Saratoga Investment Corp

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Saratoga Investment Corp's fiscal third quarter 2020 fiscal financial results conference call. Please note that today's call is being recorded. During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, we will open the line for questions. At this time, I would like to turn the call over to Saratoga Investment Corp Chief Financial and Compliance Officer, Mr. Henry Steenkamp. Please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's fiscal third quarter 2020 earnings conference call. Today's conference call includes forward-looking statements and projections. We ask you to refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. We do not undertake to update our forward-looking statements unless required to do so by law. Today we will be referencing a presentation during our call. You can find our fiscal third quarter 2020 shareholder presentation in the events and presentations section of our investor relations website. A link to our IR page is in the earnings press release distributed last night. A replay of this conference call will also be available from 1pm today through January 16th. Please refer to our earnings press release for details. I would now like to turn the call over to our Chairman and Chief Executive Officer, Christian Oberbeck, who will be making a few introductory remarks.

Thank you, Henri, and welcome everyone. This fiscal quarter has continued our financial outperformance and furthered our ongoing progress in growing the capital base of Saratoga. Despite a challenging and competitive investment environment, our origination efforts Thank you for joining us today. Our return on equity of 17.6% and the 63% increase in NAV and the 9% increase in NAV per share further our momentum and provide a strong foundation for future growth. To briefly recap the past quarter's highlights on slide two. First, we continue to strengthen our financial foundation this quarter by maintaining a high level of investment credit quality with 99% of our loan investments having our highest rating. generating a return on equity of 17.6% on a trailing 12-month basis, 21.7% annualized in Q3, both significantly ahead of the BDC industry mean of 7.6%. And increasing NAV by a net $9.1 million realized and unrealized gains this quarter, or $0.91 per share. This includes a realized gain of $10.7 million on our census investment in Q3, for a total census realized gain of $11.2 million. And as of the end of Q3, we have registered a gross unlevered IRR of 14.1% on our total unrealized portfolio and a gross unlevered IRR of 14.8% on total realizations to date of $435 million. Subsequent to quarter end, our Easy Ice $28 million second lien investment and $11 million preferred equity investment was repaid at par, including all accrued interest, plus we received approximately $35 million of additional proceeds, interest and fees. This realization, in and of itself, will add more than $17 million, or $1.51 per share, to NAV in Q4. Second, our assets under management remain steady this quarter at $487 million, no net increase since last quarter, but a 21% increase from $402 million as of year end. Even though we had $40 million of repayments this quarter, excluding the gains, we again demonstrated the ability of our origination platform to keep pace with quarterly redemptions, which can often be lumpy and unexpected. Third, our board of directors has declared a quarterly dividend of 56 cents per share for the fiscal quarter ended November 30th, 2019, unchanged from the prior quarter and Payable on February 6, 2020 to all stockholders of record at the close of business on January 24, 2020. Our operating performance has enabled us to increase our dividends for the last five years, currently at a level of $2.24 per share on an annualized basis. We are one of only eight BDCs to have increased dividends over the past year. And finally, looking forward, Our capital structure and base of liquidity provides us a strong foundation for future earnings growth. We sold nearly 2 million common shares, raising gross proceeds of $49 million through our ATM equity offering during the quarter. These shares were sold at a gross premium of 3.3%, resulting in a $0.02 accretion to NAV per share. In total, $85 million of equity was raised this fiscal year essentially fully funding the equity requirement for our second SBIC license that we received in August. This license provides a significant long-term benefits of two to one leverage and approximately 3% all in cost of debt with the opportunity for potentially a creative long-term future returns. Subsequent to quarter end, we also utilized available excess liquidity to redeem $50 million of our existing 6.75% SAB baby bonds. In addition, we note that subsequent to quarter-end, we have called the remaining $25.5 million of SAB bonds with a repayment date of February 7, 2020. We have now significantly increased bribe power to address future investment opportunities in a changing credit and pricing environment. Our existing pro forma available quarter-end liquidity of $251 million post-baby bond redemption allows us to grow our current assets under management by 52% without any new external financing. Saratoga delivered strong return on equity performance this quarter and year-to-date as noted above, and continued solid performance within our key performance indicators as compared to the quarters ended November 30, 2018 and August 31, 2019. Our adjusted NII is $6.1 million this quarter, up 27% versus $4.8 million last year, and up 9% versus $5.6 million last quarter. Our adjusted NII per share is 61 cents this quarter, down from 65 cents last year and 68 cents last quarter, primarily reflecting the increased share count and substantial cash on hand. Latest 12 months' return on equity is 17.6% this quarter, up from 10.1% last year and 14.3% last quarter. And our net asset value per share is 2530, up 9% from 2313 last year and up 3% from 2447 last quarter. Henri will provide more detail later. Originations, for the most part, offset repayments this quarter. But as you can see on slide three, AUM has steadily risen since we took over management of the BDC Thank you, Chris. Slide 4 highlights our key performance metrics for the quarter ended November 30, 2019.