Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corporation's Fiscal Second Quarter 2022 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 and Saratoga Investment Corporation SHIPS Financial and Compliance Officer, Mr. Henry Stenkamp. Sir, please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's Fiscal Second Quarter 2022 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 2022 shareholder presentation in the events and presentation 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 13th. 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. As we reflect on the second quarter, we continue to be pleased with the strength and resilience of our financial position and portfolio companies. Despite the unprecedented global impact and continuance of COVID-19, we feel very fortunate to have overcome its challenges thus far and to be in a position where we can leverage the upside of the ongoing recovery and substantial ramp-up in market activity. Our existing portfolio companies continue to perform well, and our current business development activities allow us to find and evaluate a healthy level of new investments. While our AUM contracted slightly this quarter to $666 million, We originated $116 million in new platforms or follow-on investments, almost matching our record Q1 quarter. This was offset by a record number of repayments, with $135 million redeemed, including the recognition of the $6.4 million realized gain on our passageways equity investment. We have often discussed how our long-term growth in assets could be accompanied temporarily by lumpy substantial repayments, of which this quarter was an example. We continue to bring new platform investments into the portfolio with four added this fiscal quarter, and all our originations were made while maintaining the extremely high credit quality bar we have set for our investments. The performance of our existing portfolio also grew our NAV per share by 1 percent this quarter to $28.97. Again, a historical record for us with this quarter increase being the 14th increase in the past 17 quarters. Our latest 12 months return on equity as of this quarter was 14.4 percent. To briefly recap the past quarter on slide two, first, we continue to strengthen our financial foundation in Q2 by maintaining a high level of investment credit quality with over 93 percent of our loan investments retaining our highest credit rating at quarter end, generating a return on equity of 14.4 percent on a 12-month basis, and registering a gross unlevered IRR of 12.7 percent of our total unrealized portfolio, with our current fair value 4 percent above the total cost of our portfolio and a gross unlevered IRR of 16.1 percent on total realizations of $698 million. Our assets under management decreased slightly to $666 million this quarter, a 2 percent decrease from $678 million as of last quarter, due to the record repayments, but a 31 percent increase from $508 million as of the same time last year, and a 20 percent increase from $554 million as of year-end. Despite this net reduction, our new originations included four new portfolio company investments, as well as six follow-on investments, and our current pipeline remains robust. Third, despite improving economic conditions, balance sheet strength, liquidity, and NAV preservation remain paramount Our current capital structure at quarter end was strong. $324 million of mark-to-market equity supports $238 million of long-term covenant-free non-SBIC debt and $172 million of long-term covenant-free SBIC debentures. Our quarter end regulatory leverage of 236% substantially exceeds our 150% requirement. We have $221 million of liquidity at quarter end available to support our portfolio companies, with $111 million of the total dedicated to new opportunities in our SBIC2 fund. The all-in cost of this new SBIC2 debt is currently less than 2%, and the total committed undrawn lending commitments outstanding to existing portfolio companies are $16 million. In July, we issued an additional $125 million five-year unsecured bonds with an effective yield of 4.125% that strengthens both our capital and liquidity position. In August, we paid our existing $60 million, 6.25% SAF baby bonds, which importantly reduces our current cost of non-SBIC capital by more than 200 basis points. And just this week, we closed a new $50 million facility with Encina Lender Finance, reducing our existing facility's cost of capital by 100 basis points. Finally, reflecting on our recent note issuance and improved liquidity and the overall portfolio and financial performance, the Board of Directors increased our quarterly dividend by $0.08 to $0.52 per share for the quarter ended August 31, 2021, paid on September 28, 2021. We will continue to reassess the amount of our dividends on a quarterly basis as we gain better visibility on the economy and fundamental business performance. This quarter saw a strong performance with our key performance indicators as compared to the quarters ended August 31st, 2020 and May 31st, 2021. Our adjusted NII is $7 million this quarter, up 27.5% versus $5.5 million last year, and up 11.6 percent versus $6.3 million last quarter. Our adjusted NII for share is 63 cents this quarter, up from 49 cents last year, and up from 56 cents last quarter. Latest 12 months return on equity is 14.4 percent, up from 14.3 percent last year, but down from 19.4 percent last quarter. And our NAV per share is $28.97, up 9 percent from 26.68 last year and up 1 percent from 28.70 last quarter. This is the highest NAV per share for Saratoga Investment since inception of our management in 2010. And we will provide more detail later. As you can see on slide three, our assets under management have steadily and consistently risen since we took over the BDC more than 11 years ago and the quality of our credits remain high, with no non-accruals currently. We are currently working diligently to continue this positive trend as we deploy our available capital into our growing pipeline, while at the same time being appropriately cautious in this evolving credit environment. 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.