Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corporation's Cisco Second 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 Corporation's Chief Financial and Compliance Officer, Mr. Henry Steenkamp. Sir, please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's Fiscal Second 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 and 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 second quarter 2021 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 1 p.m. today through October 15th. 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, Henry, and welcome, everyone. Following another volatile and challenging quarter across our businesses and the world, We experienced improvement in market conditions and gained improved visibility on the immediate prospects of our portfolio companies. We continue to 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 continued improvement in liquidity on today's call. While no business can anticipate with clarity how long the displacement in the market and the global economy will last, we have confidence that our historically conservative approach to investing, strong capital structure, solid levels of liquidity, organization, and management experience will enable us to 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 92% 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. This is up from 90% in Q1. Importantly, this resulted in more than half of the Q1 unrealized fair value reduction recovering this quarter, generating a return on equity of 14.3% on a trailing 12-month basis in Q2, net of the six-month COVID-19 impact to the portfolio. This significantly exceeds the BDC industry average of negative 8.5% by 22.8%. and registering a gross unlevered IRR of 16.6% on total realizations of 506 million. Second, our assets under management increased to $508 million this quarter, a 5% increase from 483 million as of last quarter and 486 million as of the same time last year. Despite the unprecedented uncertainty and turmoil in the markets, we originated a healthy 31.7 million of new investments offset by 23.3 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 $298 million of mark-to-market equity supporting $108 million of long-term covenant-free non-SBIC debt and $170 million of SBIC debt. This includes our new $43 million public baby bond that we raised in Q2. This substantially increased our BDC cash and available liquidity to support our existing portfolio companies, in addition to the $155 million of available SBIC2 facilities, which can be used to finance new opportunities with an all-in cost of less than 2%. We also extended our Madison Credit Facility draw period to September 2021, with no change to the 2025 maturity date. We had $11 million of committed undrawn lending commitments as of quarter end and $34 million of discretionary funding commitments. Our quarter end regulatory leverage of 376% substantially exceeds our 150% requirement. Finally, reflecting on our recent baby bond raise and improved liquidity and the overall portfolio resiliency, The Board of Directors has decided to increase our quarterly dividend by one cent to 41 cents per share for the quarter ended August 31st, 2020. We'll 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 previous calls, we have historically conservatively managed our compliance obligations such that we had no ordinary income spillover obligations going into this fiscal year, and therefore substantial spillover flexibility and consequent liquidity. Payment of this increased dividend further preserves our spillover liquidity position. This quarter saw continued solid performance with our key performance indicators as compared to the quarters ended August 31, 2019 and May 31, 2020, and considering the current economic environment. Our adjusted NII is $5.5 million this quarter, down 2.5% versus 5.6 million last year, and down 5% versus 5.8 million last quarter. Our adjusted NII per share is 49 cents this quarter, down from 68 cents last year, and down from 51 cents last quarter. Latest 12 months return on equity is 14.3%, currently the highest in the BDC industry, And our NAV per share is 2668, up 9% from 2447 last year, and up 6% from 2511 last quarter. This is the highest year-over-year growth in the BDC industry, and we're actually one of only three BDCs that have grown NAV per share over the last 12 months. Henry will provide more detail on that later. As in the past, we remain committed to future 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. AUM increased to $508 million in Q2, a 5% increase since last quarter. Our cost basis increased to $524 million, which is an 8% increase from last year and a 2% increase from last quarter. With that, I would like to now turn the call back over to Henry to review our financial results, as well as the composition and performance of our portfolio.