Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Saratoga Investment Corp's fiscal fourth quarter and fiscal year 2020 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. To ask a question during a session, you need to press star 1 on your telephone. I would like to turn the call over to Saratoga Investment Corp's Chief Financial and Compliance Officer, Mr. Henri Steenkamp.

Sir, please go ahead. Thank you. I would like to welcome everyone to Saratoga Investment Corp's fiscal fourth quarter and fiscal year 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 fourth quarter and fiscal year 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 May 14th. 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. The past couple of months have been unprecedented in its impact across our business and the world. Coming off a record year of achievements and operating performance, we believe Saratoga is in a strong position heading into this calamitous health and economic environment. We look forward to summarizing these most recent results as well as reviewing the solidity of our capital structure and liquidity on today's call. We are focused on ensuring the safety of our employees and the employees of our portfolio companies while optimizing the management of our ongoing business activities. The company is working collaboratively with all our constituents to navigate the significant challenges presented by the COVID-19 pandemic. For instance, we have taken the necessary steps to ensure that our personnel can effectively operate remotely. Our senior management team and staff remain fully engaged and capable of working remotely. We have not experienced any significant operational limitations and remain fully capable of providing any necessary support or service that our portfolio companies may require. We believe that our historically conservative approach to investing, leverage utilization, maintenance of solid levels of liquidity, conservative spillover management and some good fortune have put us in our strongest position to date of balance sheet strength going into this uncertain and challenging time. While no business can anticipate with clarity how long the displacement in the market and global economy will last, we have confidence that our capital structure, liquidity, organization, and management experience will enable us to effectively navigate the grave challenges presented by the coronavirus. The quality of our underwriting, reaffirmed further this year, has propelled us to the top ranks of our BDC competitors over the long term. Our performance metrics for fiscal 2020 were remarkably strong and our accomplishments many, including the receipt of our second SBIC license, our full-year return on equity of 23.6%, the $43 million of realized gains during the year, the 68% increase in total net asset value, and the 15% increase in NAV per share, all of which furthers our momentum and provides a strong foundation for future growth and to deal with the challenges of this current market. To briefly recap the highlights of the past quarter and year 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 continuing to have our highest credit rating at year end. Generating a return on equity of 23.6% on a trailing 12 month basis Both significantly ahead of the BDC industry mean of 8.5% and reflecting the highest ROE in the BDC industry for the past year. Increasing NAV by a net 42.9 million realized and unrealized gains this year, or $4.60 per share, including the $11.2 million total realized gains previously discussed in Q3 on our census investment, and the $31.2 million gain recognized on our Easy Ice investment in Q4. And as of year end, we have registered a gross unlevered IRR of 13.5% on our total unrealized portfolio and a gross unlevered IRR of 16.9% on total realizations to date of $474 million. Second, our assets under management remain steady this quarter at $486 million, Relatively unchanged from Q3 with the EasyEyes repayment offset by new Q4 originations. For the year, our AUM is up 21% from $402 million as of last year end. With $167.3 million of repayments this year, including the realized gains, we again demonstrated the ability of our origination platform to keep pace with ongoing redemptions. With a record $205 million of new investments originated during fiscal 2020. We have continued to originate both new investments and follow-ons post-quarter end, which Mike will discuss in more detail later. Third, as we look ahead to the numerous challenges that the COVID-19 pandemic presents to the economy and particularly small businesses, balance sheet strength, liquidity, and NAV preservation are paramount. Our current capital structure is the strongest in Saratoga's history. with $304 million of equity supporting $60 million of long-term covenant-free non-SBIC debt. This translates into regulatory leverage of 607%, substantially exceeding our 150% requirement. Our liquidity and credit facilities of $260 million are available as of year-end to support our portfolio companies, with $175 million of the total dedicated to new opportunities in our SBIC II fund and not available to support other portfolio companies. The all-in cost of this new SBIC II debt is currently approximately 2.5%. Of note, we have $18 million of committed, undrawn lending commitments outstanding to existing portfolio companies. Finally, we are proud of our five-year record of consecutive increases in dividends. However, In light of the dramatic uncertainties in the economy and in the future operating performance of the companies we invest in, we have the responsibility to ensure that we retain sufficient liquidity to support our portfolio companies and preserve NAV during these challenging times, while also remaining positioned to fund creditworthy new investments in small businesses in need. Saratoga's board believes it is in the best near and long-term interests of our shareholders and maintain a conservative and cautious approach to our dividend policy. The Board of Directors has therefore decided to defer our dividend for the quarter ended February 29, 2020. We will continue to reassess this at least on a quarterly basis as we gain better visibility on the economy and portfolio company performance. We will also discuss our favorable spillover position later on in this call that provides flexibility for this liquidity enhancing decision. Saratoga delivered strong return on equity performance this quarter and year, as noted above, and continued solid performance within our key performance indicators as compared to the quarters ended February 28, 2019 and November 30, 2019. Our adjusted NII is $6.8 million this quarter, up 38% versus $4.9 million last year, and up 11% versus $6.1 million last quarter. Our adjusted NII per share is $0.61 this quarter, unchanged from $0.61 last quarter and down $0.05 from $0.66 last year, primarily reflecting the 49% increase in share count. Latest 12 months return on equity is 23.6% this quarter, up from 10.6% last year and 17.6% last quarter, and our NAV per share is 27.6%. and we will provide more detail later. Originations, for the most part, offset the easy ice repayment this quarter, but as you can see on slide three, AUM has steadily risen since we took over management of the BDC almost 10 years ago, and the quality of our credits remain high. We are working diligently to continue this positive trend as we deploy our available capital, while at the same time being appropriately cautious in this changed credit environment. With that, I would like to turn the call back over to Henri to review our financial results, as well as the composition and performance of our portfolio.