Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investments Corp's fiscal first quarter 2023 financial results conference call. Please note that today's call has been recorded. During today's presentation, we'll be in a listen-only mode. Following management's prepared remarks, we'll open the line for questions. At this time, I'd like to turn the call over to Saratoga's Investment Corp'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 first quarter 2023 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 first quarter 2023 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. 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 this fiscal quarter coincided with the onset of significant broader market volatility, we continue to focus on balance sheet and liquidity strength while identifying further opportunities and growing our asset base in high-quality credits. We believe Saratoga continues to be well-positioned for potential future economic opportunities and challenges. Our existing portfolio companies are generally performing well with our overall fair value 1.4% above its cost and our current business development pipeline robust with positive metrics and term sheets issued and deals executed. Our AUM grew significantly this quarter to $895 million as we originated 97 million in new platforms or follow-on investments offset by 10 million of repayments. We continue to bring new platform investments into the portfolio with two added this fiscal quarter, and all of our originations were made while maintaining that extremely high credit bar we set for all investments. Our NAB per share this quarter, while flat year over year, decreased by 2.2% from Q4 to $28.69, which net of core portfolio valuation changes primarily reflects the volatility being experienced in the broadly syndicated CLO loan markets. We believe the CLO and JV mark-to-market changes are mostly supply and demand driven, including a lack of trading liquidity, though early signs of credit deterioration from input cost increases, labor shortages, supply chain constraints, and in certain cases, increases in inventory levels are emerging. To briefly recap the past quarter on slide two, first, we continue to strengthen our financial foundation in Q1 by maintaining a high level of investment credit quality with over 95% of our loan investments retaining our highest credit rating at quarter end, generating a 6.9% on a trailing 12-month basis despite recognizing an $8.6 million unrealized depreciation reflecting broadly syndicated loan market volatility in the CLO and JV, and registering a gross unlevered IRR of 12% on our total unrealized portfolio, with our current fair value 1.4% above the total cost of our portfolio, and a gross unlevered IRR of 16.3% on total realizations of $769 million. Second, our assets under management increased significantly to $895 million this quarter, a 9% increase from $818 million as of last quarter, and a 32% increase from $678 million as of the same time last year. Our new originations included two new portfolio companies and 13 follow-on investments, and our current pipeline remains robust. Third, in volatile economic conditions such as we are currently experiencing, balance sheet strength, liquidity, and NAV preservation remain paramount for us. Our capital structure at quarter end was strong. $345 million of mark-to-market equity supported $436 million of long-term covenant-free non-SBIC debt, $217 million of long-term covenant-free SBIC debentures, and $25 million of long-term revolving borrowings. Our total committed undrawn lending commitments outstanding to existing portfolio companies are $32 million. Our quarter-end regulatory leverage of 179% substantially exceeded our 150% requirement and does not yet include the pending repayment next week of our $43 million SAK baby bond that has been called and will reduce our non-SBIC debt to $393 million, while also reducing our cost of capital. By redeeming SAK with funds from our recent $97.5 million baby bond due in 2027, we are effectively extending the maturity from the three to five years remaining to the five years of our new bond issuance. We had $171 million of liquidity at quarter end available to support our portfolio companies, with $44 million of the total dedicated to new and follow-on opportunities in our SBIC II fund, and $58 million cash, net of the upcoming SAK notes repayment. That would be fully accreted to earnings when deployed. And we've demonstrated our ability to be opportunistic and access the capital markets when needed with the issuance of our new $97.5 million, 6% 2027 baby bond in April. Finally, based on our overall performance and liquidity, the board of directors declared our quarterly dividend of 53 cents per share for the quarter ended May 31st, 2022, which was paid on June 29th, 2022. This quarter saw solid performance with our key performance indicators, as compared to the quarters ended May 31st, 2021 and February 28th, 2022. Our adjusted NII is $6.4 million this quarter, up 2% versus last year and up 1% versus last quarter. Our adjusted NII per share is $0.63 this quarter, down from $0.56 last year and unchanged from last quarter. Latest 12 months return on equity is 6.9%, down from 19.4% last year and 13.9% last quarter, and our NAV per share is $28.69, down one cent from $28.70 last year, and down 2% from $29.33 last quarter. Henry 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 almost 12 years ago, and the quality of our credits remains high. with only one credit currently on non-accrual. Our management team is 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.