Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's fiscal first quarter 2021 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'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 first quarter 2021 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. Thank you very much. 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 past quarter, with a full three months of the COVID-19 impact, has been challenging for our portfolio companies and Saratoga. Despite the unprecedented impact of COVID-19 across our businesses and the world, We believe Saratoga and our portfolio companies are positioned well at this point in time to weather this calamitous health and economic environment. We look forward to presenting our most recent results and reviewing the solid structure of our capitalization and recently improved liquidity on today's call. We continue to focus on ensuring the safety of our employees and the employees of our portfolio companies while optimizing the management of all our ongoing business activities. The company is working collaboratively with all our constituents to navigate the significant challenges presented by the COVID-19 pandemic. We want to especially thank our professional staff and employees that have worked so tirelessly through the past months, as well as our shareholders who have stood by us in these difficult times. We believe that our historically conservative approach to investing, leverage utilization, maintenance of solid levels of liquidity, conservative spillover management, and some good fortune that put us in a strong position with the balance sheet strength to face these uncertain and challenging times. 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 efficiently and effectively navigate this challenging current and uncertain future environment. To briefly recap the past quarter on slide two, first, we continue to strengthen our financial foundation this quarter by maintaining a relatively high level of investment credit quality with over 90% of our loan investments retaining our highest credit rating after incorporating the impact of changes to market spreads, EBITDA multiples, and or revised portfolio company performance related to COVID-19. These impacts led to a 6.1% unrealized markdown on our overall portfolio. Representing almost three months of post-COVID results, we believe our performance exceeds the reported industry average of results that were reported two months ago, generating a return on equity of 9.9% on a trailing 12-month basis in Q1, net of the COVID-19 impact to the portfolio. This is the highest ROE of all the BDCs for the past year, and significantly exceeds the BDC industry average of a negative 12.2% and registering a gross unlevered IRR of 16.7% on total realizations of 483 million. Second, our assets under management declined slightly to 483 million this quarter or a 0.6% decrease from 486 million as of last quarter. But an 18% increase from 409 million as of the same time last year. Despite the unprecedented uncertainty and turmoil in the markets, we originated a healthy 39 million of new investments offset by 9 million of repayments. Importantly, our new originations included two new portfolio company investments. Our capital structure, portfolio performance, and recently improved liquidity have enabled us to remain open for business, an important differentiator in today's market. 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, both for our portfolio companies and ourselves. Our current capital structure at quarter end was strong, with $282 million of mark-to-market equity, supporting $60 million of long-term, covenant-free, non-SBIC debt. Our quarter-end regulatory leverage of 569% substantially exceeds our 150% requirement. And in June, and including the exercise of the green shoe this week, we further increased our capital and liquidity by raising a new $43.1 million public baby bond, the first BDC issuing public debt since the pandemic began. This substantially increases our quarter-end BDC cash and our available liquidity to support our existing portfolio companies, in addition to the $155 million of available SBIC II facilities, which can be used to finance new opportunities with an all-in cost of approximately 2.5%. We had $9 million of uncommitted undrawn lending commitments as of year-end and $40 million of discretionary funding commitments. Finally, following substantial efforts by our management team to improve liquidity since our last earnings call at the beginning of May, including our recent baby bond raise and the current resiliency of our portfolio, the Board of Directors has decided to declare a $0.40 per share dividend for the quarter ended May 31, 2020. This dividend has been calibrated at this level relative to the most recent $0.56 per share dividend to reflect on the one hand are relatively strong quarterly results and recently improved liquidity profile. And on the other hand, the lack of short and long-term visibility of portfolio company and the general economy fundamental earnings levels given the unprecedented and highly effective amounts of liquidity provided by PPP loans, Fed interventions, and fiscal stimulus. We will continue to reassess the amount of our dividends on at least a quarterly basis as we gain better visibility on the economy and fundamental business performance. As discussed on our May call, we have historically conservatively managed our RIC compliance obligations such that we have no ordinary income spillover obligations and therefore substantial spillover flexibility and consequent liquidity. Payment of this dividend further preserves our spillover liquidity position. This quarter saw continued solid performance within our key performance indicators as compared to the quarters ended May 31, 2019 and February 29, 2020. And considering the current economic environment, our adjusted NII is $5.8 million this quarter, up 24% versus $4.6 million last year, but down 15% versus $6.8 million last quarter. Our adjusted NII per share is $0.51 this quarter, down $0.09 from $0.60 last year, and down $0.10 from $0.61 last quarter. Latest 12 months return on equity is 9.9%, currently the highest in the BDC industry, and our NAV per share is 25.11, up 4% from 24.06 last year, and down 7% from 27.13 last quarter. and significantly exceeding industry performance. Henri will provide more detail later. As in the past, we remain committed to further advancing the overall long-term size and quality of our asset base. As you can see on slide three, our assets under management have steadily risen since we took over the BDC and the quality of our credits remains high. While we had a slight 0.6% decrease this quarter as compared to last based on fair value, and reflecting the unrealized change in fair value for the quarter, our cost basis increased to $516 million, which is a 27% increase from last year and a 6% increase from last quarter. With that, I would like to now turn the call back over to Henri to review our financial results as well as the composition and performance of our portfolio.