue Service, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC subject to a limitation on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20.0% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash will receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20.0% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock.

ASC 740, Income Taxes, (“ASC 740”), provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the consolidated statements of operations. During the fiscal year ended February 28, 2015, the Company did not incur any interest or penalties. Although we file federal and state tax returns, our major tax jurisdiction is federal. The 2012, 2013 and 2014 federal tax years for the Company remain subject to examination by the IRS. As of August 31, 2015 and February 28, 2015, there were no uncertain tax positions.

Dividends

Dividends to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the board of directors. Net realized capital gains, if any, are generally distributed at least annually, although we may decide to retain such capital gains for reinvestment.

We have adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of our dividend distributions on behalf of our stockholders unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of the DRIP by the dividend record date will have their cash dividends automatically reinvested into additional shares of our common stock, rather than receiving the cash dividends. We have the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator.

Capital Gains Incentive Fee

The Company records an expense accrual on the consolidated statements of operations, relating to the capital gains incentive fee payable on the consolidated statements of assets and liabilities, by the Company to its investment adviser when the net realized and unrealized gain on its investments exceed all net realized and unrealized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the investment adviser if the Company were to liquidate its investment portfolio at such time. The actual incentive fee payable to the Company’s investment adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains net of realized and unrealized losses for the period.

 

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New Accounting Pronouncements

In August 2015, the FASB issued ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”). ASU 2015-15 updates the accounting guidance included in ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs as a result of the June 18, 2015, Emerging Issues Task Force meeting, in which the SEC stated that the SEC staff would not object to an entity deferring and presenting costs related to revolving debt arrangements as an asset. As the Company has previously adopted the provisions of ASU 2015-03 as of February 28, 2015 and reclassified all deferred debt financing costs from within total assets to within total liabilities as a contra-liability, it has chosen not to avail itself of this option and continue to include all deferred financing costs as a contra-liability within total liabilities.

In February 2015, the FASB issued ASU 2015-02, Consolidation (ASC Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 significantly changes the consolidation analysis required under GAAP and ends the deferral granted to investment companies from applying the variable interest entity guidance. ASU 2015-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015 and early adoption is permitted. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In August 2014, the FASB issued new accounting guidance that requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments provide a definition of the term “substantial doubt” and include principles for considering the mitigating effect of management’s plans. The amendments also require an evaluation every reporting period, including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued), and certain disclosures when substantial doubt is alleviated or not alleviated. The amendments in this update are effective for reporting periods ending after December 15, 2016. Management is currently evaluating the impact of adopting this new accounting guidance update on the company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim reporting periods beginning after December 15, 2016, and early application is not permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

Risk Management

In the ordinary course of its business, the Company manages a variety of risks, including market risk and credit risk. Market risk is the risk of potential adverse changes to the value of investments because of changes in market conditions such as interest rate movements and volatility in investment prices.

Credit risk is the risk of default or non-performance by portfolio companies, equivalent to the investment’s carrying amount.

The Company is also exposed to credit risk related to maintaining all of its cash and cash equivalents, including those in reserve accounts, at a major financial institution and credit risk related to any of its derivative counterparties.

The Company has investments in lower rated and comparable quality unrated high yield bonds and bank loans. Investments in high yield investments are accompanied by a greater degree of credit risk. The risk of loss due to default by the issuer is significantly greater for holders of high yield securities, because such investments are generally unsecured and are often subordinated to other creditors of the issuer.

Note 3. Investments

As noted above, the Company values all investments in accordance with ASC 820. ASC 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

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Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

 

    Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

    Level 2—Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.

 

    Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs used in the determination of fair value may require significant management judgment or estimation. Such information may be the result of consensus pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 asset, assuming no additional corroborating evidence.

In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors that is consistent with ASC 820 and the 1940 Act (see Note 2). Consistent with our Company’s valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value.

The following table presents fair value measurements of investments, by major class, as of August 31, 2015 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

Syndicated loans

   $ —         $ —         $ 16,571       $ 16,571   

First lien term loans

     —           —           156,742         156,742   

Second lien term loans

     —           —           42,071         42,071   

Unsecured notes

     —           —           132         132   

Structured finance securities

     —           —           16,754         16,754   

Equity interests

     —           —           19,915         19,915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ 252,185       $ 252,185   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents fair value measurements of investments, by major class, as of February 28, 2015 (dollars in thousands), according to the fair value hierarchy:

 

     Fair Value Measurements  
     Level 1      Level 2      Level 3      Total  

Syndicated loans

   $ —         $ —         $ 18,302       $ 18,302   

First lien term loans

     —           —           145,207         145,207   

Second lien term loans

     —           —           35,603         35,603   

Unsecured notes

     —           —           4,230         4,230   

Structured finance securities

     —           —           17,031         17,031   

Equity interests

     —           —           20,165         20,165   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ 240,538       $ 240,538   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended August 31, 2015 (dollars in thousands):

 

     Syndicated
loans
    First lien
term loans
    Second
lien
term loans
    Unsecured
notes
    Structured
finance
securities
    Common
stock/
equities
    Total  

Balance as of February 28, 2015

   $ 18,302      $ 145,207      $ 35,603      $ 4,230      $ 17,031      $ 20,165      $ 240,538   

Net unrealized appreciation/(depreciation) on investments

     (1,400     (726     76        656        1,372        (562     (584

Purchases and other adjustments to cost

     20        25,217        16,901        668        —          413        43,219   

Sales and redemptions

     (356     (13,050     (10,673     (5,784     (1,649     (3,260     (34,772

Net realized gain from investments

     5        94        164       261       —          3,260        3,784   

Transfers in/out

     —          —          —          101        —          (101     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of August 31, 2015

   $ 16,571      $ 156,742      $ 42,071      $ 132      $ 16,754      $ 19,915      $ 252,185   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK.

Sales and redemptions represent net proceeds received from investments sold, and principal paydowns received, during the period.

The net change in unrealized appreciation/(depreciation) for the six months ended August 31, 2015 on investments held as of August 31, 2015 is ($955,584) and is included in net unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

 

20


Table of Contents

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended August 31, 2014 (dollars in thousands):

 

     Syndicated
loans
    First lien
term loans
    Second
lien
term loans
    Unsecured
notes
     Structured
finance
securities
     Common
stock/
equities
    Total  

Balance as of February 28, 2014

   $ 32,390      $ 110,278      $ 27,804      $ 5,471       $ 19,570       $ 10,332      $ 205,845   

Net unrealized appreciation/(depreciation) on investments

     (256     (1,503     (263     322         520         1,499        319   

Purchases and other adjustments to cost

     28        40,522        11,175        116         —           2,260        54,101   

Sales and redemptions

     (5,383     (9,408     (9,500     —           —           (96     (24,387

Net realized gain (loss) from investments

     35        735        46        —           —           (374     442   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Balance as of August 31, 2014

   $ 26,814      $ 140,624      $ 29,262      $ 5,909       $ 20,090       $ 13,261      $ 236,320   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK.

Sales and redemptions represent net proceeds received from investments sold, and principal paydowns received, during the period.

The net change in unrealized appreciation/(depreciation) for the six months ended August 31, 2014 on investments held as of August 31, 2014 was $734,740 and is included in net unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of August 31, 2015 were as follows (dollars in thousands):

 

     Fair Value      Valuation Technique    Unobservable Input   Range

Syndicated loans

     16,571       Market Comparables    Third-Party Bid   64.5% - 100.3%

First lien term loans

     156,742       Market Comparables    Market Yield (%)   6.1% - 15.5%
         EBITDA Multiples (x)   0.1x - 3.0x
         Third-Party Bid   79.3% - 100.1%

Second lien term loans

     42,071       Market Comparables    Market Yield (%)   8.5% - 12.8%
         Third-Party Bid   100.0% - 100.1%

Unsecured notes

     132       Market Comparables    Market Yield (%)   10.0% - 13.2%

Structured finance securities

     16,754       Discounted Cash Flow    Discount Rate (%)   12.0%

Equity interests

     19,915       Market Comparables    EBITDA Multiples (x)   5.0x - 11.0x

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of February 28, 2015 were as follows (dollars in thousands):

 

     Fair Value      Valuation Technique    Unobservable Input   Range

Syndicated loans

     18,302       Market Comparables    Third-Party Bid   93.6% - 100.4%

First lien term loans

     145,207       Market Comparables    Market Yield (%)   5.8% - 17.7%
         EBITDA Multiples (x)   3.0x
         Third-Party Bid   79.3 - 105.0

Second lien term loans

     35,603       Market Comparables    Market Yield (%)   8.5% - 15.0%
         Third-Party Bid   98.3% - 98.3%

Unsecured notes

     4,230       Market Comparables    Market Yield (%)   13.2% - 20.3%

Structured finance securities

     17,031       Discounted Cash Flow    Discount Rate (%)   12.0%

Equity interests

     20,165       Market Comparables    EBITDA Multiples (x)   5.0x - 12.1x

For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the EBITDA valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement.

 

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Table of Contents

The composition of our investments as of August 31, 2015, at amortized cost and fair value were as follows (dollars in thousands):

 

     Investments at
Amortized Cost
     Amortized Cost
Percentage of
Total Portfolio
    Investments at
Fair Value
     Fair Value
Percentage of
Total Portfolio
 

Syndicated loans

   $ 18,327         7.3   $ 16,571         6.6

First lien term loans

     157,219         62.7        156,742         62.1   

Second lien term loans

     42,141         16.8        42,071         16.7   

Unsecured notes

     2,612         1.1        132         0.1   

Structured finance securities

     14,304         5.7        16,754         6.6   

Equity interests

     16,086         6.4        19,915         7.9   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 250,689         100.0   $ 252,185         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

The composition of our investments as of February 28, 2015, at amortized cost and fair value were as follows (dollars in thousands):

 

     Investments at
Amortized Cost
     Amortized Cost
Percentage of
Total Portfolio
    Investments at
Fair Value
     Fair Value
Percentage of
Total Portfolio
 

Syndicated loans

   $ 18,658         7.8   $ 18,302         7.6

First lien term loans

     144,959         60.8        145,207         60.3   

Second lien term loans

     35,748         15.0        35,603         14.8   

Unsecured notes

     7,366         3.1        4,230         1.8   

Structured finance securities

     15,953         6.7        17,031         7.1   

Equity interests

     15,774         6.6        20,165         8.4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 238,458         100.0   $ 240,538         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

For loans and debt securities for which market quotations are not available, we determine their fair value based on third party indicative broker quotes, where available, or the assumptions that a hypothetical market participant would use to value the security in a current hypothetical sale using a market yield valuation methodology. In applying the market yield valuation methodology, we determine the fair value based on such factors as market participant assumptions including synthetic credit ratings, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date. If, in our judgment, the market yield methodology is not sufficient or appropriate, we may use additional methodologies such as an asset liquidation or expected recovery model.

For equity securities of portfolio companies and partnership interests, we determine the fair value based on the market approach with value then attributed to equity or equity like securities using the enterprise value waterfall valuation methodology. Under the enterprise value waterfall valuation methodology, we determine the enterprise fair value of the portfolio company and then waterfall the enterprise value over the portfolio company’s securities in order of their preference relative to one another. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities. We also take into account historical and anticipated financial results.

Our investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”) is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by our Manager and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our

 

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Table of Contents

investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rate and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. For the quarter ended November 30, 2013, in connection with the refinancing of the Saratoga CLO liabilities, we ran Intex models based on assumptions about the refinanced Saratoga CLO’s structure, including capital structure, cost of liabilities and reinvestment period. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flows analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO at August 31, 2015. The significant inputs for the valuation model include:

 

    Default rates: 2.0%

 

    Recovery rates: 35-75%

 

    Prepayment rate: 25.0%

 

    Reinvestment rate / price: L+375bps / $99.75

Note 4. Investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”)

On January 22, 2008, we invested $30 million in all of the outstanding subordinated notes of GSC Investment Corp. CLO 2007, Ltd., a collateralized loan obligation fund managed by us that invests primarily in senior secured loans. Additionally, we entered into a collateral management agreement with GSC Investment Corp. CLO 2007, Ltd. pursuant to which we act as collateral manager to it. The Saratoga CLO was refinanced in October 2013 and its reinvestment period ends in October 2016. The Saratoga CLO remains 100% owned and managed by Saratoga Investment Corp. We receive a base management fee of 0.25% and a subordinated management fee of 0.25% of the Fee Basis Amount at the beginning of the Collection Period, paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20.0% of the remaining interest proceeds and principal proceeds, if any, after the subordinated notes have realized the incentive management fee target return of 12.0%, in accordance with the Priority of Payments after making the prior distributions on the relevant payment date. For the three months ended August 31, 2015 and August 31, 2014, we accrued $0.4 million and $0.4 million in management fee income, respectively, and $0.7 million and $0.7 million in interest income, respectively, from Saratoga CLO. For the six months ended August 31, 2015 and August 31, 2014, we accrued $0.8 million and $0.8 million in management fee income, respectively, and $1.3 million and $1.3 million in interest income, respectively, from Saratoga CLO. We did not accrue any amounts related to the incentive management fee as the 12.0% hurdle rate has not yet been achieved.

At August 31, 2015, the Company determined that the fair value of its investment in the subordinated notes of Saratoga CLO was $16.8 million. The Company determines the fair value of its investment in the subordinated notes of Saratoga CLO based on the present value of the projected future cash flows of the subordinated notes over the life of Saratoga CLO. At August 31, 2015, Saratoga CLO had investments with a principal balance of $313.9 million and a weighted average spread over LIBOR of 4.3%, and had debt with a principal balance of $282.4 million with a weighted average spread over LIBOR of 1.8%. As a result, Saratoga CLO earns a “spread” between the interest income it receives on its investments and the interest expense it pays on its debt and other operating expenses, which is distributed quarterly to the Company as the holder of its subordinated notes. At August 31, 2015, the total “spread”, or projected future cash flows of the subordinated notes, over the life of Saratoga CLO was $17.1 million, which had a present value of approximately $16.8 million, using an 12.0% discount rate.

Below is certain financial information from the separate financial statements of Saratoga CLO as of August 31, 2015 (unaudited) and February 28, 2015 and for the three and six months ended August 31, 2015 and August 31, 2014 (unaudited).

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Assets and Liabilities

 

     As of  
     August 31, 2015     February 28, 2015  
     (unaudited)        

ASSETS

    

Investments

    

Fair Value Loans (amortized cost of $312,042,120, and $295,193,588, respectively)

   $ 308,218,074      $ 294,621,817   

Fair Value Other/Structured finance securities (amortized cost of $2,566,752 and $2,566,752, respectively)

     159,680        617,451   
  

 

 

   

 

 

 

Total investments at fair value (amortized cost of $314,608,872 and $297,760,340, respectively)

     308,377,754        295,239,268   

Cash and cash equivalents

     1,583,337        5,831,797   

Receivable from open trades

     16,466        2,119,687   

Interest receivable

     1,651,267        1,290,637   
  

 

 

   

 

 

 

Total assets

   $ 311,628,824      $ 304,481,389   
  

 

 

   

 

 

 

LIABILITIES

    

Interest payable

   $ 660,723      $ 631,886   

Payable from open trades

     15,325,788        5,214,331   

Accrued base management fee

     87,216        85,957   

Accrued subordinated management fee

     87,216        85,957   

Class A-1 Notes - SIC CLO 2013-1, Ltd.

     170,000,000        170,000,000   

Discount on Class A-1 Notes - SIC CLO 2013-1, Ltd.

     (1,407,047     (1,495,802

Class A-2 Notes - SIC CLO 2013-1, Ltd.

     20,000,000        20,000,000   

Discount on Class A-2 Notes - SIC CLO 2013-1, Ltd.

     (145,850     (155,050

Class B Notes - SIC CLO 2013-1, Ltd.

     44,800,000        44,800,000   

Discount on Class B Notes - SIC CLO 2013-1, Ltd.

     (947,442     (1,007,205

Class C Notes - SIC CLO 2013-1, Ltd.

     16,000,000        16,000,000   

Discount on Class C Notes - SIC CLO 2013-1, Ltd.

     (589,882     (627,091

Class D Notes - SIC CLO 2013-1, Ltd.

     14,000,000        14,000,000   

Discount on Class D Notes - SIC CLO 2013-1, Ltd.

     (765,713     (814,013

Class E Notes - SIC CLO 2013-1, Ltd.

     13,100,000        13,100,000   

Discount on Class E Notes - SIC CLO 2013-1, Ltd.

     (1,443,591     (1,534,650

Class F Notes - SIC CLO 2013-1, Ltd.

     4,500,000        4,500,000   

Discount on Class F Notes - SIC CLO 2013-1, Ltd.

     (525,060     (558,180

Deferred debt financing costs, SIC CLO 2013-1, Ltd. Notes

     (1,829,074     (1,941,595

Subordinated Notes

     30,000,000        30,000,000   
  

 

 

   

 

 

 

Total liabilities

   $ 320,907,284      $ 310,284,545   
  

 

 

   

 

 

 

Commitments and contingencies

    

NET ASSETS

    

Ordinary equity, par value $1.00, 250 ordinary shares authorized, 250 and 250 issued and outstanding, respectively

   $ 250      $ 250   

Accumulated loss

     (5,803,406     (3,343,488

Net loss

     (3,475,304     (2,459,918
  

 

 

   

 

 

 

Total net assets

     (9,278,460     (5,803,156
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 311,628,824      $ 304,481,389   
  

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1, Ltd.

Statements of Operations

(unaudited)

 

     For the three months ended
August 31
    For the six months ended
August 31
 
     2015     2014     2015     2014  

INVESTMENT INCOME

        

Interest from investments

   $ 3,638,587      $ 3,323,320      $ 7,151,174      $ 6,480,838   

Interest from cash and cash equivalents

     215        562        505        838   

Other income

     69,878        42,007        233,993        140,930   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     3,708,680        3,365,889        7,385,672        6,622,606   
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Interest expense

     3,013,007        1,997,155        5,859,643        4,124,139   

Professional fees

     53,177        24,142        112,399        94,360   

Miscellaneous fee expense

     5,763        3,263        10,688        26,396   

Base management fee

     186,576        187,730        375,949        383,747   

Subordinated management fee

     186,576        187,730        375,949        383,747   

Trustee expenses

     36,737        27,313        68,021        53,928   

Amortization expense

     239,963        239,963        479,926        479,926   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     3,721,799        2,667,296        7,282,575        5,546,243   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INVESTMENT INCOME (LOSS)

     (13,119     698,593        103,097        1,076,363   
  

 

 

   

 

 

   

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

        

Net realized gain on investments

     89,084        147,951        131,645        528,570   

Net unrealized depreciation on investments

     (3,624,214     (1,425,262     (3,710,046     (2,878,611
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss on investments

     (3,535,130     (1,277,311     (3,578,401     (2,350,041
  

 

 

   

 

 

   

 

 

   

 

 

 

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

   $ (3,548,249   $ (578,718   $ (3,475,304   $ (1,273,678
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Saratoga Investment Corp. CLO 2013-1 Ltd.

Schedule of Investments

August 31, 2015

(unaudited)

 

Issuer Name

 

Industry

 

Asset Name

  Asset
Type
  Current
Rate
    Maturity
Date
    Principal/
Number
of Shares
    Cost     Fair Value  

Education Management II LLC

  Leisure Goods/Activities/Movies   A-1 Preferred Shares   Equity     0.00       6,692      $ 669,214      $ 159,490   

Education Management II LLC

  Leisure Goods/Activities/Movies   A-2 Preferred Shares   Equity     0.00       18,975        1,897,538        190   

24 Hour Holdings III LLC

  Leisure Goods/Activities/Movies   Term Loan   Loan     4.75     5/28/2021      $ 495,000        490,809        475,819   

Acosta Holdco Inc.

  Media   Term Loan B1   Loan     4.25     9/27/2021      $ 1,985,025        1,970,700        1,961,145   

Aderant North America, Inc.

  Services: Business   Term Loan (First Lien)   Loan     5.25     12/20/2018      $ 3,241,989        3,241,989        3,229,832   

Aspen Dental Management, Inc.

  Healthcare & Pharmaceuticals   Term Loan Initial   Loan     5.50     4/27/2022      $ 500,000        497,604        501,565   

Advantage Sales & Marketing Inc.

  Services: Business   Delayed Draw Term Loan   Loan     4.25     7/25/2021      $ 2,483,744        2,480,395        2,453,641   

AECOM Technology Corporation

  Services: Business   Term Loan B   Loan     3.75     10/15/2021      $ 297,251        295,930        297,251   

ArgoFresh

  Food Services   Term Loan   Loan     5.75     7/30/2021      $ 2,000,000        1,990,130        2,000,840   

Aegis Toxicology Science Corporation

  Healthcare & Pharmaceuticals   Term B Loan   Loan     5.50     2/24/2021      $ 990,000        990,000        950,400   

Akorn, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     5.50     4/16/2021      $ 496,250        494,370        495,476   

Albertson’s LLC

  Retailers (Except Food and Drugs)   Term Loan B-4   Loan     5.50     8/25/2021      $ 3,385,028        3,366,914        3,383,336   

Alere Inc. (fka IM US Holdings, LLC)

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.25     6/8/2022      $ 1,000,000        997,500        999,030   

Alion Science T/L B (1st Lien)

  High Tech Industries   Term Loan B (First Lien)   Loan     5.50     8/13/2021      $ 3,000,000        2,985,000        2,973,750   

Alliance HealthCare T/L B

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.25     6/3/2019      $ 1,000,000        997,522        994,500   

Alliant Holdings T/L B (1st Lien)

  Banking, Finance, Insurance & Real Estate   Term Loan B (First Lien)   Loan     4.50     8/12/2022      $ 1,000,000        997,516        995,250   

Alvogen Pharma US, Inc

  Healthcare & Pharmaceuticals   Term Loan   Loan     6.00     4/2/2022      $ 493,750        491,400        491,281   

American Beacon Advisors, Inc.

  Financial Intermediaries   Term Loan (First Lien)   Loan     5.50     4/30/2022      $ 250,000        248,800        250,937   

American Tire Distributors Inc

  Automotive   Term Loan B   Loan     5.25     9/1/2021      $ 495,246        492,769        496,073   

Aramark Corporation

  Food Products   LC-2 Facility   Loan     3.29     7/26/2016      $ 79,187        79,175        78,494   

Aramark Corporation

  Food Products   LC-3 Facility   Loan     3.29     7/26/2016      $ 43,961        43,961        43,576   

Aramark Corporation

  Food Products   U.S. Term F Loan   Loan     3.25     2/24/2021      $ 3,166,456        3,166,456        3,151,193   

ARG IH Corp

  Food Services   Term Loan   Loan     4.75     11/15/2020      $ 483,163        481,967        483,506   

Asurion, LLC (fka Asurion Corporation)

  Insurance   Incremental Tranche B-1 Term Loan   Loan     5.00     5/24/2019      $ 2,690,059        2,671,567        2,665,848   

Asurion, LLC (fka Asurion Corporation)

  Insurance   Term Loan B4 (First Lein)   Loan     5.00     7/29/2022      $ 2,500,000        2,487,587        2,470,325   

Auction.com

  Banking, Finance, Insurance & Real Estate   Term Loan   Loan     6.00     5/13/2019      $ 2,000,000        2,007,441        1,985,000   

Avantor Performance Materials Holdings, Inc.

  Chemicals/Plastics   Term Loan   Loan     5.25     6/24/2017      $ 3,508,305        3,501,854        3,486,378   

AZ Chem US Inc.

  Chemicals/Plastics   Term Loan   Loan     4.50     6/12/2021      $ 451,370        449,391        449,677   

Bass Pro Group, LLC

  Retailers (Except Food and Drugs)   Term Loan   Loan     4.00     11/20/2019      $ 1,496,250        1,493,140        1,487,362   

Belmond Interfin Ltd.

  Lodging & Casinos   Term Loan   Loan     4.00     3/19/2021      $ 493,750        491,691        490,457   

Berry Plastics Corporation

  Chemicals/Plastics   Term E Loan   Loan     3.75     1/6/2021      $ 1,814,499        1,803,394        1,797,388   

BJ’s Wholesale Club, Inc.

  Food/Drug Retailers   New 2013 (November) Replacement Loan (First Lien)   Loan     4.50     9/26/2019      $ 1,483,727        1,482,789        1,476,071   

Blue Coat Systems

  Technology   Term Loan B   Loan     4.50     5/19/2022      $ 1,000,000        997,520        991,670   

BMC Software

  Technology   Term Loan   Loan     5.00     9/10/2020      $ 1,989,899        1,930,734        1,823,245   

Bombardier Recreational Products Inc.

  Leisure Goods/Activities/Movies   Term B Loan   Loan     3.75     1/30/2019      $ 754,286        750,766        752,400   

Brickman Group Holdings, Inc.

  Brokers/Dealers/Investment Houses   Initial Term Loan (First Lien)   Loan     4.00     12/18/2020      $ 1,483,725        1,472,237        1,458,783   

Brock Holdings III, Inc.

  Industrial Equipment   Term Loan (First Lien)   Loan     6.00     3/16/2017      $ 1,927,836        1,938,137        1,876,420   

Burlington Coat Factory Warehouse Corporation

  Retailers (Except Food and Drugs)   Term B-2 Loan   Loan     4.25     8/13/2021      $ 1,861,667        1,852,738        1,858,949   

BWAY Holding Company

  Leisure Goods/Activities/Movies   Term Loan B   Loan     5.50     8/14/2020      $ 989,999        980,449        989,999   

Caesars Entertainment Corp.

  Lodging & Casinos   Term B-7 Loan   Loan     9.75     1/28/2018      $ 995,000        990,155        926,415   

Camp International Holding Company

  Aerospace and Defense   2013 Replacement Term Loan (First Lien)   Loan     4.75     5/31/2019      $ 1,950,076        1,952,063        1,930,575   

Capital Automotive L.P.

  Conglomerate   Tranche B-1 Term Loan Facility   Loan     4.00     4/10/2019      $ 2,068,181        2,072,039        2,068,615   

Catalent Pharma Solutions, Inc

  Drugs   Initial Term B Loan   Loan     4.25     5/20/2021      $ 495,001        492,902        494,664   

Cengage Learning Acquisitions, Inc.

  Publishing   Term Loan   Loan     7.00     3/31/2020      $ 2,647,871        2,673,292        2,640,430   

Charter Communications Operating, LLC

  Cable and Satellite Television   Term F Loan   Loan     3.00     12/31/2020      $ 2,642,264        2,634,248        2,615,181   

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term G Loan   Loan     3.75     12/31/2019      $ 1,027,708        996,618        1,025,334   

CHS/Community Health Systems, Inc.

  Healthcare & Pharmaceuticals   Term H Loan   Loan     4.00     1/27/2021      $ 1,890,955        1,833,021        1,892,335   

Cinedigm Digital Funding I, LLC

  Services: Business   Term Loan   Loan     3.75     2/28/2018      $ 425,222        422,660        424,159   

CITGO Petroleum Corporation

  Oil & Gas   Term Loan B   Loan     4.50     7/29/2021      $ 992,500        989,354        989,086   

ClubCorp Club Operations, Inc.

  Lodging & Casinos   Term Loan B   Loan     4.25     7/24/2020      $ 500,000        499,127        500,315   

Communications Sales & Leasing, Inc.

  Telecommunications   Term Loan B (First Lien)   Loan     5.00     10/24/2022      $ 2,000,000        1,987,903        1,908,120   

CommScope, Inc.

  Telecommunications   Term Loan B   Loan     3.75     5/27/2022      $ 500,000        498,768        497,500   

Consolidated Aerospace Manufacturing, LLC

  Aerospace and Defense   Term Loan (First Lien)   Loan     4.75     8/11/2022      $ 1,500,000        1,492,500        1,491,870   

Concordia Healthcare Corp

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.75     4/21/2022      $ 250,000        248,797        250,157   

CPI Acquisition Inc.

  Technology   Term Loan B (First Lien)   Loan     4.25     11/17/2017      $ 2,000,000        1,970,000        1,970,000   

CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)

  Electronics/Electric   Term B Loan   Loan     4.25     11/17/2017      $ 3,577,219        3,577,219        3,496,731   

Crosby US Acquisition Corp.

  Industrial Equipment   Initial Term Loan (First Lien)   Loan     3.75     11/23/2020      $ 738,750        738,033        650,100   

Crown Castle Operating Company

  Telecommunications/Cellular   Extended Incremental Tranche B-2 Term Loan   Loan     3.00     1/31/2021      $ 1,425,825        1,425,825        1,419,023   

CT Technologies Intermediate Hldgs, Inc

  Healthcare & Pharmaceuticals   Term Loan   Loan     5.25     12/1/2021      $ 1,492,500        1,478,126        1,489,396   

Culligan International Company

  Conglomerate   Dollar Loan (First Lien)   Loan     6.25     12/19/2017      $ 775,633        748,723        749,228   

Culligan International Company

  Conglomerate   Dollar Loan (Second Lien)   Loan     9.50     6/19/2018      $ 783,162        739,504        760,120   

Cumulus Media Holdings Inc.

  Broadcast Radio and Television   Term Loan   Loan     4.25     12/23/2020      $ 470,093        466,377        430,431   

Custom Sensors & Technologies, Inc.

  Industrial Equipment   Term Loan   Loan     4.50     9/30/2021      $ 496,250        495,239        495,009   

DAE Aviation (StandardAero)

  Aerospace and Defense   Term Loan   Loan     5.25     7/7/2022      $ 2,000,000        1,990,128        1,991,260   

DaVita HealthCare Partners Inc. (fka DaVita Inc.)

  Healthcare & Pharmaceuticals   Tranche B Term Loan   Loan     3.50     6/24/2021      $ 495,000        492,893        493,762   

DCS Business Services, Inc.

  Financial Intermediaries   Term B Loan   Loan     7.25     3/19/2018      $ 3,181,756        3,162,868        3,221,528   

Dealertrack Technologies, Inc.

  Leisure Goods/Activities/Movies   Term B Loan   Loan     3.50     2/26/2021      $ 477,011        476,031        475,222   

Dell International LLC

  Technology   Term Loan B2   Loan     4.00     4/29/2020      $ 2,919,623        2,905,563        2,903,711   

Delos Finance SARL

  Financial Intermediaries   Term Loan   Loan     3.50     3/6/2021      $ 500,000        497,981        499,250   

Delta 2 (Lux) S.a.r.l.

  Lodging & Casinos   Term Loan B-3   Loan     4.75     7/30/2021      $ 1,000,000        995,545        990,560   

Deluxe Entertainment Service Group, Inc.

  Leisure Goods/Activities/Movies   Term Loan (First Lien)   Loan     6.50     2/28/2020      $ 1,882,983        1,884,466        1,806,100   

Devix US, Inc.

  Chemicals/Plastics   Term Loan   Loan     4.25     5/2/2021      $ 250,000        247,859        251,875   

Devix US, Inc.

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     8.00     5/2/2022      $ 495,000        492,940        494,074   

Diamond Resorts International

  Lodging & Casinos   Term Loan   Loan     5.50     5/9/2021      $ 926,971        922,968        925,237   

DJO Finance LLC

  Healthcare & Pharmaceuticals   Term Loan   Loan     4.25     6/8/2020      $ 500,000        498,852        496,875   

DPX Holdings B.V.

  Healthcare & Pharmaceuticals   Term Loan 2015 Incr Dollar   Loan     4.25     3/11/2021      $ 2,970,000        2,962,791        2,933,796   

Drew Marine Group Inc.

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.25     11/19/2020      $ 1,472,161        1,477,551        1,459,279   

DTZ U.S. Borrower LLC

  Construction & Building   Term Loan B Add-on   Loan     4.25     11/4/2021      $ 3,000,000        2,985,000        2,973,750   

Education Management LLC

  Leisure Goods/Activities/Movies   Term Loan A   Loan     5.50     7/2/2020      $ 501,970        483,741        326,782   

Education Management LLC

  Leisure Goods/Activities/Movies   Term Loan B   Loan    

 
 
 

8.50%

(2.00%
Cash/6.50%
PIK)

  

  
  
  

    7/2/2020      $ 864,488        835,964        476,549   

Emerald 2 Limited

  Chemicals/Plastics   Term Loan B1A   Loan     5.00     5/14/2021      $ 1,000,000        990,730        988,750   

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.50     8/1/2021      $ 496,250        494,087        493,560   

Emerald Performance Materials, LLC

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     7.75     8/1/2022      $ 500,000        497,758        496,665   

Endo International plc

  Healthcare & Pharmaceuticals   Term Loan B   Loan     3.75     6/24/2022      $ 1,000,000        997,500        999,110   

EnergySolutions, LLC

  Oil & Gas   Term Loan B   Loan     6.75     5/29/2020      $ 937,857        922,445        940,202   

Evergreen Acqco 1 LP

  Retailers (Except Food and Drugs)   New Term Loan   Loan     5.00     7/9/2019      $ 970,069        968,106        904,288   

EWT Holdings III Corp. (fka WTG Holdings III Corp.)

  Industrial Equipment   Term Loan (First Lien)   Loan     4.75     1/15/2021      $ 1,977,443        1,972,762        1,957,669   

Federal-Mogul Corporation

  Automotive   Tranche C Term Loan   Loan     4.75     4/15/2021      $ 2,970,000        2,957,707        2,897,354   

First Data Corporation

  Financial Intermediaries   2017 Second New Dollar Term Loan   Loan     3.70     3/23/2018      $ 2,790,451        2,738,761        2,766,035   

First Data Corporation

  Financial Intermediaries   2018 Dollar Term Loan   Loan     4.20     3/24/2021      $ 2,111,028        2,027,838        2,103,491   

Fitness International, LLC

  Leisure Goods/Activities/Movies   Term Loan B   Loan     5.50     7/1/2020      $ 1,485,000        1,475,762        1,414,463   

FMG Resources (August 2006) Pty LTD (FMG America Finance, Inc.)

  Nonferrous Metals/Minerals   Loan   Loan     3.75     6/28/2019      $ 1,972,424        1,972,370        1,587,348   

Four Seasons Holdings Inc.

  Lodging & Casinos   Term Loan (First Lien)   Loan     3.50     6/27/2020      $ 489,433        489,433        485,763   

Garda World Security Corporation

  Services: Business   Term B Delayed Draw Loan   Loan     4.00     11/6/2020      $ 200,139        199,337        197,303   

Garda World Security Corporation

  Services: Business   Term B Loan   Loan     4.00     11/6/2020      $ 782,361        779,293        771,119   

Gardner Denver, Inc.

  Oil & Gas   Initial Dollar Term Loan   Loan     4.25     7/30/2020      $ 2,463,674        2,455,846        2,345,122   

Gates Global LLC

  Leisure Goods/Activities/Movies   Term Loan (First Lien)   Loan     4.25     7/3/2021      $ 496,250        491,288        475,710   

Generac Power Systems, Inc.

  Industrial Equipment   Term Loan B   Loan     3.50     5/29/2020      $ 693,858        683,606        679,114   

General Nutrition Centers, Inc.

  Retailers (Except Food and Drugs)   Amended Tranche B Term Loan   Loan     3.25     3/4/2019      $ 4,139,259        4,127,872        4,095,300   

Global Tel*Link Corporation

  Services: Business   Term Loan (First Lien)   Loan     5.00     5/26/2020      $ 2,740,417        2,732,599        2,680,813   

Goodyear Tire & Rubber Company, The

  Chemicals/Plastics   Loan (Second Lien)   Loan     3.75     4/30/2019      $ 3,333,333        3,300,754        3,338,867   

Grosvenor Capital Management Holdings, LP

  Brokers/Dealers/Investment Houses   Initial Term Loan   Loan     3.75     1/4/2021      $ 3,395,892        3,382,373        3,353,443   

GTCR Valor Companies, Inc.

  Services: Business   Term Loan (First Lien)   Loan     6.00     6/1/2021      $ 1,984,991        1,948,709        1,965,141   

Harland Clarke Holdings Corp. (fka Clarke American Corp.)

  Publishing   Tranche B-4 Term Loan   Loan     6.00     8/2/2019      $ 481,250        479,433        478,964   

HCA Inc.

  Healthcare & Pharmaceuticals   Tranche B-4 Term Loan   Loan     3.03     5/1/2018      $ 5,634,333        5,419,919        5,621,656   

Headwaters Incorporated

  Building & Development   Term Loan   Loan     4.50     3/24/2022      $ 250,000        248,799        250,313   

Hertz Corporation, The

  Automotive   Tranche B-1 Term Loan   Loan     4.00     3/12/2018      $ 2,925,000        2,954,144        2,909,322   

Hoffmaster Group, Inc.

  Containers/Glass Products   Term Loan   Loan     5.25     5/8/2020      $ 1,980,000        1,963,739        1,970,100   

Hostess Brand, LLC

  Beverage, Food & Tobacco   Term Loan B (First Lien)   Loan     4.50     8/3/2022      $ 1,000,000        997,522        999,360   

Huntsman International LLC

  Chemicals/Plastics   Term Loan B (First Lien)   Loan     3.24     4/19/2019      $ 3,840,541        3,812,172        3,814,156   

Husky Injection Molding Systems Ltd.

  Services: Business   Term Loan B   Loan     4.25     6/30/2021      $ 491,797        489,771        485,418   

Infor (US), Inc. (fka Lawson Software Inc.)

  Services: Business   Tranche B-5 Term Loan   Loan     3.75     6/3/2020      $ 2,199,666        2,184,116        2,131,719   

Insight Global

  Services: Business   Term Loan   Loan     6.00     10/29/2021      $ 1,989,796        1,981,881        1,986,473   

Informatica Corporation

  High Tech Industries   Term Loan B   Loan     4.50     8/5/2022      $ 500,000        498,757        496,250   

J. Crew Group, Inc.

  Retailers (Except Food and Drugs)   Term B-1 Loan Retired 03/05/2014   Loan     4.00     3/5/2021      $ 960,344        960,344        739,465   

Jazz Acquisition, Inc

  Aerospace and Defense   First Lien 6/14   Loan     4.50     6/19/2021      $ 495,152        494,085        488,962   

J.Jill Group, Inc.

  Retailers (Except Food and Drugs)   Term Loan (First Lien)   Loan     6.00     5/9/2022      $ 1,000,000        995,096        998,130   

Kinetic Concepts, Inc.

  Healthcare & Pharmaceuticals   Dollar Term D-1 Loan   Loan     4.50     5/4/2018      $ 2,465,100        2,444,985        2,458,937   

Koosharem, LLC

  Services: Business   Term Loan   Loan     7.50     5/15/2020      $ 2,980,025        2,955,714        2,939,050   

La Quinta Holdings, Inc.

  Lodging & Casinos   Term Loan (First Lien)   Loan     4.00     4/14/2021      $ 417,005        415,606        415,787   

Level 3 Financing, Inc.

  Telecommunications   Term Loan B2   Loan     4.50     1/31/2022      $ 500,000        496,380        495,000   

Mauser Holdings, Inc.

  Containers/Glass Products   Term Loan   Loan     4.50     7/31/2021      $ 496,250        494,105        493,461   

Michaels Stores, Inc.

  Retailers (Except Food and Drugs)   Term B Loan   Loan     3.75     1/28/2020      $ 488,750        488,750        486,512   

Michaels Stores, Inc.

  Retailers (Except Food and Drugs)   Term Loan B-2   Loan     4.00     1/28/2020      $ 1,485,000        1,478,808        1,484,302   

Micro Holding Corp.

  High Tech Industries   Term Loan   Loan     4.75     7/8/2021      $ 997,482        996,203        994,570   

Microsemi Corporation

  Electronics/Electric   Incremental Term Loan   Loan     3.50     2/19/2020      $ 2,122,318        2,118,346        2,106,931   

Midas Intermediate Holdco II, LLC

  Automotive   Delayed Draw Term Loan   Loan     4.50     8/18/2021      $ 25,127        25,127        25,064   

Midas Intermediate Holdco II, LLC

  Automotive   Term Loan B   Loan     4.50     8/18/2021      $ 222,998        222,026        222,441   

Millenium Laboratories, LLC

  Drugs   Term Loan   Loan     5.25     4/16/2021      $ 1,485,000        1,472,484        725,170   

MPH Acquisition Holdings LLC

  Healthcare & Pharmaceuticals   Term Loan   Loan     3.75     3/31/2021      $ 406,818        405,978        401,224   

MSC Software Corp.

  Services: Business   Term Loan   Loan     5.00     5/29/2020      $ 990,000        981,928        972,675   

National Veterinary Associates, Inc

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.75     8/14/2021      $ 992,519        989,102        990,861   

National Vision, Inc.

  Retailers (Except Food and Drugs)   Term Loan (Second Lien)   Loan     6.75     3/11/2022      $ 250,000        249,730        246,250   

Newsday, LLC

  Publishing   Term Loan   Loan     3.70     10/12/2016      $ 2,215,385        2,214,656        2,211,242   

Nortek, Inc.

  Electronics/Electric   Term Loan B   Loan     3.50     10/30/2020      $ 990,000        978,379        981,031   

Novelis, Inc.

  Conglomerate   Term Loan B   Loan     4.00     3/10/2017      $ 4,795,033        4,771,756        4,737,780   

NPC International, Inc.

  Food Services   Term Loan (2013)   Loan     4.00     12/28/2018      $ 483,750        483,750        477,703   

NRG Energy, Inc.

  Utilities   Term Loan (2013)   Loan     2.75     7/2/2018      $ 3,841,575        3,825,385        3,779,534   

Numericable

  Broadcast Radio and Television   Term Loan B-5   Loan     4.00     7/27/2022      $ 1,000,000        997,516        994,440   

NuSil Technology LLC.

  Chemicals/Plastics   Term Loan   Loan     5.25     4/7/2017      $ 793,516        793,516        788,556   

Ollie’s Bargain Outlet, Inc

  Retailers (Except Food and Drugs)   Term Loan   Loan     4.75     9/30/2019      $ 647,663        645,013        644,424   

On Assignment, Inc.

  Services: Business   Term Loan B   Loan     3.75     6/6/2022      $ 1,396,364        1,389,537        1,392,440   

Onex Carestream Finance LP

  Healthcare & Pharmaceuticals   Term Loan (First Lien 2013)   Loan     5.00     6/7/2019      $ 3,942,060        3,928,857        3,899,368   

OnexYork Acquisition Co

  Healthcare & Pharmaceuticals   Delayed Draw Term Loan   Loan     4.75     10/1/2021      $ —          —          —     

OnexYork Acquisition Co

  Healthcare & Pharmaceuticals   Term Loan B   Loan     4.75     10/1/2021      $ 496,250        492,945        474,747   

OpenLink International LLC

  Services: Business   Term B Loan   Loan     6.25     10/28/2017      $ 2,959,832        2,958,389        2,937,633   

Orbitz Worldwide, Inc.

  Services: Business   Term Loan (First Lien)   Loan     4.50     4/15/2021      $ 1,408,613        1,406,618        1,403,331   

P.F. Chang’s China Bistro, Inc. (Wok Acquisition Corp.)

  Food/Drug Retailers   Term Borrowing   Loan     4.25     6/24/2019      $ 1,440,325        1,433,940        1,415,120   

P2 Upstream Acquisition Co. (P2 Upstream Canada BC ULC)

  Services: Business   Term Loan (First Lien)   Loan     5.00     10/30/2020      $ 985,000        980,820        970,225   

Par Pharmaceutical Companies, Inc.

  Healthcare & Pharmaceuticals   Term Loan B3   Loan     4.25     9/28/2019      $ 497,500        495,273        496,008   

Penn Products Terminal, LLC

  Chemicals/Plastics   Term Loan B   Loan     4.75     4/13/2022      $ 249,375        248,179        246,881   

PetCo Animal Supplies Stores, Inc.

  Retailers (Except Food and Drugs)   New Loans   Loan     4.00     11/24/2017      $ 1,461,735        1,461,133        1,457,715   

Petsmart, Inc. (Argos Merger Sub, Inc.)

  Retailers (Except Food and Drugs)   Term Loan B1   Loan     4.25     3/11/2022      $ 997,500        996,966        995,006   

PGX Holdings, Inc.

  Financial Intermediaries   Term Loan   Loan     5.75     9/29/2020      $ 963,393        955,159        963,797   

Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)

  Conglomerate   Term Loan   Loan     4.25     8/18/2022      $ 1,930,500        1,920,848        1,917,469   

Phillips-Medisize Corporation

  Healthcare & Pharmaceuticals   Term Loan   Loan     4.75     6/16/2021      $ 495,000        492,897        492,837   

Physio-Control International, Inc.

  Healthcare & Pharmaceuticals   Term Loan B   Loan     5.50     5/19/2022      $ 500,000        497,519        499,690   

Pinnacle Foods Finance LLC

  Food Products   New Term Loan G   Loan     3.00     4/29/2020      $ 2,581,332        2,577,088        2,564,553   

Planet Fitness Holdings LLC

  Leisure Goods/Activities/Movies   Term Loan   Loan     4.75     3/31/2021      $ 2,478,740        2,471,157        2,476,682   

Polymer Group, Inc.

  Chemicals/Plastics   Initial Loan   Loan     5.25     12/19/2019      $ 492,547        490,592        492,753   

Post Holdings, Inc.

  Consumer Goods: Non-Durable   Term Loan Series A   Loan     3.75     6/2/2021      $ 474,405        473,813        473,418   

PrePaid Legal Services, Inc.

  Services: Business   Term Loan B   Loan     6.50     7/1/2019      $ 750,000        746,389        750,623   

Presidio, Inc.

  Services: Business   Term Loan   Loan     5.25     2/2/2022      $ 1,911,875        1,854,519        1,913,309   

Prestige Brands, Inc.

  Consumer Goods: Durable   Term B-3 Loan   Loan     3.50     9/3/2021      $ 2,106,179        2,099,122        2,100,029   

Prime Security Services (Protection One)

  Services: Business   Term Loan   Loan     5.00     7/1/2021      $ 2,000,000        1,990,000        1,993,500   

Ranpak Holdings, Inc.

  Services: Business   Term Loan   Loan     4.25     10/1/2021      $ 992,512        990,031        988,374   

Ranpak Holdings, Inc.

  Services: Business   Term Loan (Second Lien)   Loan     8.25     9/30/2022      $ 500,000        497,780        495,625   

Redtop Acquisitions Limited

  Electronics/Electric   Initial Dollar Term Loan (First Lien)   Loan     4.50     12/3/2020      $ 492,500        489,723        492,500   

Regal Cinemas Corporation

  Services: Consumer   Term Loan   Loan     3.75     4/1/2022      $ 500,000        498,807        499,125   

Research Now Group, Inc

  Media   Term Loan B   Loan     5.50     3/18/2021      $ 498,750        496,396        493,763   

Rexnord LLC/RBS Global, Inc.

  Industrial Equipment   Term B Loan   Loan     4.00     8/21/2020      $ 1,638,461        1,639,833        1,617,571   

Reynolds Group Holdings Inc.

  Industrial Equipment   Incremental U.S. Term Loan   Loan     4.50     12/1/2018      $ 1,910,551        1,910,551        1,908,526   

Riverbed Technology, Inc.

  Technology   Term Loan B   Loan     6.00     2/25/2022      $ 997,500        992,883        996,672   

Rocket Software, Inc.

  Services: Business   Term Loan (First Lien)   Loan     5.75     2/8/2018      $ 1,911,728        1,896,864        1,907,751   

Rovi Solutions Corporation / Rovi Guides, Inc.

  Electronics/Electric   Tranche B-3 Term Loan   Loan     3.75     7/2/2021      $ 1,485,000        1,478,687        1,425,600   

Royal Adhesives and Sealants

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.50     6/20/2022      $ 500,000        499,212        497,500   

Royal Adhesives and Sealants

  Chemicals/Plastics   Term Loan (Second Lien)   Loan     8.50     6/19/2023      $ 500,000        498,786        498,125   

RPI Finance Trust

  Financial Intermediaries   Term B-4 Term Loan   Loan     3.50     11/9/2020      $ 5,181,229        5,181,229        5,174,753   

SBP Holdings LP

  Industrial Equipment   Term Loan (First Lien)   Loan     5.00     3/27/2021      $ 987,500        983,356        888,750   

Scientific Games International, Inc.

  Electronics/Electric   Term Loan B2   Loan     6.00     10/1/2021      $ 995,000        986,197        982,095   

Seadrill Operating LP

  Oil & Gas   Term Loan B   Loan     4.00     2/21/2021      $ 992,443        918,775        677,700   

Sensus USA Inc. (fka Sensus Metering Systems)

  Utilities   Term Loan (First Lien)   Loan     4.50     5/9/2017      $ 1,907,486        1,904,034        1,893,180   

ServiceMaster Company, The

  Conglomerate   Tranche B Term Loan   Loan     4.25     7/1/2021      $ 1,985,000        1,967,980        1,973,666   

Shearers Foods LLC

  Food Services   Term Loan (First Lien)   Loan     4.50     6/30/2021      $ 992,500        990,354        980,094   

Sitel Worldwide

  Telecommunications   Term Loan   Loan     6.50     8/20/2021      $ 2,000,000        1,980,000        1,972,500   

Sonneborn, LLC

  Chemicals/Plastics   Term Loan (First Lien)   Loan     4.75     12/10/2020      $ 223,875        223,371        223,035   

Sonneborn, LLC

  Chemicals/Plastics   Initial US Term Loan   Loan     4.75     12/10/2020      $ 1,268,625        1,265,771        1,263,868   

Sophia, L.P.

  Electronics/Electric   Term B Loan   Loan     4.00     7/19/2018      $ 881,292        874,128        879,362   

SourceHOV LLC

  Services: Business   Term Loan B (First Lien)   Loan     7.75     10/31/2019      $ 1,975,000        1,923,118        1,791,088   

SRAM, LLC

  Industrial Equipment   Term Loan (First Lien)   Loan     4.00     4/10/2020      $ 2,926,531        2,917,911        2,824,102   

Staples, Inc.

  Retailers (Except Food and Drugs)   Term Loan B   Loan     3.50     4/23/2021      $ 1,000,000        995,000        994,880   

Steak ‘n Shake Operations, Inc.

  Food Services   Term Loan   Loan     4.75     3/19/2021      $ 987,500        979,351        980,094   

SunGard Data Systems Inc. (Solar Capital Corp.)

  Conglomerate   Tranche C Term Loan   Loan     3.94     2/28/2017      $ 285,352        283,663        284,853   

SunGard Data Systems Inc. (Solar Capital Corp.)

  Conglomerate   Tranche E Term Loan   Loan     4.00     3/9/2020      $ 3,707,953        3,626,408        3,701,019   

SuperMedia Inc. (fka Idearc Inc.)

  Publishing   Loan   Loan     11.60     12/30/2016      $ 227,622        223,203        125,192   

Survey Sampling International

  Services: Business   Term Loan B   Loan     6.00     12/16/2020      $ 997,500        996,472        988,772   

Sybil Finance BV

  High Tech Industries   Term Loan   Loan     4.25     3/20/2020      $ 1,304,762        1,304,254        1,302,048   

Syniverse Holdings, Inc.

  Telecommunications   Initial Term Loan   Loan     4.00     4/23/2019      $ 479,913        476,516        441,520   

TGI Friday’s Inc

  Food Services   Term Loan B   Loan     5.25     7/15/2020      $ 1,761,386        1,756,852        1,761,386   

Townsquare Media, Inc.

  Media   Term Loan B   Loan     4.25     4/1/2022      $ 997,500        992,734        994,388   

TPF II Power LLC and TPF II Covert Midco LLC

  Utilities   Term Loan B   Loan     5.50     10/2/2021      $ 494,309        491,260        495,031   

TransUnion LLC

  Financial Intermediaries   Term Loan B-2   Loan     3.75     4/9/2021      $ 493,750        493,421        489,583   

TransDigm, Inc.

  Aerospace and Defense   Tranche C Term Loan   Loan     3.75     2/28/2020      $ 4,299,342        4,306,710        4,248,309   

TransDigm, Inc.

  Aerospace and Defense   Tranche E Term Loan   Loan     3.50     5/13/2022      $ 1,995,240        1,988,093        1,971,138   

TransFirst Holdings, Inc.

  Financial Intermediaries   Term Loan B1   Loan     4.75     11/12/2021      $ 497,500        496,248        496,629   

Travel Leaders Group, LLC

  Hotel, Gaming and Leisure   Term Loan B   Loan     7.00     12/7/2020      $ 986,667        981,895        989,133   

Tricorbraun, Inc. (fka Kranson Industries, Inc.)

  Containers/Glass Products   Term Loan   Loan     4.00     5/3/2018      $ 1,836,625        1,830,664        1,818,259   

Truven Health Analytics Inc. (fka Thomson Reuters (Healthcare) Inc.)

  Healthcare & Pharmaceuticals   New Tranche B Term Loan   Loan     4.50     6/6/2019      $ 485,084        478,215        480,840   

Twin River Management Group, Inc.

  Lodging & Casinos   Term Loan B   Loan     5.25     7/10/2020      $ 953,692        955,770        951,307   

U.S. Security Associates Holdings, Inc.

  Services: Business   Delayed Draw Loan   Loan     6.25     7/28/2017      $ 157,703        156,986        157,242   

U.S. Security Associates Holdings, Inc.

  Services: Business   Term B Loan   Loan     6.25     7/28/2017      $ 926,236        922,371        923,532   

Univar Inc.

  Chemicals/Plastics   Term B Loan   Loan     4.25     6/30/2017      $ 3,000,000        2,985,142        2,975,640   

Univision Communications Inc.

  Telecommunications   Replacement First-Lien Term Loan   Loan     4.00     3/1/2020      $ 2,932,001        2,917,914        2,907,255   

Valeant Pharmaceuticals International, Inc.

  Drugs   Series D2 Term Loan B   Loan     3.50     2/13/2019      $ 2,545,588        2,538,348        2,536,730   

Verint Systems Inc.

  Services: Business   Term Loan   Loan     3.50     9/6/2019      $ 1,014,058        1,010,865        1,011,016   

Vertafore, Inc.

  Services: Business   Term Loan (2013)   Loan     4.25     10/3/2019      $ 2,484,603        2,484,603        2,478,392   

Vouvray US Finance

  Industrial Equipment   Term Loan   Loan     5.00     6/28/2021      $ 495,000        492,880        493,970   

Washington Inventory Service

  Services: Business   U.S. Term Loan (First Lien)   Loan     5.75     12/20/2018      $ 1,778,497        1,793,925        1,742,927   

Waste Industries

  Environmental   Term Loan B   Loan     4.25     2/27/2020      $ 249,375        248,810        249,480   

West Corporation

  Telecommunications   Term B-10 Loan   Loan     3.25     6/30/2018      $ 2,571,560        2,600,887        2,543,916   

ZEP Inc.

  Chemicals/Plastics   Term Loan B   Loan     5.75     6/27/2022      $ 3,000,000        2,985,190        3,030,000   
             

 

 

   

 

 

 
              $ 314,608,872      $ 308,377,754   
             

 

 

   

 

 

 
                            Principal/
Number
of Shares
    Cost     Fair Value  

Cash and cash equivalents

               

U.S. Bank Money Market (a)

            $ 1,583,337      $ 1,583,337      $ 1,583,337   
           

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

            $ 1,583,337      $ 1,583,337      $ 1,583,337   
           

 

 

   

 

 

   

 

 

 

 

(a) Included within cash and cash equivalents in Saratoga CLO’s Statements of Assets and Liabilities as of August 31, 2015.

 

26


Table of Contents

Saratoga Investment Corp. CLO 2013-1 Ltd.

Schedule of Investments

February 28, 2015

 

Issuer Name

  

Industry

  

Asset Name

   Asset
Type
   Current
Rate
   

Maturity
Date

   Principal/
Number
of Shares
     Cost      Fair Value  

Education Management II LLC

   Leisure Goods/Activities/Movies    A-1 Preferred Shares    Equity      0.00        6,692       $ 669,214       $ 437,188   

Education Management II LLC

   Leisure Goods/Activities/Movies    A-2 Preferred Shares    Equity      0.00        18,975         1,897,538         180,263   

24 Hour Holdings III LLC

   Leisure Goods/Activities/Movies    Term Loan    Loan      4.75   5/28/2021    $ 497,500         493,004         492,276   

Acosta Holdco Inc.

   Media    Term Loan B    Loan      5.00   9/27/2021    $ 1,995,000         1,981,328         2,004,416   

Aderant North America, Inc.

   Services: Business    Term Loan (First Lien)    Loan      5.25   12/20/2018    $ 3,260,898         3,260,898         3,240,517   

Advantage Sales & Marketing Inc.

   Services: Business    Delayed Draw Term Loan    Loan      4.25   7/25/2021    $ 1,995,000         1,993,940         1,984,287   

AECOM Technology Corporation

   Services: Business    Term Loan B    Loan      3.75   10/15/2021    $ 319,903         318,380         321,304   

Aegis Toxicology Science Corporation

   Healthcare & Pharmaceuticals    Term B Loan    Loan      5.50   2/24/2021    $ 995,000         995,000         997,488   

Akorn, Inc.

   Healthcare & Pharmaceuticals    Term Loan B    Loan      4.50   4/16/2021    $ 498,750         496,691         500,411   

Albertson’s LLC

   Retailers (Except Food and Drugs)    Term Loan B-4    Loan      5.50   8/25/2021    $ 3,410,000         3,389,632         3,437,723   

Alere Inc. (fka IM US Holdings, LLC)

   Healthcare & Pharmaceuticals    Incremental B-1 Term Loan    Loan      4.25   6/30/2017    $ 1,529,610         1,529,610         1,529,610   

American Tire Distributors Inc

   Automotive    Term Loan    Loan      5.75   6/1/2018    $ 496,487         496,486         497,108   

Aramark Corporation

   Food Products    LC-2 Facility    Loan      3.74   7/26/2016    $ 79,187         79,178         78,395   

Aramark Corporation

   Food Products    LC-3 Facility    Loan      3.74   7/26/2016    $ 43,961         43,961         43,521   

Aramark Corporation

   Food Products    U.S. Term F Loan    Loan      3.25   2/24/2021    $ 3,182,489         3,182,489         3,168,581   

ARG IH Corp

   Food Services    Term Loan    Loan      4.75   11/15/2020    $ 495,000         494,038         495,312   

Asurion, LLC (fka Asurion Corporation)

   Insurance    Incremental Tranche B-1 Term Loan    Loan      5.00   5/24/2019    $ 5,412,086         5,370,590         5,424,642   

Auction.Com, LLC

   Services: Business    Term Loan A-4    Loan      4.40   2/28/2017    $ 914,567         914,567         905,422   

Avantor Performance Materials Holdings, Inc.

   Chemicals/Plastics    Term Loan    Loan      5.25   6/24/2017    $ 4,319,115         4,309,242         4,297,520   

Avast Software

   Electronics/Electric    Term Loan    Loan      4.75   3/20/2020    $ 1,925,000         1,923,275         1,937,031   

AZ Chem US Inc.

   Chemicals/Plastics    Term Loan    Loan      5.25   6/12/2021    $ 467,123         464,958         466,614   

Bass Pro Group, LLC

   Retailers (Except Food and Drugs)    New Term Loan    Loan      3.75   11/20/2019    $ 493,623         493,111         492,236   

Bayonne Energy Center

   Oil & Gas    Term Loan B    Loan      5.00   8/19/2021    $ 969,671         965,093         964,416   

Belmond Hotels

   Lodging & Casinos    Term Loan    Loan      4.00   3/19/2021    $ 496,250         494,055         495,009   

Berry Plastics Corporation

   Chemicals/Plastics    Term E Loan    Loan      3.75   1/6/2021    $ 1,814,499         1,802,403         1,812,648   

Big Heart Pet Brands (fka Del Monte Corporation)

   Food/Drug Retailers    Initial Term Loan    Loan      3.50   3/9/2020    $ 2,977,500         2,996,769         2,971,307   

Biomet, Inc.

   Healthcare & Pharmaceuticals    Dollar Term B-2 Loan    Loan      3.65   7/25/2017    $ 1,840,718         1,840,718         1,838,601   

BJ’s Wholesale Club, Inc.

   Food/Drug Retailers    New 2013 (November) Replacement Loan (First Lien)    Loan      4.50   9/26/2019    $ 1,489,975         1,488,922         1,483,374   

Bombardier Recreational Products Inc.

   Leisure Goods/Activities/Movies    Term B Loan    Loan      4.00   1/30/2019    $ 754,286         750,287         747,120   

Brickman Group Holdings, Inc.

   Brokers/Dealers/Investment Houses    Initial Term Loan (First Lien)    Loan      4.00   12/18/2020    $ 1,491,237         1,478,800         1,478,935   

Brock Holdings III, Inc.

   Industrial Equipment    Term Loan (First Lien)    Loan      6.00   3/16/2017    $ 1,938,503         1,952,391         1,904,580   

Burlington Coat Factory Warehouse Corporation

   Retailers (Except Food and Drugs)    Term B-2 Loan    Loan      4.25   8/13/2021    $ 1,945,000         1,935,814         1,942,219   

BWAY

   Leisure Goods/Activities/Movies    Term Loan B    Loan      5.50   8/14/2020    $ 995,000         985,881         998,423   

Caesars Entertainment Corp.

   Lodging & Casinos    Term B-7 Loan    Loan      9.75   1/28/2018    $ 995,000         989,028         917,141   

Camp International Holding Company

   Aerospace and Defense    2013 Replacement Term Loan (First Lien)    Loan      4.75   5/31/2019    $ 1,960,046         1,965,495         1,969,846   

Capital Automotive L.P.

   Conglomerate    Tranche B-1 Term Loan Facility    Loan      4.00   4/10/2019    $ 2,079,313         2,083,783         2,084,511   

Catalent Pharma Solutions, Inc

   Drugs    Initial Term B Loan    Loan      4.25   5/20/2021    $ 497,500         495,170         498,401   

Celanese US Holdings LLC

   Chemicals/Plastics    Dollar Term C-2 Commitment    Loan      2.49   10/31/2018    $ 2,154,560         2,180,598         2,157,533   

Cengage Learning

   Publishing    Term Loan    Loan      7.00   3/31/2020    $ 2,731,869         2,761,735         2,733,235   

Charter Communications Operating, LLC

   Cable and Satellite Television    Term F Loan    Loan      3.00   12/31/2020    $ 2,655,745         2,646,932         2,646,344   

CHS/Community Health Systems, Inc.

   Healthcare & Pharmaceuticals    2017 Term E Loan    Loan      3.49   1/25/2017    $ 1,097,818         1,074,945         1,097,193   

CHS/Community Health Systems, Inc.

   Healthcare & Pharmaceuticals    2021 Term D Loan    Loan      4.25   1/27/2021    $ 2,926,052         2,844,886         2,935,210   

Cinedigm Digital Funding I, LLC

   Services: Business    Term Loan    Loan      3.75   2/28/2018    $ 562,001         557,872         561,298   

CITGO Petroleum

   Oil & Gas    Term Loan B    Loan      4.50   7/29/2021    $ 997,500         994,095         979,106   

ClubCorp Club Operations, Inc.

   Lodging & Casinos    Term Loan B    Loan      4.50   7/24/2020    $ 500,000         496,250         500,315   

CPI International Acquisition, Inc. (f/k/a Catalyst Holdings, Inc.)

   Electronics/Electric    Term B Loan    Loan      4.25   11/17/2017    $ 3,595,331         3,595,331         3,570,631   

Crosby US Acquisition Corp.

   Industrial Equipment    Initial Term Loan (First Lien)    Loan      3.75   11/23/2020    $ 742,500         741,718         681,244   

Crown Castle Operating Company

   Telecommunications/Cellular    Extended Incremental Tranche B-2 Term Loan    Loan      3.00   1/31/2021    $ 2,435,594         2,433,546         2,430,723   

CT Technologies Intermediate Hldgs, Inc

   Healthcare & Pharmaceuticals    Term Loan (First Lien)    Loan      6.00   12/1/2021    $ 1,500,000         1,485,423         1,505,625   

Culligan International Company

   Conglomerate    Dollar Loan (First Lien)    Loan      6.25   12/19/2017    $ 779,642         736,275         765,998   

Culligan International Company

   Conglomerate    Dollar Loan (Second Lien)    Loan      9.50   6/19/2018    $ 783,162         739,367         727,033   

Cumulus Media Holdings Inc.

   Broadcast Radio and Television    Term Loan    Loan      4.25   12/23/2020    $ 470,093         466,100         466,863   

Custom Sensors

   Industrial Equipment    Term Loan    Loan      4.50   9/30/2021    $ 498,750         497,651         498,750   

DaVita HealthCare Partners Inc. (fka DaVita Inc.)

   Healthcare & Pharmaceuticals    Tranche B Term Loan    Loan      3.50   6/24/2021    $ 497,500         495,228         498,062   

DCS Business Services, Inc.

   Financial Intermediaries    Term B Loan    Loan      7.25   3/19/2018    $ 3,460,027         3,436,485         3,413,835   

Dealertrack Technologies, Inc.

   Leisure Goods/Activities/Movies    Term B Loan    Loan      3.25   2/26/2021    $ 477,011         475,991         474,230   

Dell International LLC

   Retailers (Except Food and Drugs)    Term B Loan    Loan      4.50   4/29/2020    $ 2,969,962         2,957,576         2,980,684   

Delos Finance SARL

   Financial Intermediaries    Term Loan    Loan      3.50   3/6/2021    $ 500,000         497,835         499,790   

Delta 2 (Lux) S.a.r.l.

   Lodging & Casinos    Term Loan B-3    Loan      4.75   7/30/2021    $ 1,000,000         995,314         995,630   

Deluxe Entertainment Service Group, Inc.

   Leisure Goods/Activities/Movies    Term Loan (First Lien)    Loan      6.50   2/28/2020    $ 1,882,983         1,884,624         1,835,908   

Devix US, Inc.

   Chemicals/Plastics    Term Loan    Loan      4.25   5/2/2021    $ 250,000         247,710         250,938   

Devix US, Inc.

   Chemicals/Plastics    Term Loan (Second Lien)    Loan      8.00   5/2/2022    $ 497,500         495,324         497,500   

Diamond Resorts International

   Lodging & Casinos    Term Loan    Loan      5.50   5/9/2021    $ 995,000         990,370         999,975   

Dollar Tree

   Retail    Term Loan B (3950MM)    Loan      4.25   3/9/2022    $ 1,000,000         995,000         1,007,500   

DPX Holdings B.V.

   Healthcare & Pharmaceuticals    Term Loan    Loan      4.25   3/11/2021    $ 2,985,000         2,978,605         2,962,075   

Drew Marine Group Inc.

   Chemicals/Plastics    Term Loan (First Lien)    Loan      4.50   11/19/2020    $ 1,489,975         1,495,721         1,473,213   

Education Management LLC

   Leisure Goods/Activities/Movies    Term Loan A    Loan      5.50   7/2/2020    $ 501,970         482,120         457,295   

Education Management LLC

   Leisure Goods/Activities/Movies    Term Loan B    Loan     

 
 
 

8.50%

(2.00%
Cash/6.50%
PIK)

  

  
  
  

  7/2/2020    $ 836,617         805,283         672,882   

EIG Investors Corp.

   Services: Business    Term Loan    Loan      5.00   11/8/2019    $ 987,500         983,552         989,969   

Emerald Performance Materials, LLC

   Chemicals/Plastics    Term Loan (First Lien)    Loan      4.50   8/1/2021    $ 498,750         496,403         496,102   

Emerald Performance Materials, LLC

   Chemicals/Plastics    Term Loan (Second Lien)    Loan      7.75   8/1/2022    $ 500,000         497,553         484,845   

EnergySolutions, LLC

   Oil & Gas    Term Loan B    Loan      6.75   5/29/2020    $ 937,857         921,126         942,546   

Enviromental Resources Management

   Services: Business    Term Loan    Loan      5.00   5/14/2021    $ 1,000,000         990,000         985,000   

Evergreen Acqco 1 LP

   Retailers (Except Food and Drugs)    New Term Loan    Loan      5.00   7/9/2019    $ 975,056         972,887         955,555   

EWT Holdings III Corp. (fka WTG Holdings III Corp.)

   Industrial Equipment    Term Loan (First Lien)    Loan      4.75   1/15/2021    $ 1,987,481         1,982,274         1,972,575   

Federal-Mogul Corporation

   Automotive    Tranche C Term Loan    Loan      4.75   4/15/2021    $ 2,985,000         2,971,883         2,975,687   

First Data Corporation

   Financial Intermediaries    2017 Second New Dollar Term Loan    Loan      3.74   3/23/2018    $ 2,790,451         2,729,399         2,785,568   

First Data Corporation

   Financial Intermediaries    2018 Dollar Term Loan    Loan      4.24   3/24/2021    $ 2,111,028         2,021,476         2,115,777   

Fitness International, LLC

   Leisure Goods/Activities/Movies    Term Loan B    Loan      5.50   7/1/2020    $ 1,492,500         1,482,322         1,421,606   

FMG Resources (August 2006) Pty LTD (FMG America Finance, Inc.)

   Nonferrous Metals/Minerals    Loan    Loan      3.75   6/28/2019    $ 1,982,462         1,982,212         1,835,423   

Four Seasons Holdings Inc.

   Lodging & Casinos    Term Loan (First Lien)    Loan      3.50   6/27/2020    $ 493,750         493,750         491,281   

Garda World Security Corporation

   Services: Business    Term B Delayed Draw Loan    Loan      4.00   11/6/2020    $ 201,157         200,308         199,146   

Garda World Security Corporation

   Services: Business    Term B Loan    Loan      4.00   11/6/2020    $ 786,343         783,060         778,479   

Gardner Denver, Inc.

   Oil & Gas    Initial Dollar Term Loan    Loan      4.25   7/30/2020    $ 2,476,212         2,467,608         2,377,164   

Gates Global LLC

   Leisure Goods/Activities/Movies    Term Loan (First Lien)    Loan      4.25   7/3/2021    $ 498,750         493,763         494,885   

Generac Power Systems, Inc.

   Industrial Equipment    Term Loan B    Loan      3.25   5/29/2020    $ 802,956         789,932         797,182   

General Nutrition Centers, Inc.

   Retailers (Except Food and Drugs)    Amended Tranche B Term Loan    Loan      3.25   3/4/2019    $ 4,724,136         4,709,712         4,649,353   

Global Tel*Link Corporation

   Services: Business    Term Loan (First Lien)    Loan      5.00   5/26/2020    $ 2,755,515         2,747,025         2,719,914   

Goodyear Tire & Rubber Company, The

   Chemicals/Plastics    Loan (Second Lien)    Loan      4.75   4/30/2019    $ 3,333,333         3,296,753         3,347,933   

Grosvenor Capital Management Holdings, LP

   Brokers/Dealers/Investment Houses    Initial Term Loan    Loan      3.75   1/4/2021    $ 3,395,892         3,381,240         3,353,443   

GTCR Valor Companies, Inc.

   Services: Business    Term Loan (First Lien)    Loan      6.00   6/1/2021    $ 1,995,000         1,981,582         1,965,075   

Harland Clarke Holdings Corp. (fka Clarke American Corp.)

   Publishing    Tranche B-4 Term Loan    Loan      6.00   8/2/2019    $ 487,500         485,460         488,963   

HCA Inc.

   Healthcare & Pharmaceuticals    Tranche B-4 Term Loan    Loan      2.99   5/1/2018    $ 5,663,006         5,409,534         5,658,872   

Hertz Corporation, The

   Automotive    Tranche B-1 Term Loan    Loan      4.00   3/12/2018    $ 2,940,000         2,975,234         2,927,152   

Hoffmaster Group, Inc.

   Containers/Glass Products    Term Loan    Loan      5.25   5/8/2020    $ 1,990,000         1,972,040         1,999,950   

Huntsman International LLC

   Chemicals/Plastics    Extended Term B Loan    Loan      2.69   4/19/2017    $ 3,880,270         3,866,113         3,872,199   

Husky Injection

   Services: Business    Term Loan B    Loan      4.25   6/30/2021    $ 498,099         495,886         495,818   

Ikaria, Inc.

   Healthcare & Pharmaceuticals    Initial Term Loan (First Lien)    Loan      5.00   2/12/2021    $ 435,702         433,809         434,251   

Infor (US), Inc. (fka Lawson Software Inc.)

   Services: Business    Tranche B-5 Term Loan    Loan      3.75   6/3/2020    $ 2,211,036         2,194,068         2,190,650   

Insight Global

   Services: Business    Term Loan    Loan      6.00   10/29/2021    $ 2,000,000         1,990,539         1,993,760   

J. Crew Group, Inc.

   Retailers (Except Food and Drugs)    Term B-1 Loan Retired 03/05/2014    Loan      4.00   3/5/2021    $ 965,206         965,206         906,493   

Jazz Acquisition, Inc

   Aerospace and Defense    First Lien 6/14    Loan      4.50   6/19/2021    $ 497,576         496,332         492,913   

Kinetic Concepts, Inc.

   Healthcare & Pharmaceuticals    Dollar Term D-1 Loan    Loan      4.00   5/4/2018    $ 2,477,613         2,453,687         2,477,167   

Koosharem, LLC

   Services: Business    Term Loan    Loan      7.50   5/15/2020    $ 2,995,000         2,968,450         2,961,306   

La Quinta Holdings, Inc.

   Lodging & Casinos    Term Loan (First Lien)    Loan      4.00   4/14/2021    $ 451,283         449,626         450,719   

Level 3 Financing, Inc.

   Telecommunications    Term Loan B    Loan      4.50   1/31/2022    $ 500,000         496,541         502,085   

Mauser Holdings, Inc.

   Containers/Glass Products    Term Loan    Loan      4.50   7/31/2021    $ 498,750         496,409         491,269   

Michaels Stores, Inc.

   Retailers (Except Food and Drugs)    Term B Loan    Loan      3.75   1/28/2020    $ 491,250         491,250         488,258   

Michaels Stores, Inc.

   Retailers (Except Food and Drugs)    Term Loan B-2    Loan      4.00   1/28/2020    $ 1,492,500         1,485,638         1,488,769   

Microsemi Corporation

   Electronics/Electric    Incremental Term Loan    Loan      3.50   2/19/2020    $ 2,393,981         2,389,500         2,381,509   

Microsemi Corporation

   Electronics/Electric    Term Loan    Loan      3.75   2/19/2020    $ 172,170         172,170         171,309   

Midas Intermediate Holdco II, LLC

   Automotive    Delayed Draw Term Loan    Loan      4.75   8/18/2021    $ 25,253         25,253         25,364   

Midas Intermediate Holdco II, LLC

   Automotive    Term Loan B    Loan      4.75   8/18/2021    $ 224,122         223,063         225,103   

Millenium Laboratories, LLC

   Drugs    Term Loan    Loan      5.25   4/16/2021    $ 1,492,500         1,479,041         1,489,396   

Mitel US Holdings, Inc.

   Telecommunications    Term Loan    Loan      5.25   1/31/2020    $ 196,558         195,710         196,411   

MPH Acquisition Holdings LLC

   Healthcare & Pharmaceuticals    Term Loan    Loan      3.75   3/31/2021    $ 445,455         444,453         442,033   

MSC Software Corp.

   Services: Business    Term Loan    Loan      5.00   5/29/2020    $ 995,000         986,186         996,244   

National CineMedia, LLC

   Leisure Goods/Activities/Movies    Term Loan (2013)    Loan      2.95   11/26/2019    $ 1,086,207         1,058,933         1,067,198   

National Veterinary Associates, Inc

   Healthcare & Pharmaceuticals    Term Loan B    Loan      4.75   8/14/2021    $ 997,500         992,907         996,253   

National Vision, Inc.

   Retailers (Except Food and Drugs)    Term Loan (Second Lien)    Loan      6.75   3/11/2022    $ 250,000         249,730         240,418   

Newsday, LLC

   Publishing    Term Loan    Loan      3.69   10/12/2016    $ 2,215,385         2,214,305         2,201,538   

Nortek, Inc.

   Electronics/Electric    Term B Loan    Loan      3.75   10/30/2020    $ 995,000         992,803         986,921   

Novelis, Inc.

   Conglomerate    Initial Term Loan    Loan      3.75   3/10/2017    $ 4,807,530         4,817,740         4,799,502   

NPC International, Inc.

   Food Services    Term Loan (2013)    Loan      4.00   12/28/2018    $ 486,250         486,250         480,780   

NRG Energy, Inc.

   Utilities    Term Loan (2013)    Loan      2.75   7/2/2018    $ 3,861,225         3,842,164         3,850,761   

NuSil Technology LLC.

   Chemicals/Plastics    Term Loan    Loan      5.25   4/7/2017    $ 797,986         797,986         791,004   

Ollie’s Bargain Outlet, Inc

   Retailers (Except Food and Drugs)    Term Loan    Loan      4.75   9/30/2019    $ 977,052         972,882         962,396   

On Assignment, Inc.

   Services: Business    Initial Term B Loan    Loan      3.50   5/15/2020    $ 1,311,364         1,303,451         1,301,528   

Onex Carestream Finance LP

   Healthcare & Pharmaceuticals    Term Loan (First Lien 2013)    Loan      5.00   6/7/2019    $ 4,074,401         4,059,378         4,078,842   

OnexYork Acquisition Co

   Healthcare & Pharmaceuticals    Delayed Draw Term Loan    Loan      4.75   10/1/2021    $ —           —           —     

OnexYork Acquisition Co

   Healthcare & Pharmaceuticals    Term Loan B    Loan      4.75   10/1/2021    $ 498,750         495,208         496,466   

OpenLink International LLC

   Services: Business    Term B Loan    Loan      6.25   10/28/2017    $ 970,000         970,000         957,875   

Orbitz Worldwide, Inc.

   Services: Business    Term Loan (First Lien)    Loan      4.50   4/15/2021    $ 1,494,994         1,492,711         1,494,755   

P.F. Chang’s China Bistro, Inc. (Wok Acquisition Corp.)

   Food/Drug Retailers    Term Borrowing    Loan      4.25   6/24/2019    $ 1,447,901         1,440,712         1,406,274   

P2 Upstream Acquisition Co. (P2 Upstream Canada BC ULC)

   Services: Business    Term Loan (First Lien)    Loan      5.00   10/30/2020    $ 990,000         985,444         947,925   

Par Pharmaceutical

   Healthcare & Pharmaceuticals    Term Loan B3    Loan      4.25   9/28/2019    $ 500,000         497,502         499,065   

PetCo Animal Supplies Stores, Inc.

   Retailers (Except Food and Drugs)    New Loans    Loan      4.00   11/24/2017    $ 1,469,388         1,468,520         1,467,066   

PetSmart

   Retail    Term Loan B    Loan      5.00   3/11/2022    $ 1,000,000         995,000         1,007,050   

PGX Holdings, Inc.

   Financial Intermediaries    Term Loan    Loan      6.25   9/29/2020    $ 993,750         984,482         993,750   

Pharmaceutical Product Development, Inc. (Jaguar Holdings, LLC)

   Conglomerate    2013 Term Loan    Loan      4.00   12/5/2018    $ 1,940,400         1,918,409         1,935,898   

Phillips-Medisize Corporation

   Healthcare & Pharmaceuticals    Term Loan    Loan      4.75   6/16/2021    $ 497,500         495,245         495,948   

Pinnacle Foods Finance LLC

   Food Products    New Term Loan G    Loan      3.00   4/29/2020    $ 2,581,332         2,576,466         2,565,560   

Planet Fitness Holdings LLC

   Leisure Goods/Activities/Movies    Term Loan    Loan      4.75   3/31/2021    $ 1,488,750         1,482,052         1,488,750   

Polymer Group, Inc.

   Chemicals/Plastics    Initial Loan    Loan      5.25   12/19/2019    $ 495,000         492,860         495,619   

Presidio

   Services: Business    Term Loan B    Loan      6.25   2/2/2022    $ 2,000,000         1,940,655         1,973,760   

Prestige Brands, Inc.

   Drugs    Term B-1 Loan    Loan      4.13   1/31/2019    $ 344,697         341,112         344,697   

Prestige Brands, Inc.

   Leisure Goods/Activities/Movies    Term Loan    Loan      4.50   9/3/2021    $ 1,861,111         1,858,280         1,860,534   

QoL Meds, LLC

   Healthcare & Pharmaceuticals    Term Loan B    Loan      5.50   7/15/2020    $ 1,995,000         1,985,909         1,990,013   

Quintiles Transnational Corp.

   Conglomerate    Term B-3 Loan    Loan      3.75   6/8/2018    $ 3,627,678         3,600,425         3,628,802   

Ranpak Holdings, Inc.

   Services: Business    Term Loan    Loan      4.75   10/1/2021    $ 997,500         995,145         996,882   

Ranpak Holdings, Inc.

   Services: Business    Term Loan (Second Lien)    Loan      8.25   9/30/2022    $ 500,000         497,672         496,250   

Redtop Acquisitions Limited

   Electronics/Electric    Initial Dollar Term Loan (First Lien)    Loan      4.50   12/3/2020    $ 495,000         491,974         494,381   

Rexnord LLC/RBS Global, Inc.

   Industrial Equipment    Term B Loan    Loan      4.00   8/21/2020    $ 1,646,799         1,648,172         1,642,172   

Reynolds Group Holdings Inc.

   Industrial Equipment    Incremental U.S. Term Loan    Loan      4.00   12/1/2018    $ 1,960,200         1,960,200         1,965,767   

Riverbed Technology

   Technology    Term Loan B    Loan      6.00   2/25/2022    $ 1,000,000         995,000         1,007,500   

Rocket Software, Inc.

   Services: Business    Term Loan (First Lien)    Loan      5.75   2/8/2018    $ 1,916,674         1,898,764         1,906,285   

Rovi Solutions Corporation / Rovi Guides, Inc.

   Electronics/Electric    Tranche B-3 Term Loan    Loan      3.75   7/2/2021    $ 1,492,500         1,485,607         1,479,441   

RPI Finance Trust

   Drugs    Term B-2 Term Loan    Loan      3.25   5/9/2018    $ 5,207,431         5,188,396         5,219,147   

SBP Holdings LP

   Industrial Equipment    Term Loan (First Lien)    Loan      5.00   3/27/2021    $ 992,500         988,065         863,475   

Scientific Games International, Inc.

   Electronics/Electric    Term Loan B2    Loan      6.00   10/1/2021    $ 1,000,000         990,433         998,040   

Scitor Corporation

   Services: Business    Term Loan    Loan      5.00   2/15/2017    $ 463,977         462,387         461,077   

Seadrill

   Oil & Gas    Term Loan B    Loan      4.00   2/21/2021    $ 997,481         917,590         806,294   

Sensata Technologies B.V./Sensata Technology Finance Company, LLC

   Industrial Equipment    Term Loan    Loan      3.25   5/13/2019    $ 1,509,445         1,509,445         1,511,603   

Sensus USA Inc. (fka Sensus Metering Systems)

   Utilities    Term Loan (First Lien)    Loan      4.50   5/9/2017    $ 1,925,067         1,920,548         1,925,067   

ServiceMaster Company, The

   Conglomerate    Tranche B Term Loan    Loan      4.25   7/1/2021    $ 1,995,000         1,976,650         1,994,641   

Shearers Foods LLC

   Food Services    Term Loan (First Lien)    Loan      4.50   6/30/2021    $ 997,500         995,166         996,253   

Sonneborn, LLC

   Chemicals/Plastics    Term Loan (First Lien)    Loan      5.50   12/10/2020    $ 225,000         224,471         225,000   

Sonneborn, LLC

   Chemicals/Plastics    Initial US Term Loan    Loan      5.50   12/10/2020    $ 1,275,000         1,272,004         1,275,000   

Sophia, L.P.

   Electronics/Electric    Term B Loan    Loan      4.00   7/19/2018    $ 886,138         877,732         884,756   

SourceHOV LLC

   Services: Business    Term Loan B (First Lien)    Loan      7.75   10/31/2019    $ 2,000,000         1,942,284         1,915,000   

Southwire Company, LLC (f.k.a Southwire Company)

   Building and Development    Initial Term Loan    Loan      3.25   2/10/2021    $ 496,250         495,181         485,084   

SRAM, LLC

   Industrial Equipment    Term Loan (First Lien)    Loan      4.00   4/10/2020    $ 2,967,681         2,957,888         2,952,842   

Steak ’n Shake Operations, Inc.

   Food Services    Term Loan    Loan      4.75   3/19/2021    $ 992,500         983,723         975,131   

STHI Holding

   Healthcare & Pharmaceuticals    Term Loan    Loan      4.50   8/6/2021    $ 997,500         997,500         994,388   

SunGard Data Systems Inc. (Solar Capital Corp.)

   Conglomerate    Tranche C Term Loan    Loan      3.90   2/28/2017    $ 285,352         283,117         285,084   

SunGard Data Systems Inc. (Solar Capital Corp.)

   Conglomerate    Tranche E Term Loan    Loan      4.00   3/9/2020    $ 3,707,953         3,618,899         3,706,804   

SuperMedia Inc. (fka Idearc Inc.)

   Publishing    Loan    Loan      11.60   12/30/2016    $ 238,660         232,462         203,756   

Syniverse Holdings, Inc.

   Telecommunications    Initial Term Loan    Loan      4.00   4/23/2019    $ 479,913         476,105         473,314   

TGI Friday’s

   Food Services    Term Loan B    Loan      5.25   7/15/2020    $ 267,977         266,768         267,642   

TGI Friday’s

   Food Services    Term Loan (Second Lien)    Loan      9.25   7/15/2021    $ 2,000,000         2,016,250         2,000,000   

TPF II Power LLC and TPF II Covert Midco LLC

   Utilities    Term Loan B    Loan      5.50   10/2/2021    $ 500,000         496,689         504,790   

TransDigm, Inc.

   Aerospace and Defense    Tranche C Term Loan    Loan      3.75   2/28/2020    $ 4,847,054         4,856,484         4,824,661   

TransFirst

   Financial Intermediaries    Term Loan    Loan      5.50   11/12/2021    $ 500,000         495,182         502,815   

TransUnion

   Financial Intermediaries    Term Loan    Loan      4.00   4/9/2021    $ 496,250         495,138         493,977   

Tricorbraun, Inc. (fka Kranson Industries, Inc.)

   Containers/Glass Products    Term Loan    Loan      4.00   5/3/2018    $ 1,850,000         1,843,008         1,822,250   

Truven Health Analytics Inc. (fka Thomson Reuters (Healthcare) Inc.)

   Healthcare & Pharmaceuticals    New Tranche B Term Loan    Loan      4.50   6/6/2019    $ 487,566         479,874         481,471   

Twin River Management Group, Inc.

   Lodging & Casinos    Term Loan B    Loan      5.25   7/10/2020    $ 974,167         976,455         975,998   

U.S. Security Associates Holdings, Inc.

   Services: Business    Delayed Draw Loan    Loan      6.25   7/28/2017    $ 158,518         157,610         156,734   

U.S. Security Associates Holdings, Inc.

   Services: Business    Term B Loan    Loan      6.25   7/28/2017    $ 931,046         926,144         920,572   

United Surgical Partners International, Inc.

   Healthcare & Pharmaceuticals    New Tranche B Term Loan    Loan      4.75   4/3/2019    $ 2,431,749         2,408,580         2,431,749   

Univar Inc.

   Chemicals/Plastics    Term B Loan    Loan      5.00   6/30/2017    $ 3,844,964         3,844,749         3,813,935   

Univision Communications Inc.

   Telecommunications    Replacement First-Lien Term Loan    Loan      4.00   3/1/2020    $ 2,947,446         2,931,982         2,940,549   

Valeant Pharmaceuticals International, Inc.

   Drugs    Series D2 Term Loan B    Loan      3.50   2/13/2019    $ 2,545,588         2,537,415         2,539,683   

Verint Systems Inc.

   Services: Business    Term Loan    Loan      3.50   9/6/2019    $ 1,264,058         1,259,623         1,259,634   

Vertafore, Inc.

   Services: Business    Term Loan (2013)    Loan      4.25   10/3/2019    $ 2,881,003         2,881,003         2,878,294   

Vouvray US Finance

   Industrial Equipment    Term Loan    Loan      5.00   6/28/2021    $ 497,500         495,243         499,366   

Washington Inventory Service

   Services: Business    U.S. Term Loan (First Lien)    Loan      5.75   12/20/2018    $ 1,832,876         1,851,978         1,796,218   

Waste Industries

   Environmental    Term Loan B    Loan      4.25   2/27/2020    $ 250,000         249,375         250,520   

Wendy’s International, Inc

   Food Services    Term B Loan    Loan      3.25   5/15/2019    $ 673,630         668,099         670,545   

West Corporation

   Telecommunications    Term B-10 Loan    Loan      3.25   6/30/2018    $ 2,571,560         2,605,923         2,562,998   
                   

 

 

    

 

 

 
                    $ 297,760,340       $ 295,239,268   
                   

 

 

    

 

 

 
                               Principal/
Number
of Shares
     Cost      Fair Value  

Cash and cash equivalents

                      

U.S. Bank Money Market (a)

                 $ 5,831,797       $ 5,831,797       $ 5,831,797   
                

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

                 $ 5,831,797       $ 5,831,797       $ 5,831,797   
                

 

 

    

 

 

    

 

 

 

 

(a) Included within cash and cash equivalents in Saratoga CLO’s Statements of Assets and Liabilities as of February 28, 2015.

 

27


Table of Contents

Note 5. Agreements and-Related Party Transactions

On July 30, 2010, the Company entered into the Management Agreement with our Manager. The initial term of the Management Agreement is two years, with automatic, one-year renewals at the end of each year subject to certain approvals by our board of directors and/or our stockholders. On July 8, 2015, our board of directors approved the renewal of the Management Agreement for an additional one-year term. Pursuant to the Management Agreement, our Manager implements our business strategy on a day-to-day basis and performs certain services for us, subject to oversight by our board of directors. Our Manager is responsible for, among other duties, determining investment criteria, sourcing, analyzing and executing investments transactions, asset sales, financings and performing asset management duties. Under the Management Agreement, we have agreed to pay our Manager a management fee for investment advisory and management services consisting of a base management fee and an incentive fee.

The base management fee of 1.75% is calculated based on the average value of our gross assets (other than cash or cash equivalents, but including assets purchased with borrowed funds) at the end of the two most recently completed fiscal quarters, and appropriately adjusted for any share issuances or repurchases during the applicable fiscal quarter.

The incentive fee consists of the following two parts:

The first, payable quarterly in arrears, equals 20.0% of our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding quarter, that exceeds a 1.875% quarterly (7.5% annualized) hurdle rate measured as of the end of each fiscal quarter, subject to a “catch-up” provision. Under this provision, in any fiscal quarter, our Manager receives no incentive fee unless our pre-incentive fee net investment income exceeds the hurdle rate of 1.875%. Our Manager will receive 100.0% of pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than or equal to 2.344% in any fiscal quarter (9.376% annualized); and 20.0% of the amount of the our pre-incentive fee net investment income, if any, that exceeds 2.344% in any fiscal quarter (9.376% annualized).

The second part of the incentive fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Management Agreement) and equals 20.0% of our “incentive fee capital gains,” which equals our realized capital gains on a cumulative basis from May 31, 2010 through the end of the year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee. Importantly, the capital gains portion of the incentive fee is based on realized gains and realized and unrealized losses from May 31, 2010. Therefore, realized and unrealized losses incurred prior to such time will not be taken into account when calculating the capital gains portion of the incentive fee, and our Manager will be entitled to 20.0% of incentive fee capital gains that arise after May 31, 2010. In addition, for the purpose of the “incentive fee capital gains” calculations, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 will equal the fair value of such investments as of such date.

For the three months ended August 31, 2015 and August 31, 2014, we incurred $1.2 million and $1.0 million in base management fees, respectively. For the three months ended August 31, 2015 and August 31, 2014, we incurred $0.7 million and $0.6 million in incentive fees related to pre-incentive fee net investment income, respectively. For the three months ended August 31, 2015, we reduced the incentive fees related to capital gains by $0.8 million. For the three months ended August 31, 2014, we incurred $0.2 million in incentive fees related to capital gains. For the six months ended August 31, 2015 and August 31, 2014, we incurred $2.3 million and $2.0 million in base management fees, respectively. For the six months ended August 31, 2015 and August 31, 2014, we incurred $1.4 million and $0.8 million in incentive fees related to pre-incentive fee net investment income, respectively. For the six months ended August 31, 2015 and August 31, 2014, we accrued of $0.3 million and $0.3 million in incentive fees related to capital gains, respectively. The accrual is calculated using both realized and unrealized capital gains for the period. The actual incentive fee related to capital gains will be determined and payable in arrears at the end of the fiscal year and will include only realized capital gains for the period. As of August 31, 2015, the base management fees accrual was $1.2 million and the incentive fees accrual was $4.9 million and is included in base management and incentive fees payable in the accompanying consolidated statements of assets and liabilities. As of February 28, 2015, the base management fees accrual was $1.0 million and the incentive fees accrual was $4.8 million and is included in base management and incentive fees payable in the accompanying consolidated statements of assets and liabilities.

On July 30, 2010, the Company entered into a separate administration agreement (the “Administration Agreement”) with our Manager, pursuant to which our Manager, as our administrator, has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide managerial assistance on our behalf to those portfolio companies to which we are required to provide such assistance. The initial term of the Administration Agreement was two years, with automatic, one-year renewals at the end of each year subject to certain approvals by our board of directors and/or our stockholders. The amount of expenses payable or reimbursable thereunder by the Company was capped at $1.0 million for the initial two year term of the administration agreement and subsequent renewals. On July 8, 2015, our board of directors approved the renewal of the Administration Agreement for an additional one-year term and determined to increase the cap on the payment or reimbursement of expenses by the Company thereunder, which had not been increased since the inception of the agreement, to $1.3 million. In addition, our board of directors intends to review the new cap in the next three to six months to determine whether it should be further adjusted in light of differences between our projected and actual expenses and other similar factors.

 

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For the three months ended August 31, 2015 and August 31, 2014, we recognized $0.3 million and $0.3 million in administrator expenses for the periods, respectively, pertaining to bookkeeping, record keeping and other administrative services provided to us in addition to our allocable portion of rent and other overhead related expenses. For the six months ended August 31, 2015 and August 31, 2014, we recognized $0.5 million and $0.5 million in administrator expenses for the periods, respectively, pertaining to bookkeeping, record keeping and other administrative services provided to us in addition to our allocable portion of rent and other overhead related expenses. As of August 31, 2015 and February 28, 2015, $0.4 million and $0.4 million, respectively, of administrator expenses were accrued and included in due to manager in the accompanying consolidated statements of assets and liabilities. For the six months ended August 31, 2015 and August 31, 2014, the Company neither bought nor sold any investments from the Saratoga CLO.

Note 6. Borrowings

Credit Facility

As a BDC, we are only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200.0% after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.

On April 11, 2007, we entered into a $100.0 million revolving securitized credit facility (the “Revolving Facility”). On May 1, 2007, we entered into a $25.7 million term securitized credit facility (the “Term Facility” and, together with the Revolving Facility, the “Facilities”), which was fully drawn at closing. In December 2007, we consolidated the Facilities by using a draw under the Revolving Facility to repay the Term Facility. In response to the market wide decline in financial asset prices, which negatively affected the value of our portfolio, we terminated the revolving period of the Revolving Facility effective January 14, 2009 and commenced a two-year amortization period during which all principal proceeds from the collateral was used to repay outstanding borrowings. A significant percentage of our total assets had been pledged under the Revolving Facility to secure our obligations thereunder. Under the Revolving Facility, funds were borrowed from or through certain lenders and interest was payable monthly at the greater of the commercial paper rate and our lender’s prime rate plus 4.00% plus a default rate of 2.00% or, if the commercial paper market was unavailable, the greater of the prevailing LIBOR rates and our lender’s prime rate plus 6.00% plus a default rate of 3.00%.

In March 2009, we amended the Revolving Facility to increase the portion of the portfolio that could be invested in “CCC” rated investments in return for an increased interest rate and expedited amortization. As a result of these transactions, we expected to have additional cushion under our borrowing base under the Revolving Facility that would allow us to better manage our capital in times of declining asset prices and market dislocation.

On July 30, 2009, we exceeded the permissible borrowing limit under the Revolving Facility for 30 consecutive days, resulting in an event of default under the Revolving Facility. As a result of this event of default, our lender had the right to accelerate repayment of the outstanding indebtedness under the Revolving Facility and to foreclose and liquidate the collateral pledged thereunder. Acceleration of the outstanding indebtedness and/or liquidation of the collateral could have had a material adverse effect on our liquidity, financial condition and operations.

On July 30, 2010, we used the net proceeds from (i) the stock purchase transaction and (ii) a portion of the funds available to us under the $45.0 million senior secured revolving credit facility (the “Credit Facility”) with Madison Capital Funding LLC, in each case, to pay the full amount of principal and accrued interest, including default interest, outstanding under the Revolving Facility. As a result, the Revolving Facility was terminated in connection therewith. Substantially all of our total assets, other than those held by SBIC LP, have been pledged under the Credit Facility to secure our obligations thereunder.

On February 24, 2012, we amended our senior secured revolving credit facility with Madison Capital Funding LLC to, among other things:

 

    expand the borrowing capacity under the Credit Facility from $40.0 million to $45.0 million;

 

    extend the period during which we may make and repay borrowings under the credit facility from July 30, 2013 to February 24, 2015 (the “Revolving Period”). The Revolving Period may upon the occurrence of an event of default, by action of the lenders or automatically. All borrowings and other amounts payable under the credit facility are due and payable five years after the end of the Revolving Period; and

 

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    remove the condition that we may not acquire additional loan assets without the prior written consent of Madison Capital Funding LLC.

On September 17, 2014, we entered into a second amendment to the Credit Facility with Madison Capital Funding LLC to, among other things:

 

    extend the commitment termination date from February 24, 2015 to September 17, 2017;

 

    extend the maturity date of the Credit Facility from February 24, 2020 to September 17, 2022 (unless terminated sooner upon certain events);

 

    reduce the applicable margin rate on base rate borrowings from 4.50% to 3.75%, and on LIBOR borrowings from 5.50% to 4.75%; and

 

    reduce the floor on base rate borrowings from 3.00% to 2.25%; and on LIBOR borrowings from 2.00% to 1.25%.

As of August 31, 2015 and February 28, 2015, there was $2.0 million and $9.6 million outstanding under the Credit Facility, respectively, and the Company was in compliance with all of the limitations and requirements of the Credit Facility. Financing costs of $2.7 million related to the Credit Facility have been capitalized and are being amortized over the term of the facility. For the three months ended August 31, 2015 and August 31, 2014, we recorded $0.2 million and $0.2 million of interest expense, respectively. For the six months ended August 31, 2015 and August 31, 2014, we recorded $0.4 million and $0.4 million of interest expense, respectively. For the three months ended August 31, 2015 and August 31, 2014, we recorded $0.02 million and $0.1 million of amortization of deferred financing costs related to the Credit Facility. For the six months ended August 31, 2015 and August 31, 2014, we recorded $0.04 million and $0.2 million of amortization of deferred financing costs related to the Credit Facility. The interest rates during the three and six months ended August 31, 2015 on the outstanding borrowings under the Credit Facility were 6.00% and 6.00%, respectively. The interest rates during the three and six months ended August 31, 2014 on the outstanding borrowings under the Credit Facility were 7.50% and 7.50%, respectively. During the three and six months ended August 31, 2015, the average dollar amount of outstanding borrowings under the Credit Facility was $6.8 million and $8.2 million, respectively. During the three and six months ended August 31, 2014, the average dollar amount of outstanding borrowings under the Credit Facility was $5.5 million and $4.6 million, respectively.

The Credit Facility contains limitations as to how borrowed funds may be used, such as restrictions on industry concentrations, asset size, weighted average life, currency denomination and collateral interests. The Credit Facility also includes certain requirements relating to portfolio performance, the violation of which could result in the limit of further advances and, in some cases, result in an event of default, allowing the lenders to accelerate repayment of amounts owed thereunder. The Credit Facility has an eight year term, consisting of a three year period (the “Revolving Period”), under which the Company may make and repay borrowings, and a final maturity five years from the end of the Revolving Period. Availability on the Credit Facility will be subject to a borrowing base calculation, based on, among other things, applicable advance rates (which vary from 50.0% to 75.0% of par or fair value depending on the type of loan asset) and the value of certain “eligible” loan assets included as part of the Borrowing Base. Funds may be borrowed at the greater of the prevailing LIBOR rate and 2.00%, plus an applicable margin of 5.50%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 3.00%, and the applicable margin over such alternative base rate is 4.50%. In addition, the Company will pay the lenders a commitment fee of 0.75% per year on the unused amount of the Credit Facility for the duration of the Revolving Period.

Our borrowing base under the Credit Facility was $34.8 million subject to the Credit Facility cap of $45.0 million at August 31, 2015. For purposes of determining the borrowing base, most assets are assigned the values set forth in our most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q filed with the SEC. Accordingly, the August 31, 2015 borrowing base relies upon the valuations set forth in the Quarterly Report on Form 10-Q for the period ended May 31, 2015. The valuations presented in this Quarterly Report on Form 10-Q will not be incorporated into the borrowing base until after this Quarterly Report on Form 10-Q is filed with the SEC.

SBA Debentures

SBIC LP is able to borrow funds from the SBA against regulatory capital (which approximates equity capital) that is paid in and is subject to customary regulatory requirements including but not limited to an examination by the SBA. As of August 31, 2015, we have funded SBIC LP with $59.3 million of equity capital, and have $79.0 million of SBA-guaranteed debentures outstanding. SBA debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven spread over 10-year U.S. Treasury Notes. SBA current regulations limit the amount that SBIC LP may borrow to a maximum of $150.0 million, which is up to twice its potential regulatory capital.

 

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SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses. Under present SBA regulations, eligible small businesses include businesses that have a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the two most recent fiscal years. In addition, an SBIC must devote 25.0% of its investment activity to ‘‘smaller’’ concerns as defined by the SBA. A smaller concern is one that has a tangible net worth not exceeding $6.0 million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services.

SBIC LP is subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financial ratios and other covenants. Receipt of an SBIC license does not assure that SBIC LP will receive SBA guaranteed debenture funding, which is dependent upon SBIC LP continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to SBIC LP’s assets over our stockholders and debtholders in the event we liquidate SBIC LP or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC LP upon an event of default.

The Company received exemptive relief from the Securities and Exchange Commission to permit it to exclude the debt of SBIC LP guaranteed by the SBA from the definition of senior securities in the 200.0% asset coverage test under the 1940 Act. This allows the Company increased flexibility under the 200.0% asset coverage test by permitting it to borrow up to $150.0 million more than it would otherwise be able to absent the receipt of this exemptive relief.

As of August 31, 2015 and February 28, 2015, there was $79.0 million and $79.0 million outstanding of SBA debentures, respectively. The carrying amount of the amount outstanding of SBA debentures approximates its fair value. Financing costs of $3.0 million related to the SBA debentures have been capitalized and are being amortized over the term of the commitment and drawdown.

For the three months ended August 31, 2015 and August 31, 2014, we recorded $0.6 million and $0.4 million of interest expense related to the SBA debentures, respectively. For the three months ended August 31, 2015 and August 31, 2014, we recorded $0.1 million and $0.1 million of amortization of deferred financing costs related to the SBA debentures, respectively. The weighted average interest rate during the three months ended August 31, 2015 and August 31, 2014 on the outstanding borrowings of the SBA debentures was 3.25% and 2.80%, respectively.

For the six months ended August 31, 2015 and August 31, 2014, we recorded $1.2 million and $0.8 million of interest expense related to the SBA debentures, respectively. For the six months ended August 31, 2015 and August 31, 2014, we recorded $0.2 million and $0.1 million of amortization of deferred financing costs related to the SBA debentures, respectively. The weighted average interest rate during the six months ended August 31, 2015 and August 31, 2014 on the outstanding borrowings of the SBA debentures was 3.25% and 2.92%, respectively. During the three and six months ended August 31, 2015, the average dollar amount of SBA debentures outstanding was $79.0 million and $79.0 million, respectively. During the three and six months ended August 31, 2014, the average dollar amount of SBA debentures outstanding was $64.0 million and $58.2 million, respectively.

On April 2, 2015, the SBA issued a “green light” or “go forth” letter inviting us to continue our application process to obtain a license to form and operate its second SBIC subsidiary. If approved, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue $75 million of additional SBA-guaranteed debentures in addition to the $150 million already approved under the first license. Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license and we have received no assurance or indication from the SBA that it will receive an SBIC license, or of the timeframe in which it would receive a license, should one be granted.

Notes

On May 10, 2013, the Company issued $42.0 million in aggregate principal amount of 7.50% fixed-rate notes due 2020 (the “Notes”). The Notes will mature on May 31, 2020, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after May 31, 2016. Interest will be payable quarterly beginning August 15, 2013.

On May 17, 2013, the Company closed an additional $6.3 million in aggregate principal amount of the Notes, pursuant to the full exercise of the underwriters’ option to purchase additional Notes. On May 29, 2015, the Company entered into a Debt Distribution Agreement with Landenburg Thalmann & Co. through which the Company may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the Notes through an At-the-Market (“ATM”) offering. As of August 31, 2015, the Company sold 357,807 bonds with a principal of $8,945,175 at an average price of $25.36 for aggregate net proceeds of $8,890,953 (net of transaction costs).

 

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As of August 31, 2015, the carrying amount and fair value of the Notes was $57.2 million and $57.5 million, respectively. The fair value of the Notes, which are publicly traded, is based upon closing market quotes as of the measurement date and would be classified as a level 1 liability within the fair value hierarchy. As of August 31, 2015, $2.6 million of financing costs related to the Notes (including underwriting commissions and net of issuance premiums) have been capitalized and are being amortized over the term of the Notes. For the three and six months ended August 31, 2015, we recorded $1.1 million and $2.0 million, respectively, of interest expense and $0.1 million and $0.2 million, respectively, of amortization of deferred financing costs related to the Notes. For the three and six months ended August 31, 2014, we recorded $0.9 million and $1.8 million, respectively, of interest expense and $0.1 million and $0.2 million, respectively, of amortization of deferred financing costs related to the Notes. During the three and six months ended August 31, 2015, the average dollar amount of Notes outstanding was $54.4 million and $51.3 million, respectively. During the three and six months ended August 31, 2014, the average dollar amount of Notes outstanding was $48.3 million and $48.3 million, respectively.

Note 7. Commitments and Contingencies

Contractual obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at August 31, 2015:

 

            Payment Due by Period  
     Total      Less Than
1 Year
     1 -3
Years
     3 -5
Years
     More Than
5 Years
 
     ($ in thousands)  

Long-Term Debt Obligations

   $ 138,245       $ —        $   —        $ 57,245       $ 81,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Off-balance sheet arrangements

The Company’s off-balance sheet arrangements consisted of $11.6 million and $11.2 million of unfunded commitments to provide debt financing to its portfolio companies or to fund limited partnership interests as of August 31, 2015 and February 28, 2015, respectively. Such commitments are generally up to the Company’s discretion to approve, or the satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Company’s Consolidated Statement of Assets and Liabilities and are not reflected in the Company’s Consolidated Statements of Assets and Liabilities.

A summary of the composition of the unfunded commitments as of August 31, 2015 and February 28, 2015 are shown in the table below (dollars in thousands):

 

     As of  
     August 31, 2015      February 28, 2015  

Bristol Hospice, LLC

   $ 7,500       $ 7,500   

HMN Holdco, LLC

     2,400         2,400   

Avionte Holdings, LLC

     1,000         1,000   

Advanced Air & Heat of Florida, LLC

     400         —    

Knowland Technology Holdings, L.L.C

     300         300   
  

 

 

    

 

 

 

Total

   $ 11,600       $ 11,200   
  

 

 

    

 

 

 

Note 8. Directors Fees

The independent directors receive an annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting. In addition, the chairman of the Audit Committee receives an annual fee of $5,000 and the chairman of each other committee receives an annual fee of $2,000 for their additional services in these capacities. In addition, we have purchased directors’ and officers’ liability insurance on behalf of our directors and

 

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officers. Independent directors have the option to receive their directors’ fees in the form of our common stock issued at a price per share equal to the greater of net asset value or the market price at the time of payment. No compensation is paid to directors who are “interested persons” of the Company (as such term is defined in the 1940 Act). For the three months ended August 31, 2015 and August 31, 2014, we accrued $0.05 million and $0.05 million for directors’ fees expense, respectively. For the six months ended August 31, 2015 and August 31, 2014, we accrued $0.1 million and $0.1 million for directors’ fees expense, respectively. As of August 31, 2015 and February 28, 2015, $0.03 million and $0.03 million in directors’ fees expense were unpaid and included in accounts payable and accrued expenses in the consolidated statements of assets and liabilities. As of August 31, 2015, we had not issued any common stock to our directors as compensation for their services.

Note 9. Stockholders’ Equity

On May 16, 2006, GSC Group, Inc. capitalized the LLC, by contributing $1,000 in exchange for 67 shares, constituting all of the issued and outstanding shares of the LLC.

On March 20, 2007, the Company issued 95,995.5 and 8,136.2 shares of common stock, priced at $150.00 per share, to GSC Group and certain individual employees of GSC Group, respectively, in exchange for the general partnership interest and a limited partnership interest in GSC Partners CDO III GP, LP, collectively valued at $15.6 million. At this time, the 6.7 shares owned by GSC Group in the LLC were exchanged for 6.7 shares of the Company.

On March 28, 2007, the Company completed its IPO of 725,000 shares of common stock, priced at $150.00 per share, before underwriting discounts and commissions. Total proceeds received from the IPO, net of $7.1 million in underwriter’s discount and commissions, and $1.0 million in offering costs, were $100.7 million.

On November 13, 2009, we declared a dividend of $18.25 per share payable on December 31, 2009. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.1 million or $2.50 per share. Based on shareholder elections, the dividend consisted of $2.1 million in cash and 864,872.5 of newly issued shares of common stock.

On July 30, 2010, our Manager and its affiliates purchased 986,842 shares of common stock at $15.20 per share. Total proceeds received from this sale were $15.0 million.

On August 12, 2010, we effected a one-for-ten reverse stock split of our outstanding common stock. As a result of the reverse stock split, every ten shares of our common stock were converted into one share of our common stock. Any fractional shares received as a result of the reverse stock split were redeemed for cash. The total cash payment in lieu of shares was $230. Immediately after the reverse stock split, we had 2,680,842 shares of our common stock outstanding.

On November 12, 2010, we declared a dividend of $4.40 per share payable on December 29, 2010. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $1.2 million or $0.44 per share. Based on shareholder elections, the dividend consisted of approximately $1.2 million in cash and 596,235 shares of common stock.

On November 15, 2011, we declared a dividend of $3.00 per share payable on December 30, 2011. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $2.0 million or $0.60 per share. Based on shareholder elections, the dividend consisted of approximately $2.0 million in cash and 599,584 shares of common stock.

On November 9, 2012, the Company declared a dividend of $4.25 per share payable on December 31, 2012. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $3.3 million or $0.85 per share. Based on shareholder elections, the dividend consisted of approximately $3.3 million in cash and 853,455 shares of common stock.

On October 30, 2013, the Company declared a dividend of $2.65 per share payable on December 27, 2013. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $2.5 million or $0.53 per share. Based on shareholder elections, the dividend consisted of approximately $2.5 million in cash and 649,500 shares of common stock.

On September 24, 2014, the Company declared a dividend of $0.18 per share payable on November 28, 2014. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company’s DRIP. Based on shareholder elections, the dividend consisted of approximately $0.6 million in cash and 22,283 newly issued shares of common stock.

 

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On September 24, 2014, the Company declared a dividend of $0.22 per share payable on February 27, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.8 million in cash and 26,858 newly issued shares of common stock.

On September 24, 2014, the Company announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published financial statements. As of August 31, 2015, the Company purchased 2,500 shares of common stock for approximately $0.04 million pursuant to this repurchase plan. On October 7, 2015 this open market share repurchase plan was extended for another year, increasing the number of shares the Company is allowed to repurchase at prices below its NAV, as reported in its then most recently published financial statements, to 400,000.

On April 9, 2015, the Company declared a dividend of $0.27 per share payable on May 29, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.9 million in cash and 33,766 newly issued shares of common stock.

On May 14, 2015, the Company declared a special dividend of $1.00 per share payable on June 5, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $3.4 million in cash and 126,230 newly issued shares of common stock.

On July 8, 2015 the Company declared a dividend of $0.33 per share payable on August 31, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 47,861 newly issued shares of common stock.

Note 10. Earnings Per Share

In accordance with the provisions of FASB ASC 260, “Earnings per Share” (“ASC 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

The following information sets forth the computation of the weighted average basic and diluted net decrease in net assets per share from operations for the three and six months ended August 31, 2015 and August 31, 2014 (dollars in thousands except share and per share amounts):

 

     For the three months ended      For the six months ended  

Basic and diluted

   August 31,
2015
     August 31,
2014
     August 31,
2015
     August 31,
2014
 

Net increase in net assets from operations

   $ 1,243       $ 3,157       $ 8,628       $ 4,917   

Weighted average common shares outstanding

     5,583,795         5,379,616         5,492,491         5,379,616   

Earnings per common share-basic and diluted

   $ 0.22       $ 0.59       $ 1.57       $ 0.91   

Note 11. Dividend

On July 8, 2015 the Company declared a dividend of $0.33 per share payable on August 31, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 47,861 newly issued shares of common stock.

On May 14, 2015, the Company declared a special dividend of $1.00 per share payable on June 5, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $3.4 million in cash and 126,230 newly issued shares of common stock.

On April 9, 2015, the Company declared a dividend of $0.27 per share payable on May 29, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.9 million in cash and 33,766 newly issued shares of common stock.

 

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The following tables summarize dividends declared during the six months ended August 31, 2015 (dollars in thousands except per share amounts):

 

Date Declared

   Record Date    Payment Date    Amount
Per Share*
     Total
Amount
 

July 8, 2015

   August 3, 2015    August 31, 2015    $ 0.33       $ 1,844   

May 14, 2015

   May 26, 2015    June 5, 2015    $ 1.00       $ 5,429   

April 9, 2015

   May 4, 2015    May 29, 2015    $ 0.27       $ 1,466   
        

 

 

    

 

 

 

Total dividends declared

         $ 1.60       $ 8,739   
        

 

 

    

 

 

 

 

* Amount per share is calculated based on the number of shares outstanding at the date of declaration.

The Company did not declare any dividend payments during the quarter ended August 31, 2014.

Note 12. Financial Highlights

The following is a schedule of financial highlights for the six months ended August 31, 2015 and August 31, 2014:

 

     For the six months ended  
     August 31, 2015     August 31, 2014  

Per share data:

  

Net asset value at beginning of period

   $ 22.70      $ 21.08   

Net investment income (1)

     0.99        0.77   

Net realized and unrealized gains and losses on investments

     0.58        0.14   
  

 

 

   

 

 

 

Net increase in net assets from operations

     1.57        0.91   

Distributions declared from net investment income

     (1.60     —     
  

 

 

   

 

 

 

Total distributions to stockholders

     (1.60     —     

Dilution (4)

     (0.25     0.01   

Net asset value at end of period

   $ 22.42      $ 22.00   

Net assets at end of period

   $ 125,258,420      $ 118,344,981   

Shares outstanding at end of period

     5,586,254        5,379,616   

Per share market value at end of period

   $ 16.32      $ 16.06   

Total return based on market value (2)

     13.63     1.32

Total return based on net asset value (3)

     8.38     3.00

Ratio/Supplemental data:

  

Ratio of net investment income to average net assets

     8.75     7.22

Ratio of operating expenses to average net assets

     6.49     6.46

Ratio of incentive management fees to average net assets (6)

     1.43     1.01

Ratio of credit facility related expenses to average net assets

     6.63     6.25

Ratio of total expenses to average net assets

     14.54     13.72

Portfolio turnover rate (5)

     13.96     11.35

As described in Note 2 to the consolidated financial statements and notes thereto included in our Form 10-K for the year ended February 28, 2015, we identified errors that impacted the six months ended August 31, 2014. The corrections for the errors, which we have concluded are immaterial to all prior period consolidated financial statements, are reflected in the consolidated financial statements included in this Form 10-Q.

 

 

(1) Net investment income per share is calculated using the weighted average shares outstanding during the period.

 

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(2) Total investment return is calculated assuming a purchase of common shares at the current market value on the first day and a sale at the current market value on the last day of the periods reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions. Total investment returns covering less than a full period are not annualized.
(3) Total investment return is calculated assuming a purchase of common shares at the current net asset value on the first day and a sale at the current net asset value on the last day of the periods reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions.
(4) Represents the dilutive effect of issuing common stock below net asset value per share during the period, pursuant to the Company’s dividend reinvestment plan, in connection with the satisfaction of the Company’s annual RIC distribution requirement. See Note 11, Dividend.
(5) Portfolio turnover rate is calculated using the lesser of year-to-date sales or year-to-date purchases over the average of the invested assets at fair value.
(6) Ratios are not annualized.

Note 13. Subsequent Events

On October 7, 2015 the Company declared a dividend of $0.36 per share payable for the fiscal quarter ended August 31, 2015 to all stockholders of record at the close of business on November 2, 2015, with a payment date on November 30, 2015. Shareholders will have the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company’s dividend reinvestment plan.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:

 

    our future operating results;

 

    our business prospects and the prospects of our portfolio companies;

 

    the impact of investments that we expect to make;

 

    our contractual arrangements and relationships with third parties;

 

    the dependence of our future success on the general economy and its impact on the industries in which we invest;

 

    the ability of our portfolio companies to achieve their objectives;

 

    our expected financings and investments;

 

    our regulatory structure and tax treatment, including our ability to operate as a business development company (“BDC”), or to operate our small business investment company (“SBIC”) subsidiary, and to continue to qualify to be taxed as a regulated investment company (“RIC”);

 

    the adequacy of our cash resources and working capital;

 

    the timing of cash flows, if any, from the operations of our portfolio companies; and

 

    the ability of our investment adviser to locate suitable investments for us and to monitor and effectively administer our investments.

 

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You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

OVERVIEW

We are a Maryland corporation that has elected to be treated as a BDC under the Investment Company Act of 1940 (the “1940 Act”). Our investment objective is to generate current income and, to a lesser extent, capital appreciation from our investments. We invest primarily in leveraged loans and mezzanine debt issued by private U.S. middle market companies, which we define as companies having EBITDA of between $5 million and $50 million, both through direct lending and through participation in loan syndicates. We may also invest up to 30.0% of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in distressed debt, which may include securities of companies in bankruptcy, foreign debt, private equity, securities of public companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds. We have elected and qualified to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

Corporate History and Recent Developments

We commenced operations, at the time known as GSC Investment Corp., on March 23, 2007 and completed an initial public offering of shares of common stock on March 28, 2007. Prior to July 30, 2010, we were externally managed and advised by GSCP (NJ), L.P., an entity affiliated with GSC Group, Inc. In connection with the consummation of a recapitalization transaction on July 30, 2010, as described below we engaged Saratoga Investment Advisors (“SIA”) to replace GSCP (NJ), L.P. as our investment adviser and changed our name to Saratoga Investment Corp.

As a result of the event of default under a revolving securitized credit facility with Deutsche Bank we previously had in place, in December 2008 we engaged the investment banking firm of Stifel, Nicolaus & Company to evaluate strategic transaction opportunities and consider alternatives for us. On April 14, 2010, GSC Investment Corp. entered into a stock purchase agreement with Saratoga Investment Advisors and certain of its affiliates and an assignment, assumption and novation agreement with Saratoga Investment Advisors, pursuant to which GSC Investment Corp. assumed certain rights and obligations of Saratoga Investment Advisors under a debt commitment letter Saratoga Investment Advisors received from Madison Capital Funding LLC, which indicated Madison Capital Funding’s willingness to provide GSC Investment Corp. with a $40.0 million senior secured revolving credit facility, subject to the satisfaction of certain terms and conditions. In addition, GSC Investment Corp. and GSCP (NJ), L.P. entered into a termination and release agreement, to be effective as of the closing of the transaction contemplated by the stock purchase agreement, pursuant to which GSCP (NJ), L.P., among other things, agreed to waive any and all accrued and unpaid deferred incentive management fees up to and as of the closing of the transaction contemplated by the stock purchase agreement but continued to be entitled to receive the base management fees earned through the date of the closing of the transaction contemplated by the stock purchase agreement.

On July 30, 2010, the transactions contemplated by the stock purchase agreement with Saratoga Investment Advisors and certain of its affiliates were completed, the private sale of 986,842 shares of our common stock for $15.0 million in aggregate purchase price to Saratoga Investment Advisors and certain of its affiliates closed, the Company entered into the Credit Facility, and the Company began doing business as Saratoga Investment Corp.

We used the net proceeds from the private sale transaction and a portion of the funds available to us under the Credit Facility to pay the full amount of principal and accrued interest, including default interest, outstanding under our revolving securitized credit facility with Deutsche Bank. The revolving securitized credit facility with Deutsche Bank was terminated in connection with our payment of all amounts outstanding thereunder on July 30, 2010.

On August 12, 2010, we effected a one-for-ten reverse stock split of our outstanding common stock. As a result of the reverse stock split, every ten shares of our common stock were converted into one share of our common stock. Any fractional shares received as a result of the reverse stock split were redeemed for cash. The total cash payment in lieu of shares was $230. Immediately after the reverse stock split, we had 2,680,842 shares of our common stock outstanding.

In January 2011, we registered for public resale the 982,842 shares of our common stock issued to Saratoga Investment Advisors and certain of its affiliates.

On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP (“SBIC LP”), received a SBIC license from the Small Business Administration (“SBA”).

 

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In May 2013, we issued $48.3 million in aggregate principal amount of our 7.50% unsecured notes due 2020 for net proceeds of $46.1 million after deducting underwriting commissions of $1.9 million and offering costs of $0.3 million. The proceeds included the underwriters’ full exercise of their overallotment option. Interest on these notes is paid quarterly in arrears on February 15, May 15, August 15 and November 15, at a rate of 7.50% per year, beginning August 15, 2013. The notes mature on May 31, 2020 and may be redeemed in whole or in part at any time or from time to time at our option on or after May 31, 2016. The notes are listed on the NYSE under the trading symbol “SAQ” with a par value of $25.00 per share.

On April 2, 2015, the SBA issued a “green light” or “go forth” letter inviting us to continue our application process to obtain a license to form and operate its second SBIC subsidiary. If approved, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue $75 million of additional SBA-guaranteed debentures in addition to the $150 million already approved under the first license. Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license and we have received no assurance or indication from the SBA that it will receive an SBIC license, or of the timeframe in which it would receive a license, should one be granted.

On May 29, 2015, we entered into a Debt Distribution Agreement with Landenburg Thalmann & Co. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the Notes through an At-the-Market (“ATM”) offering. As of August 31, 2015, the Company sold 357,807 bonds with a principal of $8,945,175 at an average price of $25.36 for aggregate net proceeds of $8,890,953 (net of transaction costs).

Critical Accounting Policies

Basis of Presentation

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make certain estimates and assumptions affecting amounts reported in the Company’s consolidated financial statements. We have identified investment valuation, revenue recognition and the recognition of capital gains incentive fee expense as our most critical accounting estimates. We continuously evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.

Investment Valuation

The Company accounts for its investments at fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that its investments are to be sold at the statement of assets and liabilities date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from Saratoga Investment Advisers, the audit committee of our board of directors and a third party independent valuation firm. Determinations of fair value may involve subjective judgments and estimates. The types of factors that may be considered in determining the fair value of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow and other relevant factors.

We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

 

    Each investment is initially valued by the responsible investment professionals of Saratoga Investment Advisors and preliminary valuation conclusions are documented and discussed with our senior management; and

 

    An independent valuation firm engaged by our board of directors reviews approximately one quarter of these preliminary valuations each quarter so that the valuation of each investment for which market quotes are not readily available is reviewed by the independent valuation firm at least annually.

 

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In addition, all our investments are subject to the following valuation process:

 

    The audit committee of our board of directors reviews each preliminary valuation and Saratoga Investment Advisors and independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee; and

 

    Our board of directors discusses the valuations and approves the fair value of each investment, in good faith, based on the input of Saratoga Investment Advisors, independent valuation firm (to the extent applicable) and the audit committee of our board of directors.

Our investment in Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”) is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for equity interests in collateralized loan obligation funds similar to Saratoga CLO, when available, as determined by SIA and recommended to our board of directors. Specifically, we use Intex cash flow models, or an appropriate substitute, to form the basis for the valuation of our investment in Saratoga CLO. The models use a set of assumptions including projected default rates, recovery rates, reinvestment rate and prepayment rates in order to arrive at estimated valuations. The assumptions are based on available market data and projections provided by third parties as well as management estimates. We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flows analysis on expected future cash flows to determine a valuation for our investment in Saratoga CLO.

Revenue Recognition

Income Recognition

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on its investments when it is determined that interest is no longer collectible. Discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortizations of premium on investments.

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as a reduction in principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection.

Interest income on our investment in Saratoga CLO is recorded using the effective interest method in accordance with the provisions of ASC Topic 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

Paid-in-Kind Interest

The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We stop accruing PIK interest if we do not expect the issuer to be able to pay all principal and interest when due.

Capital Gains Incentive Fee

The Company records an expense accrual relating to the capital gains incentive fee payable by the Company to its investment adviser when the unrealized gains on its investments exceed all realized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the investment adviser if the Company were to liquidate its investment portfolio at such time. The actual incentive fee payable to the Company’s investment adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains for the period.

 

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Revenues

We generate revenue in the form of interest income and capital gains on the debt investments that we hold and capital gains, if any, on equity interests that we may acquire. We expect our debt investments, whether in the form of leveraged loans or mezzanine debt, to have terms of up to ten years, and to bear interest at either a fixed or floating rate. Interest on debt will be payable generally either quarterly or semi-annually. In some cases, our debt investments may provide for a portion of the interest to be PIK. To the extent interest is paid-in-kind, it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation. The principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance or investment management services and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned. We may also invest in preferred equity securities that pay dividends on a current basis.

On January 22, 2008, we entered into a collateral management agreement with Saratoga CLO, pursuant to which we act as its collateral manager. The Saratoga CLO was refinanced in October 2013 and its reinvestment period ends in October 2016. The Saratoga CLO remains 100% owned and managed by Saratoga Investment Corp. We receive a senior collateral management fee of 0.25% and a subordinate collateral management fee of 0.25% of the outstanding principal amount of Saratoga CLO’s assets, paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20.0% of excess cash flow to the extent the Saratoga CLO subordinated notes receive an internal rate of return equal to or greater than 12.0%.

We recognize interest income on our investment in the subordinated notes of Saratoga CLO using the effective interest method, based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

Expenses

Our primary operating expenses include the payment of investment advisory and management fees, professional fees, directors and officers insurance, fees paid to independent directors and administrator expenses, including our allocable portion of our administrator’s overhead. Our investment advisory and management fees compensate our investment adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions, including those relating to:

 

    organization;

 

    calculating our net asset value (including the cost and expenses of any independent valuation firm);

 

    expenses incurred by our investment adviser payable to third parties, including agents, consultants or other advisers, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies;

 

    interest payable on debt, if any, incurred to finance our investments;

 

    offerings of our common stock and other securities;

 

    investment advisory and management fees;

 

    fees payable to third parties, including agents, consultants or other advisers, relating to, or associated with, evaluating and making investments;

 

    transfer agent and custodial fees;

 

    federal and state registration fees;

 

    all costs of registration and listing our common stock on any securities exchange;

 

    federal, state and local taxes;

 

    independent directors’ fees and expenses;

 

    costs of preparing and filing reports or other documents required by governmental bodies (including the SEC and the SBA);

 

    costs of any reports, proxy statements or other notices to common stockholders including printing costs;

 

    our fidelity bond, directors and officers errors and omissions liability insurance, and any other insurance premiums;

 

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    direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; and

 

    administration fees and all other expenses incurred by us or, if applicable, the administrator in connection with administering our business (including payments under the administration agreement based upon our allocable portion of the administrator’s overhead in performing its obligations under an administration agreement, including rent and the allocable portion of the cost of our officers and their respective staffs (including travel expenses)).

Pursuant to the investment advisory and management agreement that we had with GSCP (NJ), L.P., our former investment adviser and administrator, we had agreed to pay GSCP (NJ), L.P. as investment adviser a quarterly base management fee of 1.75% of the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed fiscal quarters, and appropriately adjusted for any share issuances or repurchases during the applicable fiscal quarter, and an incentive fee.

The incentive fee had two parts:

 

    A fee, payable quarterly in arrears, equal to 20.0% of our pre-incentive fee net investment income, expressed as a rate of return on the value of the net assets at the end of the immediately preceding quarter, that exceeded a 1.875% quarterly (7.5% annualized) hurdle rate measured as of the end of each fiscal quarter. Under this provision, in any fiscal quarter, our investment adviser received no incentive fee unless our pre-incentive fee net investment income exceeded the hurdle rate of 1.875%. Amounts received as a return of capital were not included in calculating this portion of the incentive fee. Since the hurdle rate was based on net assets, a return of less than the hurdle rate on total assets could still have resulted in an incentive fee.

 

    A fee, payable at the end of each fiscal year, equal to 20.0% of our net realized capital gains, if any, computed net of all realized capital losses and unrealized capital depreciation, in each case on a cumulative basis, less the aggregate amount of capital gains incentive fees paid to the investment adviser through such date.

We deferred cash payment of any incentive fee otherwise earned by our former investment adviser if, during the then most recent four full fiscal quarters ending on or prior to the date such payment was to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less liabilities) (before taking into account any incentive fees payable during that period) was less than 7.5% of our net assets at the beginning of such period. These calculations were appropriately pro-rated for the first three fiscal quarters of operation and adjusted for any share issuances or repurchases during the applicable period. Such incentive fee would become payable on the next date on which such test had been satisfied for the most recent four full fiscal quarters or upon certain terminations of the investment advisory and management agreement. We commenced deferring cash payment of incentive fees during the quarterly period ended August 31, 2007, and continued to defer such payments through the quarterly period ended May 31, 2010. As of July 30, 2010, the date on which GSCP (NJ), L.P. ceased to be our investment adviser and administrator, we owed GSCP (NJ), L.P. $2.9 million in fees for services previously provided to us; of which $0.3 million has been paid by us. GSCP (NJ), L.P. agreed to waive payment by us of the remaining $2.6 million in connection with the consummation of the stock purchase transaction with Saratoga Investment Advisors and certain of its affiliates described elsewhere in this Quarterly Report.

The terms of the investment advisory and management agreement with Saratoga Investment Advisors, our current investment adviser, are substantially similar to the terms of the investment advisory and management agreement we had entered into with GSCP (NJ), L.P., our former investment adviser, except for the following material distinctions in the fee terms:

 

    The capital gains portion of the incentive fee was reset with respect to gains and losses from May 31, 2010, and therefore losses and gains incurred prior to such time will not be taken into account when calculating the capital gains fee payable to Saratoga Investment Advisors and, as a result, Saratoga Investment Advisors will be entitled to 20.0% of net gains that arise after May 31, 2010. In addition, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 equal the fair value of such investment as of such date. Under the investment advisory and management agreement with our former investment adviser, GSCP (NJ), L.P., the capital gains fee was calculated from March 21, 2007, and the gains were substantially outweighed by losses.

 

    Under the “catch up” provision, 100.0% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income that exceeds 1.875% (7.5% annualized) but is less than or equal to 2.344% in any fiscal quarter is payable to Saratoga Investment Advisors. This will enable Saratoga Investment Advisors to receive 20.0% of all net investment income as such amount approaches 2.344% in any quarter, and Saratoga Investment Advisors will receive 20.0% of any additional net investment income. Under the investment advisory and management agreement with our former investment adviser, GSCP (NJ), L.P. only received 20.0% of the excess net investment income over 1.875%.

 

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    We will no longer have deferral rights regarding incentive fees in the event that the distributions to stockholders and change in net assets is less than 7.5% for the preceding four fiscal quarters.

To the extent that any of our leveraged loans are denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of interest rate caps, futures, options and forward contracts. Costs incurred in entering into or settling such contracts will be borne by us.

New Accounting Pronouncements

In August 2015, the FASB issued ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”). ASU 2015-15 updates the accounting guidance included in ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs as a result of the June 18, 2015, Emerging Issues Task Force meeting, in which the SEC stated that the SEC staff would not object to an entity deferring and presenting costs related to revolving debt arrangements as an asset. As the Company has previously adopted the provisions of ASU 2015-03 as of February 28, 2015 and reclassified all deferred debt financing costs from within total assets to within total liabilities as a contra-liability, it has chosen not to avail itself of this option and continue to include all deferred financing costs as a contra-liability within total liabilities.

In February 2015, the FASB issued ASU 2015-02, Consolidation (ASC Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 significantly changes the consolidation analysis required under GAAP and ends the deferral granted to investment companies from applying the variable interest entity guidance. ASU 2015-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015 and early adoption is permitted. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In August 2014, the FASB issued new accounting guidance that requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments provide a definition of the term “substantial doubt” and include principles for considering the mitigating effect of management’s plans. The amendments also require an evaluation every reporting period, including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued), and certain disclosures when substantial doubt is alleviated or not alleviated. The amendments in this update are effective for reporting periods ending after December 15, 2016. Management is currently evaluating the impact of adopting this new accounting guidance update on the company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim reporting periods beginning after December 15, 2016, and early application is not permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

Portfolio and investment activity

Corporate Debt Portfolio Overview

 

     At August 31,
2015
    At February 28,
2015
 
     ($ in millions)     ($ in millions)  

Number of investments(1)

     59        63   

Number of portfolio companies(1)

     32        34   

Average investment size(1)

   $ 4.0      $ 3.5   

Weighted average maturity(1)

     3.4yrs        3.7yrs   

Number of industries(1)

     13        14   

Average investment per portfolio company(1)

   $ 7.4      $ 6.6   

Non-performing or delinquent investments(1)

   $ 0.0      $ 0.0   

Fixed rate debt (% of interest bearing portfolio)(2)

   $ 94.7(44.0)   $ 82.5(40.6)

Weighted average current coupon(2)

     11.7     12.0

Floating rate debt (% of interest bearing portfolio)(2)

   $ 120.8(56.0)   $ 120.8(59.4)

Weighted average current spread over LIBOR(2)

     8.9     8.7

 

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(1) Excludes our investment in the subordinated notes of Saratoga CLO and limited partnership interests.
(2) Excludes our investment in the subordinated notes of Saratoga CLO, investments in common stocks and limited partnership interests.

During the three months ended August 31, 2015, we made $18.9 million investments in new or existing portfolio companies and had $27.4 million in aggregate amount of exits and repayments resulting in net investments of $(8.5) million for the period. During the three months ended August 31, 2014, we made $31.8 million investments in new or existing portfolio companies and had $15.7 million in aggregate amount of exits and repayments resulting in net investments of $16.1 million for the period.

During the six months ended August 31, 2015, we made $42.1 million investments in new or existing portfolio companies and had $34.8 million in aggregate amount of exits and repayments resulting in net investments of $7.3 million for the period. During the six months ended August 31, 2014, we made $53.3 million investments in new or existing portfolio companies and had $24.4 million in aggregate amount of exits and repayments resulting in net investments of $28.9 million for the period.

Our portfolio composition at August 31, 2015 and February 28, 2015 at fair value was as follows:

Portfolio composition

 

     At August 31, 2015     At February 28, 2015  
     Percentage
of Total
Portfolio
    Weighted
Average
Current
Yield
    Percentage
of Total
Portfolio
    Weighted
Average
Current
Yield
 

Syndicated loans

     6.6     7.0     7.6     6.2

First lien term loans

     62.1        11.1        60.3        11.0   

Second lien term loans

     16.7        10.4        14.8        11.2   

Unsecured notes

     0.1        10.0        1.8        13.7   

Saratoga CLO subordinated notes

     6.6        37.8        7.1        25.2   

Equity interests

     7.9        N/A        8.4        N/A   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     12.6     100.0     11.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Our investment in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at August 31, 2015 and February 28, 2015, was composed of $313.9 million and $296.9 million, respectively, in aggregate principal amount of predominantly senior secured first lien term loans. This investment is subject to unique risks. (See “Risk Factors—Our investment in Saratoga CLO 2013-1 LTD. constitutes a leveraged investment in a portfolio of predominantly senior secured first lien term loans and is subject to additional risks and volatility”). We do not consolidate the Saratoga CLO portfolio in our financial statements. Accordingly, the metrics below do not include the underlying Saratoga CLO portfolio investments. However, at August 31, 2015, $305.1 million or 98.9% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and one Saratoga CLO portfolio investment was in default with a fair value of $0.9 million. At February 28, 2015, $291.6 million or 98.8% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and two Saratoga CLO portfolio investments were in default with a fair value of $2.7 million.

Saratoga Investment Advisors normally grades all of our investments using a credit and monitoring rating system (“CMR”). The CMR consists of a single component: a color rating. The color rating is based on several criteria, including financial and operating strength, probability of default, and restructuring risk. The color ratings are characterized as follows: (Green)—strong credit; (Yellow)—satisfactory credit; (Red)—payment default risk, in payment default and/or significant restructuring activity.

 

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The CMR distribution of our investments at August 31, 2015 and February 28, 2015 was as follows:

Portfolio CMR distribution

 

     At August 31, 2015     At February 28, 2015  

Color Score

   Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Green

   $ 209,958         83.3   $ 191,606         79.7

Yellow

     5,500         2.2        11,635         4.8   

Red

     58         0.0        101         0.0   

N/A(1)

     36,669         14.5        37,196         15.5   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 252,185         100.0   $ 240,538         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of our investment in the subordinated notes of Saratoga CLO and equity interests.

 

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The CMR distribution of Saratoga CLO investments at August 31, 2015 and February 28, 2015 was as follows:

Portfolio CMR distribution

 

     At August 31, 2015     At February 28, 2015  

Color Score

   Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Green

   $ 284,142         92.1   $ 278,769         94.4

Yellow

     21,005         6.8        12,875         4.4   

Red

     3,071         1.0        2,978         1.0   

N/A(1)

     160         0.1        617         0.2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 308,378         100.0   $ 295,239         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of Saratoga CLO’s equity interests.

Portfolio composition by industry grouping at fair value

The following table shows our portfolio composition by industry grouping at fair value at August 31, 2015 and February 28, 2015:

 

     At August 31, 2015     At February 28, 2015  
     Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Business Services

   $ 57,085         22.7   $ 52,128         21.7

Software as a Service

     50,028         19.8        50,362         20.9   

Consumer Services

     39,868         15.8        27,332         11.4   

Healthcare Services

     19,188         7.6        20,641         8.6   

Structured Finance (1)

     16,754         6.6        17,031         7.1   

Media

     15,328         6.1        15,026         6.2   

Metals

     12,178         4.8        15,262         6.3   

Automotive Aftermarket

     10,878         4.3        10,980         4.6   

Food and Beverage

     9,718         3.9        10,348         4.3   

Utilities

     7,650         3.0        5,955         2.5   

Electronics

     6,744         2.7        6,667         2.8   

Building Products

     4,149         1.7        3,436         1.4   

Consumer Products

     2,559         1.0        3,284         1.4   

Education

     58         0.0        101         0.0   

Publishing

     —           —          1,985         0.8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 252,185         100.0   $ 240,538         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of our investment in the subordinated notes of Saratoga CLO.

 

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The following table shows Saratoga CLO’s portfolio composition by industry grouping at fair value at August 31, 2015 and February 28, 2015:

 

     At August 31, 2015     At February 28, 2015  
     Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Services: Business

   $ 44,381         14.3   $ 42,751         14.5

Healthcare & Pharmaceuticals

     29,830         9.6        35,341         11.9   

Chemicals/Plastics

     27,088         8.7        25,758         8.7   

Retailers (Except Food and Drugs)

     19,776         6.4        22,026         7.4   

Conglomerate

     16,193         5.3        19,928         6.7   

Financial Intermediaries

     15,966         5.2        10,806         3.7   

Industrial Equipment

     13,391         4.3        15,290         5.2   

Aerospace and Defense

     12,122         3.9        7,287         2.5   

Telecommunications

     10,766         3.5        6,675         2.3   

Electronics/Electric

     10,364         3.4        12,904         4.4   

Leisure Goods/Activities/Movies

     9,829         3.2        12,629         4.3   

Technology

     8,685         2.8        1,008         0.3   

Food Services

     6,684         2.2        5,886         2.0   

Automotive

     6,550         2.1        6,650         2.2   

Utilities

     6,168         2.0        6,281         2.1   

Food Products

     5,838         1.9        5,856         2.0   

High Tech Industries

     5,767         1.9        —           —     

Lodging and Casinos

     5,686         1.8        5,826         2.0   

Publishing

     5,456         1.8        5,627         1.9   

Insurance

     5,136         1.7        5,425         1.8   

Oil & Gas

     4,952         1.6        6,070         2.1   

Brokers/Dealers/Investment Houses

     4,812         1.6        4,832         1.6   

Containers/Glass Products

     4,282         1.4        4,313         1.5   

Drugs

     3,757         1.2        10,091         3.4   

Media

     3,449         1.1        2,004         0.7   

Banking, Finance, Insurance & Real Estate

     2,980         1.0        —           —     

Construction & Building

     2,974         1.0        —           —     

Food/Drug Retailers

     2,891         0.9        5,861         2.0   

Cable and Satellite Television

     2,615         0.8        2,646         0.9   

Consumer Goods: Durable

     2,100         0.7        —           —     

Nonferrous Metals/Minerals

     1,587         0.5        1,835         0.6   

Broadcast Radio and Television

     1,425         0.5        467         0.2   

Telecommunications/Cellular

     1,419         0.5        2,431         0.8   

Beverage, Food & Tobacco

     999         0.3        —           —     

Hotels, Gaming, and Leisure

     989         0.3        —           —     

Services: Consumer

     499         0.2        —           —     

Consumer Goods: Non-Durable

     473         0.2        —           —     

Building and Development

     250         0.1        485         0.2   

Environmental

     249         0.1        250         0.1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 308,378         100.0   $ 295,239         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

Portfolio composition by geographic location at fair value

The following table shows our portfolio composition by geographic location at fair value at August 31, 2015 and February 28, 2015. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

 

     At August 31, 2015     At February 28, 2015  
     Investments
at
Fair Value
     Percentage
of Total
Portfolio
    Investments
at
Fair Value
     Percentage
of Total
Portfolio
 
     ($ in thousands)  

Southeast

   $ 104,232         41.3   $ 92,069         38.3

Midwest

     53,620         21.3        55,767         23.2   

West

     42,653         16.9        40,259         16.7   

Northeast

     33,926         13.5        34,412         14.3   

Other(1)

     16,754         6.6        17,031         7.1   

International

     1,000         0.4        1,000         0.4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 252,185         100.0   $ 240,538         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Comprised of our investment in the subordinated notes of Saratoga CLO.

Results of operations

Operating results for the three and six months ended August 31, 2015 and August 31, 2014 are as follows:

 

     For the three months ended  
     August 31,
2015
     August 31,
2014
 
     ($ in thousands)  

Total investment income

   $ 7,758       $ 6,475   

Total expenses, net

     4,101         4,382   
  

 

 

    

 

 

 

Net investment income

     3,657         2,093   

Net realized gains

     3,710         360   

Net unrealized appreciation/(depreciation) on investments

     (6,124      704   
  

 

 

    

 

 

 

Net increase in net assets resulting from operations

   $ 1,243       $ 3,157   
  

 

 

    

 

 

 

 

     For the six months ended  
     August 31,
2015
     August 31,
2014
 
     ($ in thousands)  

Total investment income

   $ 15,319       $ 12,619   

Total expenses, net

     9,891         8,463   
  

 

 

    

 

 

 

Net investment income

     5,428         4,156   

Net realized gains

     3,784         442   

Net unrealized appreciation/(depreciation) on investments

     (584      319   
  

 

 

    

 

 

 

Net increase in net assets resulting from operations

   $ 8,628       $ 4,917   
  

 

 

    

 

 

 

 

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Table of Contents

Investment income

The composition of our investment income for the three and six months ended August 31, 2015 and August 31, 2014 are as follows:

 

     For the three months ended  
     August 31,
2015
     August 31,
2014
 
     ($ in thousands)  

Interest from investments

   $ 6,819       $ 6,037   

Management fees from Saratoga CLO

     373         375   

Interest from cash and cash equivalents and other income

     566         63   
  

 

 

    

 

 

 

Total

   $ 7,758       $ 6,475   
  

 

 

    

 

 

 

 

     For the six months ended  
     August 31,
2015
     August 31,
2014
 
     ($ in thousands)  

Interest from investments

   $ 13,750       $ 11,639   

Management fees from Saratoga CLO

     752         767   

Interest from cash and cash equivalents and other income

     817         213   
  

 

 

    

 

 

 

Total

   $ 15,319       $ 12,619   
  

 

 

    

 

 

 

For the three months ended August 31, 2015, total investment income increased $1.3 million, or 19.8% compared to the three months ended August 31, 2014. Interest income from investments increased $0.8 million, or 13.0%, to $6.8 million for the three months ended August 31, 2015 from $6.0 million for the three months ended August 31, 2014. This increased interest income reflects an increase of 6.7% in total investments to $252.2 million at August 31, 2015 from $236.3 million at August 31, 2014, despite the weighted average current coupon reducing from 13.0% to 11.7%.

For the six months ended August 31, 2015, total investment income increased $2.7 million, or 21.4% compared to the six months ended August 31, 2014. Interest income from investments increased $2.1 million, or 18.1%, to $13.8 million for the six months ended August 31, 2015 from $11.6 million for the six months ended August 31, 2014. This increased interest income reflects an increase of 6.7% in total investments to $252.2 million at August 31, 2015 from $236.3 million at August 31, 2014, despite the weighted average current coupon reducing from 13.0% to 11.7%.

For the three and six months ended August 31, 2015 and August 31, 2014, total PIK income was $0.3 million and $1.0 million, and $0.3 million and $0.6 million, respectively.

The Saratoga CLO was refinanced in October 2013. As a result, proceeds from principal payments in the loan portfolio of Saratoga CLO must now be used to paydown its outstanding notes. The management fee income and investment income that we receive from Saratoga CLO has remained relatively unchanged at $0.4 million and $0.8 million, respectively, for the three and six months ended August 31, 2015 and 2014.

 

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Operating expenses

The composition of our operating expenses for the three and six months ended August 31, 2015 and August 31, 2014 are as follows:

Operating Expenses

 

     For the three months ended  
     August 31,
2015
     August 31,
2014
 
     ($ in thousands)  

Interest and debt financing expenses

   $ 2,148       $ 1,809   

Base management fees

     1,151         1,037   

Professional fees

     350         276   

Incentive management fees

     (41      769   

Administrator expenses

     275         250   

Insurance

     87         84   

Directors fees and expenses

     51         56   

General & administrative

     203         101   

Excise tax expense (credit)

     (123      —     
  

 

 

    

 

 

 

Total expenses

   $ 4,101       $ 4,382   
  

 

 

    

 

 

 
     For the six months ended  
     August 31,
2015
     August 31,
2014
 
     ($ in thousands)  

Interest and debt financing expenses

   $ 4,112       $ 3,597   

Base management fees

     2,275         2,006   

Professional fees

     683         711   

Incentive management fees

     1,756         1,147   

Administrator expenses

     525         500   

Insurance

     175         169   

Directors fees and expenses

     102         109   

General & administrative

     386         224   

Excise tax expense (credit)

     (123      —     
  

 

 

    

 

 

 

Total expenses

   $ 9,891       $ 8,463   
  

 

 

    

 

 

 

For the three months ended August 31, 2015, total operating expenses decreased $0.3 million, or 6.4% compared to the three months ended August 31, 2014. For the six months ended August 31, 2015, total operating expenses increased $1.4 million, or 16.9% compared to the six months ended August 31, 2014.

For the three and six months ended August 31, 2015 and August 31, 2014, the increase in interest and debt financing expenses is primarily attributable to an increase in outstanding debt as compared to the prior years, with increased levels of the SBA debentures and notes outstanding offset by decreased levels of the Credit Facility outstanding. The Credit Facility decreased from $8.9 million at August 31, 2014 to $2.0 million at August 31, 2015, while our SBA debentures increased from $64.0 million to $79.0 million and the notes increased from $48.3 million to $57.2 million for these same periods. For the three months ended August 31, 2015, the weighted average interest rate on our outstanding indebtedness was 5.03% compared to 4.94% for the three months ended August 31, 2014. For the six months ended August 31, 2015, the weighted average interest rate on our outstanding indebtedness was 4.98% compared to 5.10% for the six months ended August 31, 2014. This decrease for the six months ended August 31, 2015 was primarily driven by an increase in SBA debentures that carry a lower interest rate but now make up a higher proportion of our overall debt, increasing from 52.8% of overall debt as of August 31, 2014 to 57.1% as of August 31, 2015. The increase for the three months ended August 31, 2015 was primarily driven by the increase in outstanding notes that have a higher interest rate than other debt.

For the three months ended August 31, 2015, base management fees increased $0.1 million, or 11.0% compared to the three months ended August 31, 2014. For the six months ended August 31, 2015, base management fees increased $0.3 million, or 13.4%

 

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Table of Contents

compared to the six months ended August 31, 2014. The increase in base management fees results from the increase in the average value of our total assets, less cash and cash equivalents, from $233.1 million as of August 31, 2014 to $261.0 million as of August 31, 2015.

For the three and six months ended August 31, 2015, professional fees increased $0.1 million, or 26.7%, and decreased $0.03 million, or 4.0%, respectively, compared to the three and six months ended August 31, 2014.

For the three months ended August 31, 2015, incentive management fees decreased $0.8 million, or 105.4% compared to the three months ended August 31, 2014. The decrease in incentive management fees is primarily attributable to a reversal of the second part of the incentive fees due to the net unrealized depreciation on investments for the three months ended August 31, 2015 of $6.1 million, partially offset by net realized gains on investments of $3.7 million.

For the six months ended August 31, 2015, incentive management fees increased $0.6 million, or 53.1% compared to the six months ended August 31, 2014. These increased fees reflect two factors, being (i) an increase in accrued incentive fees this year, as higher total assets has led to increased net investment income above the hurdle rate pursuant to the investment advisory and management agreement, and (ii) increased second part of the incentive fees of $0.3 million related primarily to the redemption of one of our investments in which we held both debt and equity, resulting in a net realized gain of $3.8 million for the six months ended August 31, 2015.

As discussed above, the increase in interest and debt financing expenses for three and six months ended August 31, 2015 as compared to the three months ended August 31, 2014 is primarily attributable to an increase in the amount of outstanding debt and deferred financing costs. For the three and six months ended August 31, 2015 and August 31, 2014, the weighted average interest rate on the outstanding borrowings under the Credit Facility was 6.00% and 7.50%, respectively. For three months ended August 31, 2015 and August 31, 2014, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 3.25% and 2.80%, respectively. For six months ended August 31, 2015 and August 31, 2014, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 3.25% and 2.92%, respectively.

Net realized gains/(losses) on sales of investments

For the three months ended August 31, 2015, the Company had $27.4 million of sales, repayments, exits or restructurings resulting in $3.7 million of net realized gains. For the six months ended August 31, 2015, the Company had $34.8 million of sales, repayments, exits or restructurings resulting in $3.8 million of net realized gains. The most significant realized gains and losses during the six months ended August 31, 2015 were as follows:

Six Months ended August 31, 2015

 

Issuer

  

Asset Type

   Gross
Proceeds
     Cost      Net
Realized
Gain/
(Loss)
 
          ($ in thousands)  

Network Communications, Inc.

   Common Stock      3,206         —           3,206   

Network Communications, Inc.

   Unsecured Notes      914         686         228   

The $3.2 million and $0.2 million of realized gain on our investments in Network Communications, Inc. is due to the sale of the company to a third party and reflects the realization value pursuant to that transaction.

For the three months ended August 31, 2014, the Company had $15.7 million of sales, repayments, exits or restructurings resulting in $0.4 million of net realized gains. For the six months ended August 31, 2014, the Company had $24.4 million of sales, repayments, exits or restructurings resulting in $0.4 million of net realized gains. There were no significant realized gains and losses during the six months ended August 31, 2014.

 

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Net unrealized appreciation/(depreciation) on investments

For the three months ended August 31, 2015, our investments had net unrealized depreciation of $6.1 million versus net unrealized appreciation of $0.7 million for the three months ended August 31, 2014. For the six months ended August 31, 2015, our investments had net unrealized depreciation of $0.6 million versus net unrealized appreciation of $0.3 million for the six months ended August 31, 2014. The most significant cumulative changes in unrealized appreciation and depreciation for the six months ended August 31, 2015, were the following:

Six Months ended August 31, 2015

 

Issuer

  

Asset Type

   Cost      Fair
Value
     Total
Unrealized
Appreciation/
(Depreciation)
     YTD Change
in Unrealized
Appreciation/
(Depreciation)
 
          ($ in thousands)  

Saratoga CLO

   Other/Structured Finance Securities      14,304         16,754         2,450         1,372   

Elyria Foundry Company, LLC

   Common Stock      9,218         3,678         (5,540      (3,084

Smile Brands Group, Inc.

   First Lien Term Loan      4,358         2,941         (1,417      (1,203

The $1.4 million unrealized appreciation in our investment in the Saratoga CLO was primarily due to a decline in the discount rate based on prevailing market conditions.

The $3.1 million unrealized depreciation in our investment in Elyria Foundry Company, LLC was primarily due to a decline in oil and gas end markets since year-end, negatively impacting the Company’s performance.

The $1.2 million unrealized depreciation in our investment in Smile Brands Group, Inc. was primarily due to declining profitability driven by increased spending.

The most significant cumulative changes in unrealized appreciation and depreciation for the six months ended August 31, 2014, were the following:

Six Months ended August 31, 2014

 

Issuer

  

Asset Type

   Cost      Fair
Value
     Total
Unrealized
Appreciation/
(Depreciation)
     YTD Change
in Unrealized
Appreciation/
(Depreciation)
 
          ($ in thousands)  

Elyria Foundry Company, LLC

   Senior Secured Note    $ 8,860       $ 5,785       $ (3,075    $ (859

Saratoga CLO

   Other/ Structured Finance Securities      16,556         20,090         3,534         520   

USS Parent Holding Corp.

   Voting Common Stock      3,026         5,567         2,541         539   

The $0.9 million of unrealized depreciation in our investment in Elyria Foundry Company, LLC was due to a decline in the company’s performance as a result of volume declines from key energy customers.

The $0.5 million of unrealized appreciation in our investment in the Saratoga CLO subordinated notes was due to a decrease in the discount rate from the previous year end.

The $0.5 million of unrealized appreciation in our investment in the common stock of USS Parent Holding Corp. was due to the sale of the company to a private equity firm.

Changes in net assets resulting from operations

For the three months ended August 31, 2015 and August 31, 2014, we recorded a net increase in net assets resulting from operations of $1.2 million and $3.2 million, respectively. Based on 5,583,795 weighted average common shares outstanding as of

 

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August 31, 2015, our per share net increase in net assets resulting from operations was $0.22 for the three months ended August 31, 2015. Based on 5,379,616 weighted average common shares outstanding as of August 31, 2014, our per share net increase in net assets resulting from operations was $0.59 for the three months ended August 31, 2014.

For the six months ended August 31, 2015 and August 31, 2014, we recorded a net increase in net assets resulting from operations of $8.6 million and $4.9 million, respectively. Based on 5,492,491 weighted average common shares outstanding as of August 31, 2015, our per share net increase in net assets resulting from operations was $1.57 for the six months ended August 31, 2015. Based on 5,379,616 weighted average common shares outstanding as of August 31, 2014, our per share net increase in net assets resulting from operations was $0.91 for the six months ended August 31, 2014.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We intend to continue to generate cash primarily from cash flows from operations, including interest earned from our investments in debt in middle market companies, interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less, future borrowings and future offerings of securities.

Although we expect to fund the growth of our investment portfolio through the net proceeds from SBA debenture drawdowns and future equity offerings, including our dividend reinvestment plan, and issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act, we cannot assure you that our plans to raise capital will be successful. In this regard, because our common stock has historically traded at a price below our current net asset value per share and we are limited in our ability to sell our common stock at a price below net asset value per share, we have been and may continue to be limited in our ability to raise equity capital.

In addition, we intend to distribute to our stockholders substantially all of our taxable income in order to satisfy the distribution requirement applicable to RICs under Subchapter M of the Code. In satisfying this distribution requirement, we have in the past relied on IRS issued private letter rulings concluding that a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC subject to a limitation on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20% of the aggregate declared distribution. We may rely on these IRS private letter rulings in future periods to satisfy our RIC distribution requirement.

Also, as a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%. This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 311.4% as of August 31, 2015 and 311.7% as of February 28, 2015. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and other debt-related markets, which may or may not be available on favorable terms, if at all.

Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. Also, the illiquidity of our portfolio investments may make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.

Madison revolving credit facility

Below is a summary of the terms of the senior secured revolving credit facility we entered into with Madison Capital Funding (the “Credit Facility”) on June 30, 2010.

Availability. The Company can draw up to the lesser of (i) $40.0 million (the “Facility Amount”) and (ii) the product of the applicable advance rate (which varies from 50.0% to 75.0% depending on the type of loan asset) and the value, determined in accordance with the Credit Facility (the “Adjusted Borrowing Value”), of certain “eligible” loan assets pledged as security for the loan (the “Borrowing Base”), in each case less (a) the amount of any undrawn funding commitments the Company has under any loan asset and which are not covered by amounts in the Unfunded Exposure Account referred to below (the “Unfunded Exposure Amount”) and (b) outstanding borrowings. Each loan asset held by the Company as of the date on which the Credit Facility was closed was valued as of that date and each loan asset that the Company acquires after such date will be valued at the lowest of its fair value, its face value (excluding accrued interest) and the purchase price paid for such loan asset. Adjustments to the value of a loan asset will be made to reflect, among other things, changes in its fair value, a default by the obligor on the loan asset, insolvency of the obligor, acceleration of the loan asset, and certain modifications to the terms of the loan asset.

 

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The Credit Facility contains limitations on the type of loan assets that are “eligible” to be included in the Borrowing Base and as to the concentration level of certain categories of loan assets in the Borrowing Base such as restrictions on geographic and industry concentrations, asset size and quality, payment frequency, status and terms, average life, and collateral interests. In addition, if an asset is to remain an “eligible” loan asset, the Company may not make changes to the payment, amortization, collateral and certain other terms of the loan assets without the consent of the administrative agent that will either result in subordination of the loan asset or be materially adverse to the lenders.

Collateral. The Credit Facility is secured by substantially all of the assets of the Company (other than assets held by our SBIC subsidiary) and includes the subordinated notes (“CLO Notes”) issued by Saratoga CLO and the Company’s rights under the CLO Management Agreement (as defined below).

Interest Rate and Fees. Under the Credit Facility, funds are borrowed from or through certain lenders at the greater of the prevailing LIBOR rate and 2.00%, plus an applicable margin of 5.50%. At the Company’s option, funds may be borrowed based on an alternative base rate, which in no event will be less than 3.00%, and the applicable margin over such alternative base rate is 4.50%. In addition, the Company pays the lenders a commitment fee of 0.75% per year on the unused amount of the Credit Facility for the duration of the Revolving Period (defined below). Accrued interest and commitment fees are payable monthly. The Company was also obligated to pay certain other fees to the lenders in connection with the closing of the Credit Facility.

Revolving Period and Maturity Date. The Company may make and repay borrowings under the Credit Facility for a period of three years following the closing of the Credit Facility (the “Revolving Period”). The Revolving Period may be terminated at an earlier time by the Company or, upon the occurrence of an event of default, by action of the lenders or automatically. All borrowings and other amounts payable under the Credit Facility are due and payable in full five years after the end of the Revolving Period.

Collateral Tests. It is a condition precedent to any borrowing under the Credit Facility that the principal amount outstanding under the Credit Facility, after giving effect to the proposed borrowings, not exceed the lesser of the Borrowing Base or the Facility Amount (the “Borrowing Base Test”). In addition to satisfying the Borrowing Base Test, the following tests must also be satisfied (together with Borrowing Base Test, the “Collateral Tests”):

 

    Interest Coverage Ratio. The ratio (expressed as a percentage) of interest collections with respect to pledged loan assets, less certain fees and expenses relating to the Credit Facility, to accrued interest and commitment fees and any breakage costs payable to the lenders under the Credit Facility for the last 6 payment periods must equal at least 175.0%.

 

    Overcollateralization Ratio. The ratio (expressed as a percentage) of the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets plus the fair value of certain ineligible pledged loan assets and the CLO Notes (in each case, subject to certain adjustments) to outstanding borrowings under the Credit Facility plus the Unfunded Exposure Amount must equal at least 200.0%.

 

    Weighted Average FMV Test. The aggregate adjusted or weighted value of “eligible” pledged loan assets as a percentage of the aggregate outstanding principal balance of “eligible” pledged loan assets must be equal to or greater than 72.0% and 80.0% during the one-year periods prior to the first and second anniversary of the closing date, respectively, and 85.0% at all times thereafter.

The Credit Facility also requires payment of outstanding borrowings or replacement of pledged loan assets upon the Company’s breach of its representation and warranty that pledged loan assets included in the Borrowing Base are “eligible” loan assets. Such payments or replacements must equal the lower of the amount by which the Borrowing Base is overstated as a result of such breach or any deficiency under the Collateral Tests at the time of repayment or replacement. Compliance with the Collateral Tests is also a condition to the discretionary sale of pledged loan assets by the Company.

Priority of Payments. During the Revolving Period, the priority of payments provisions of the Credit Facility require, after payment of specified fees and expenses and any necessary funding of the Unfunded Exposure Account, that collections of principal from the loan assets and, to the extent that these are insufficient, collections of interest from the loan assets, be applied on each payment date to payment of outstanding borrowings if the Borrowing Base Test, the Overcollateralization Ratio and the Interest Coverage Ratio would not otherwise be met. Similarly, following termination of the Revolving Period, collections of interest are required to be applied, after payment of certain fees and expenses, to cure any deficiencies in the Borrowing Base Test, the Interest Coverage Ratio and the Overcollateralization Ratio as of the relevant payment date.

Reserve Account. The Credit Facility requires the Company to set aside an amount equal to the sum of accrued interest, commitment fees and administrative agent fees due and payable on the next succeeding three payment dates (or corresponding to three payment periods). If for any monthly period during which fees and other payments accrue, the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets which do not pay cash interest at least quarterly exceeds 15.0% of the aggregate Adjusted Borrowing Value of “eligible” pledged loan assets, the Company is required to set aside such interest and fees due and payable on the next succeeding six payment dates. Amounts in the reserve account can be applied solely to the payment of administrative agent fees, commitment fees, accrued and unpaid interest and any breakage costs payable to the lenders.

 

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Unfunded Exposure Account. With respect to revolver or delayed draw loan assets, the Company is required to set aside in a designated account (the “Unfunded Exposure Account”) 100.0% of its outstanding and undrawn funding commitments with respect to such loan assets. The Unfunded Exposure Account is funded at the time the Company acquires a revolver or delayed draw loan asset and requests a related borrowing under the Credit Facility. The Unfunded Exposure Account is funded through a combination of proceeds of the requested borrowing and other Company funds, and if for any reason such amounts are insufficient, through application of the priority of payment provisions described above.

Operating Expenses. The priority of payments provision of the Credit Facility provides for the payment of certain operating expenses of the Company out of collections on principal and interest during the Revolving Period and out of collections on interest following the termination of the Revolving Period in accordance with the priority established in such provision. The operating expenses payable pursuant to the priority of payment provisions is limited to $350,000 for each monthly payment date or $2.5 million for the immediately preceding period of twelve consecutive monthly payment dates. This ceiling can be increased by the lesser of 5.0% or the percentage increase in the fair market value of all the Company’s assets only on the first monthly payment date to occur after each one-year anniversary following the closing of the Credit Facility. Upon the occurrence of a Manager Event (described below), the consent of the administrative agent is required in order to pay operating expenses through the priority of payments provision.

Events of Default. The Credit Facility contains certain negative covenants, customary representations and warranties and affirmative covenants and events of default. The Credit Facility does not contain grace periods for breach by the Company of certain covenants, including, without limitation, preservation of existence, negative pledge, change of name or jurisdiction and separate legal entity status of the Company covenants and certain other customary covenants. Other events of default under the Credit Facility include, among other things, the following:

 

    an Interest Coverage Ratio of less than 150.0%;

 

    an Overcollateralization Ratio of less than 175.0%;

 

    the filing of certain ERISA or tax liens;

 

    the occurrence of certain “Manager Events” such as:

 

    failure by Saratoga Investment Advisors and its affiliates to maintain collectively, directly or indirectly, a cash equity investment in the Company in an amount equal to at least $5,000,000 at any time prior to the third anniversary of the closing date;

 

    failure of the Management Agreement between Saratoga Investment Advisors and the Company to be in full force and effect;

 

    indictment or conviction of Saratoga Investment Advisors or any “key person” for a felony offense, or any fraud, embezzlement or misappropriation of funds by Saratoga Investment Advisors or any “key person” and, in the case of “key persons,” without a reputable, experienced individual reasonably satisfactory to Madison Capital Funding appointed to replace such key person within 30 days;

 

    resignation, termination, disability or death of a “key person” or failure of any “key person” to provide active participation in Saratoga Investment Advisors’ daily activities, all without a reputable, experienced individual reasonably satisfactory to Madison Capital Funding appointed within 30 days; or

 

    occurrence of any event constituting “cause” under the Collateral Management Agreement between the Company and Saratoga CLO (the “CLO Management Agreement”), delivery of a notice under Section 12(c) of the CLO Management Agreement with respect to the removal of the Company as collateral manager or the Company ceases to act as collateral manager under the CLO Management Agreement.

Conditions to Acquisitions and Pledges of Loan Assets. The Credit Facility imposes certain additional conditions to the acquisition and pledge of additional loan assets. Among other things, the Company may not acquire additional loan assets without the prior written consent of the administrative agent until such time that the administrative agent indicates in writing its satisfaction with Saratoga Investment Advisors’ policies, personnel and processes relating to the loan assets.

Fees and Expenses. The Company paid certain fees and reimbursed Madison Capital Funding for the aggregate amount of all documented, out-of-pocket costs and expenses, including the reasonable fees and expenses of lawyers, incurred by Madison Capital Funding in connection with the Credit Facility and the carrying out of any and all acts contemplated thereunder up to and as of the date of closing of the stock purchase transaction with Saratoga Investment Advisors and certain of its affiliates. These amounts totaled $2.0 million.

 

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On February 24, 2012, we amended our senior secured revolving credit facility with Madison Capital Funding LLC to, among other things:

 

    expand the borrowing capacity under the Credit Facility from $40.0 million to $45.0 million;

 

    extend the Revolving Period from July 30, 2013 to February 24, 2015; and

 

    remove the condition that we may not acquire additional loan assets without the prior written consent of the administrative agent.

On September 17, 2014, we entered into a second amendment to the Credit Facility with Madison Capital Funding LLC to, among other things:

 

    extend the commitment termination date from February 24, 2015 to September 17, 2017;

 

    extend the maturity date of the Credit Facility from February 24, 2020 to September 17, 2022 (unless terminated sooner upon certain events);

 

    reduce the applicable margin rate on base rate borrowings from 4.50% to 3.75%, and on LIBOR borrowings from 5.50% to 4.75%; and

 

    reduce the floor on base rate borrowings from 3.00% to 2.25%; and on LIBOR borrowings from 2.00% to 1.25%.

As of August 31, 2015, we had $2.0 million outstanding under the Credit Facility and $79.0 million SBA-guaranteed debentures outstanding (which are discussed below). As of February 28, 2015, we had $9.6 million outstanding under the Credit Facility and $79.0 million SBA-guaranteed debentures outstanding. Our borrowing base under the Credit Facility at August 31, 2015 and February 28, 2015 was $34.8 million and $36.3 million, respectively.

Our asset coverage ratio, as defined in the 1940 Act, was 311.4% as of August 31, 2015 and 311.7% as of February 28, 2015.

SBA-guaranteed debentures

In addition, we, through a wholly-owned subsidiary, sought and obtained a license from the SBA to operate an SBIC. In this regard, on March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC, LP, received a license from the SBA to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958. SBICs are designated to stimulate the flow of private equity capital to eligible small businesses. Under SBA regulations, SBICs may make loans to eligible small businesses and invest in the equity securities of small businesses.

The SBIC license allows our SBIC subsidiary to obtain leverage by issuing SBA-guaranteed debentures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities.

SBA regulations currently limit the amount that our SBIC subsidiary may borrow to a maximum of $150 million when it has at least $75 million in regulatory capital, receives a capital commitment from the SBA and has been through an examination by the SBA subsequent to licensing. As of August 31, 2015, our SBIC subsidiary had $59.3 million in regulatory capital and $79.0 million SBA-guaranteed debentures outstanding.

We received exemptive relief from the Securities and Exchange Commission to permit us to exclude the debt of our SBIC subsidiary guaranteed by the SBA from the definition of senior securities in the 200% asset coverage test under the 1940 Act. This allows us increased flexibility under the 200% asset coverage test by permitting us to borrow up to $150 million more than we would otherwise be able to absent the receipt of this exemptive relief.

On April 2, 2015, the SBA issued a “green light” or “go forth” letter inviting us to continue our application process to obtain a license to form and operate its second SBIC subsidiary. If approved, a second SBIC license would provide us an incremental source of long-term capital by permitting us to issue $75 million of additional SBA-guaranteed debentures in addition to the $150 million already approved under the first license. Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license and we have received no assurance or indication from the SBA that it will receive an SBIC license, or of the timeframe in which it would receive a license, should one be granted.

 

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Unsecured notes

In May 2013, we issued $48.3 million in aggregate principal amount of our 7.50% unsecured notes due 2020 for net proceeds of $46.1 million after deducting underwriting commissions of $1.9 million and offering costs of $0.3 million. The proceeds included the underwriters’ full exercise of their overallotment option. Interest on these notes is paid quarterly in arrears on February 15, May 15, August 15 and November 15, at a rate of 7.50% per year, beginning August 15, 2013. The notes mature on May 31, 2020 and may be redeemed in whole or in part at any time or from time to time at our option on or after May 31, 2016. In connection with the issuance of the notes, we agreed to the following covenants for the period of time during which the notes are outstanding:

 

    we will not violate (whether or not we are subject to) Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect to any exemptive relief granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings.

 

    we will not violate (regardless of whether we are subject to) Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect to (i) any exemptive relief granted to us by the SEC and (ii) no-action relief granted by the SEC to another BDC (or to the Company if it determines to seek such similar no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act in order to maintain the BDC’s status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986. Currently these provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase.

The Notes are listed on the NYSE under the trading symbol “SAQ” with a par value of $25.00 per share.

On May 29, 2015, we entered into a Debt Distribution Agreement with Landenburg Thalmann & Co. through which we may offer for sale, from time to time, up to $20.0 million in aggregate principal amount of the Notes through an ATM offering. As of August 31, 2015, the Company sold 357,807 bonds with a principal of $8,945,175 at an average price of $25.36 for aggregate net proceeds of $8,890,953 (net of transaction costs).

 

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At August 31, 2015 and February 28, 2015, the fair value of investments, cash and cash equivalents and cash and cash equivalents, reserve accounts were as follows:

 

     At August 31, 2015     At February 28, 2015  
     Fair Value      Percent
of
Total
    Fair Value      Percent
of
Total
 
     ($ in thousands)  

Cash and cash equivalents

   $ 504         0.2   $ 1,888         0.7

Cash and cash equivalents, reserve accounts

     12,089         4.6        18,175         7.0   

Syndicated loans

     16,571         6.2        18,302         7.0   

First lien term loans

     156,742         59.2        145,207         55.7   

Second lien term loans

     42,071         15.9        35,603         13.7   

Unsecured notes

     132         0.1        4,230         1.7   

Structured finance securities

     16,754         6.3        17,031         6.5   

Equity interest

     19,915         7.5        20,165         7.7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 264,778         100.0   $ 260,601         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

On September 24, 2014, the Company announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published financial statements. As of August 31, 2015, the Company purchased 2,500 shares of common stock for approximately $0.04 million pursuant to this repurchase plan. On October 7, 2015 this open market share repurchase plan was extended for another year increasing the number of shares the Company is allowed to repurchase at prices below its NAV, as reported in its then most recently published financial statements, to 400,000.

On July 8, 2015 the Company declared a dividend of $0.33 per share payable on August 31, 2015. Shareholders will have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $1.1 million in cash and 47,861 newly issued shares of common stock.

On May 14, 2015, the Company declared a special dividend of $1.00 per share payable on June 5, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $3.4 million in cash and 126,230 newly issued shares of common stock.

On April 9, 2015, the Company declared a dividend of $0.27 per share payable on May 29, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.9 million in cash and 33,766 newly issued shares of common stock.

On September 24, 2014, the Company declared a dividend of $0.22 per share payable on February 27, 2015. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.8 million in cash and 26,858 newly issued shares of common stock, or 0.5% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.97 per share, which equaled the volume weighted average trading price per share of the common stock on February 13, 17, 18, 19, 20, 23, 24, 25, 26 and 27, 2015.

Also on September 24, 2014, the Company declared a dividend of $0.18 per share payable on November 28, 2014. Shareholders had the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to our DRIP. Based on shareholder elections, the dividend consisted of approximately $0.6 million in cash and 22,283 newly issued shares of common stock, or 0.4% of our outstanding common stock prior to the dividend payment. The number of shares of common stock comprising the stock portion was calculated based on a price of $14.37 per share, which equaled the volume weighted average trading price per share of the common stock on November 14, 17, 18, 19, 20, 21, 24, 25, 26 and 28, 2014.

On October 30, 2013, our board of directors declared a dividend of $2.65 per share payable on December 27, 2013, to common stockholders of record on November 13, 2013. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $2.5 million or $0.53 per share. This dividend was declared in reliance on certain private letter rulings issued by the IRS concluding that a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC subject to a limitation on the aggregate amount of cash to be distributed to all stockholders, which limitation must be at least 20.0% of the aggregate declared distribution.

 

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Based on shareholder elections, the dividend consisted of approximately $2.5 million in cash and 649,500 shares of common stock, or 13.7% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.439 per share, which equaled the volume weighted average trading price per share of the common stock on December 11, 13, and 16, 2013.

On November 9, 2012, our board of directors declared a dividend of $4.25 per share payable on December 31, 2012, to common stockholders of record on November 20, 2012. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to approximately $3.3 million or $0.85 per share.

Based on shareholder elections, the dividend consisted of $3.3 million in cash and 853,455 shares of common stock, or 22.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $15.444 per share, which equaled the volume weighted average trading price per share of the common stock on December 14, 17 and 19, 2012.

On November 15, 2011, our board of directors declared a dividend of $3.00 per share payable on December 30, 2011, to common stockholders of record on November 25, 2011. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.0 million or $0.60 per share.

Based on shareholder elections, the dividend consisted of $2.0 million in cash and 599,584 shares of common stock, or 18.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 20.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $13.117067 per share, which equaled the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2011.

On November 12, 2010, our board of directors declared a dividend of $4.40 per share to shareholders payable in cash or shares of our common stock, in accordance with the provisions of the IRS Revenue Procedure 2010-12, which allows a publicly-traded regulated investment company to satisfy its distribution requirements with a distribution paid partly in common stock provided that at least 10.0% of the distribution is payable in cash. The dividend was paid on December 29, 2010 to common shareholders of record on November 19, 2010.

Based on shareholder elections, the dividend consisted of $1.2 million in cash and 596,235 shares of common stock, or 22.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 10.0% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $17.8049 per share, which equaled the volume weighted average trading price per share of the common stock on December 20, 21 and 22, 2010.

On November 13, 2009, our board of directors declared a dividend of $18.25 per share payable on December 31, 2009, to common stockholders of record on November 25, 2009. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.1 million or $0.25 per share.

Based on shareholder elections, the dividend consisted of $2.1 million in cash and 8,648,725 shares of common stock, or 104.0% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 13.7% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $1.5099 per share, which equaled the volume weighted average trading price per share of the common stock on December 24 and 28, 2009.

We cannot provide any assurance that these measures will provide sufficient sources of liquidity to support our operations and growth.

 

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Contractual obligations

The following table shows our payment obligations for repayment of debt and other contractual obligations at August 31, 2015:

 

            Payment Due by Period  
     Total      Less Than
1 Year
     1 -3
Years
     3 -5
Years
     More Than
5 Years
 
     ($ in thousands)  

Long-Term Debt Obligations

   $ 138,245       $   —         $   —         $ 57,245       $ 81,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Off-balance sheet arrangements

The Company’s off-balance sheet arrangements consisted of $11.6 million and $11.2 million of unfunded commitments to provide debt financing to its portfolio companies or to fund limited partnership interests as of August 31, 2015 and February 28, 2015, respectively. Such commitments are generally up to the Company’s discretion to approve, or the satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Company’s Consolidated Statement of Assets and Liabilities and are not reflected in the Company’s Consolidated Statements of Assets and Liabilities.

A summary of the composition of the unfunded commitments as of August 31, 2015 and February 28, 2015 is shown in the table below (dollars in thousands):

 

     As of  
     August 31,
2015
     February 28,
2015
 

Bristol Hospice, LLC

   $ 7,500       $ 7,500   

HMN Holdco, LLC

     2,400         2,400   

Avionte Holdings, LLC

     1,000         1,000   

Advanced Air & Heat of Florida, LLC

     400         —     

Knowland Technology Holdings, L.L.C

     300         300   
  

 

 

    

 

 

 

Total

   $ 11,600       $ 11,200   
  

 

 

    

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our market risks have not changed materially from the risks reported in our Form 10-K for the year ended February 28, 2015.

Item 4. Controls and Procedures

 

(a) As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, our chief executive officer and our chief financial officer have concluded that our current disclosure controls and procedures are effective in facilitating timely decisions regarding required disclosure of any material information relating to us that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.

 

(b) There have been no changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On August 31, 2012, a complaint was filed in the United States Bankruptcy Court for the Southern District of New York by GSC Acquisition Holdings, LLC against us to recover, among other things, approximately $2.6 million for the benefit of the estates and the general unsecured creditors of GSC Group, Inc. and its affiliates, including the Company’s former investment adviser, GSCP (NJ), L.P. The complaint alleges that the former investment adviser made a constructively fraudulent transfer of $2.6 million in deferred incentive fees by waiving them in connection with the termination of the Management Agreement with us, and that the termination of the Management Agreement was itself a fraudulent transfer. These transfers, the complaint alleges, were made without receipt of reasonably equivalent value and while the former investment adviser was insolvent. The complaint has not yet been served, and the plaintiff’s motion for authority to prosecute the case on behalf of the estates was taken under advisement by the court on October 1, 2012. We opposed that motion. We believe that the claims in this lawsuit are without merit and, if the plaintiff is authorized to proceed, intend to vigorously defend against this action.

Except as discussed above, neither we nor our wholly-owned subsidiaries, Saratoga Investment Funding LLC and Saratoga Investment Corp. SBIC LP, are currently subject to any material legal proceedings.

Item 1A. Risk Factors

In addition to other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our annual report on Form 10-K filed with the SEC on May 20, 2015 which could materially affect our business, financial condition and/or operating results. Additional risks or uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results. There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended February 28, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

 

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Item 6. Exhibits

Listed below are the exhibits which are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):

 

Exhibit
Number

  

Description of Document

31.1*    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
32.2*    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

* Submitted herewith.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    SARATOGA INVESTMENT CORP.

Date: October 13, 2015

    By:  

/s/ CHRISTIAN L. OBERBECK

      Christian L. Oberbeck
      Chief Executive Officer
    By:  

/s/ HENRI J. STEENKAMP

      Henri J. Steenkamp
      Chief Financial Officer and Chief Compliance Officer

 

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