Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's fiscal second quarter 2023 financial results conference call. Please note that today's conference 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. Henry Please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's Fiscal Second 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 second quarter 2023 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. 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. While the significant broader market volatility continued this fiscal second quarter, we remain focused on balance sheet and liquidity strength while identifying further opportunities in growing our asset base and high-quality credits. We believe Saratoga continues to be well positioned for potential future economic opportunities and challenges in this volatile environment. Our existing portfolio companies are generally performing well with our overall fair value at 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 $955 million as we originated $141 million in new platforms or follow-on investments, offset by $75 million of repayments. We continue to successfully bring new platform investments into the portfolio with six added this fiscal quarter, and all of our originations were made while maintaining the extremely high credit bar we set for all investments. Our NAV per share this quarter decreased by 1.5% from Q1 $28.27, primarily reflecting the impact of widening market spreads on the core portfolio and the volatility being experienced in the broadly syndicated loan market. Last week, we also announced the approval of our third SBIC license. This will allow us to continue to expand upon our existing investments in support of the SBA's mission to provide growth capital to small businesses, which are so important to our economy. Our SBA-guaranteed debentures are a great benefit to our capital structure, further enabling us to provide innovative and cost-effective solutions to the many smaller and middle-market companies we finance. From an earnings perspective, we began to see the benefit of interest rate increases, with 98% of our interest earning portfolio at floating rate and more than 95% of our borrowings at fixed rates. Our core BDC portfolio yield increased by 140 basis points this quarter, up 16.5% from 8.5% in Q1 of 9.9% compared to 9.9% in Q2, with a full impact of the rising rate environment not yet fully reflected in our earnings. To briefly recap the past quarter on slide two, first, we continued to strengthen our financial foundation in Q2 by maintaining a high-level investment credit quality with 96% of our loan investments retaining our highest credit rating at quarter end, generating a return on equity of 4.8% on a trailing 12-month basis, despite recognizing, first, $5.3 million of net unrealized depreciation, primarily reflecting widening market spreads and broadly syndicated loan market volatility in the CLO and JV, and second, $1.2 million in realized loss on extinguishment of our SAK baby bond and SBA debentures. and registering a gross unlevered IRR of 10.6% on our total unrealized portfolio and a gross unlevered IRR of 6.4% on total realizations of $836 million. Second, our assets under management increased significantly to $955 million this quarter, a 7% increase from $895 million as of last quarter, a 17% increase from $818 million since year end, and a 43% increase from $666 million as of the same time last year. Our new originations included six new portfolio companies and nine follow-on investments, and our current pipeline remains robust. Third, in volatile economic conditions such as we are currently experiencing, the balance sheet strength, liquidity, and NAV preservation remain paramount to us. Our capital structure at quarter end was strong, $337 million of mark-to-market equity, supporting $376 million of long-term covenant-free non-SBIC debt, $234 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 $38 million. Our quarter-end regulatory leverage of 184% has substantial cushion over our 150% requirement, and we had $145 million of liquidity at quarter-end available to support our portfolio companies, with $9 million of the total dedicated to new and follow-on opportunities in our SBIC II fund, $107 million available to our newly approved SBIC III fund, and $13 million of cash. Finally, based on our overall performance and liquidity, the Board of Directors declared our quarterly dividend of 54 cents per share for the quarter ended August 31st, 2022, an increase of one cent from last quarter, which was paid on September 29th, 2022. This quarter saw a solid performance with our key performance indicators as compared to the quarters ended August 31st, 2021 and May 31st, 2022. Our adjusted NII is $7 million this quarter, unchanged from last year and up 9% from last quarter. Our adjusted NII per share is $0.68 this quarter, down from $0.63 last year, but up from $0.53 last quarter. Latest 12 months return on equity is 4.8%, down from 14.4% last year and 6.9% last quarter. And our NAV per share is 28.27, down 2.4% from 28.97 last year and down 1.5% from 28.69 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 12 years ago, and the quality of our credits remain 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 volatile and 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.