Saratoga Investment Corp

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Saratoga Investment Corp's fiscal first quarter 2027 financial results conference call. Please note that today's call is being recorded. During today's presentation, all parties will be in 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 Chief Financial Chief 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 2027 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 2027 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. For everyone new to our story, please note that our fiscal year end is February 28th, so any reference to Q1 results reflects our May 31st quarter end period. 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, Henri, and welcome, everyone.

Saratoga Investment Corp's highlights this quarter include net positive originations of $31 million, including two new portfolio companies originated in the quarter. Sustained long-term AUM growth, with AUM growing 1.6% during the quarter and reaching close to a record level of $1.126 billion. Latest 12 months return on equity of 4%, continuing to beat the BDC industry average of 2.4%, and importantly, continued overall solid performance from the core BDC portfolio in a challenging and volatile macro environment. with core BDC portfolio fair value remaining within 0.2% of cost, demonstrating solid overall credit quality in a challenging and volatile macroeconomic environment. Continuing our historical strong dividend distribution history, we announced a monthly base dividend of 25 cents per share or 75 cents per share in aggregate for the second quarter of fiscal 2027, which when annualized represents a 14% yield based on the stock price of $21.42 as of July 6, 2026, offering strong current income. Originations and AUM growth during the quarter contributed to adjusted NII of $0.47 per share compared to $0.53 per share last quarter. Overall, our adjusted NII continues to reflect the impact of significantly lower short-term interest rates and tightening spreads on our largely floating rate asset base. as well as a full period impact of the recent changes to our growing capital structure. During the quarter, our deal activity remained robust, reflecting the impact of our recent business development efforts despite persistent sector headwinds and cautious sentiment across the broader private credit sector. Market dynamics continue to be very competitive, and while our portfolio saw multiple debt repayments in Q1, our strong origination activity more than offset those exits. Resulting in net originations of $31 million for the quarter from $79 million in new originations across two new investments and 10 follow-ons, including $11 million in new BBB and BBB CLO debt investments. Our strong reputation, differentiated market positioning, and the ongoing development of sponsor relationships continue to create attractive investment opportunities from high-quality sponsors. Investment activity continues post-quarter end with $47 million of follow-ons already closed, offset by $31 million of repayments. We remain prudent and discerning in our underwriting approach, particularly in light of the current volatile and uncertain environment. We believe Saratoga continues to be favorably situated for potential future economic opportunities as well as challenges. Our total $1.126 billion portfolio was marked down $15.2 million during the quarter, including net depreciation of $18.3 million in the non-CLO core portfolio, partially offset by a write-up of $2.9 million in the JV and $.3 million in the BBB and BBB-CLO debt portfolio. Of the non-CLO core BDC portfolio depreciation, Pepper Palace, which has been written down to zero, together with a handful of credits, primarily Exego and Cronus, represented $9.9 million or 54% of the total reduction, reflecting company performance adjustments. A further $6 million, or 33%, reflected broad market adjustments to comparable market multiples across many industries on equity positions held at or above cost. The remaining 13% reflected the impact of general changes in market spreads across valuations. As of quarter end, our core non-CLO portfolio was 0.2% below cost, with our total portfolio evaluation 3.6% below cost. This quarter's results reflect a combination of portfolio company performance and market impacts on our overall portfolio with both Pepper Palace now carried at zero and Exego carried at $17.3 million or 70 cents of its own total cost on red watch list status indicating potential risk of loss of capital. During the first quarter, our core BDC net interest margin increased to $13.4 million from $13 million last quarter. This was driven primarily by a 4.8% increase in average core assets, which was partly offset by the average SOFR rate used in the portfolio decreasing by five basis points from last quarter. Spreads on originations this quarter being almost 50 basis points lower than on the repayments they replaced, and the relative timing of originations and repayments this quarter. As always, and particularly in the current uncertain environment, balance sheet strength, liquidity, and NAV preservation remain paramount for us. At quarter end, we maintained a substantial $197 million of investment capacity to support our portfolio companies, with $46 million available through our existing SBI III license, $90 million from our two revolving credit facilities, and $61 million in cash. As we begin fiscal 2027, The operating backdrop remains challenging, with geopolitical uncertainty shifting U.S. tariff policy, continued scrutiny of AI and software exposure, and an unsettled interest rate environment all contributing to volatility across the credit markets. These factors have also weighed on public BDC sentiment and credit spreads. We continue to believe the negative perceptions reflected in the public market are not fully aligned with the current conditions in the broader private credit market, where performance remains more measured Differentiated by Manager Discipline, Portfolio Construction, and Credit Selection. Moving on to Saratoga Investment's fiscal 2027 first quarter key performance indicators as compared to the quarters ended February 28, 2026 and May 31, 2025. Our quarter end NAV was $378.5 million, down 4.5% from $396.2 million last quarter and $296.4 million last year. Our NAV per share was $23.23, down from $24.42 last quarter and $25.52 last year. Of the $1.19 sequential quarter reduction, 28 cents, or 24%, was due to the under-earning of the dividend. This excess distribution represents previously undistributed NII profits from prior years. Our adjusted NII was $7.6 million this quarter, down 11% from last quarter and down 25.1% from last year. Our adjusted NII per share was 47 cents this quarter down 11.3% from last quarter and 28.8% from last year. Adjusted NII yield was 7.8% this quarter down from 8.4% last quarter and down from 10.3% last year. And latest 12 months return on equity was 4% down from 9.1% last quarter Down from 9.3% last year and above the industry average of 2.4%. Slide 3 illustrates how our combined portfolio and financial results delivered an ROE of 4% for the last 12 months, above the industry average of 2.4%. Additionally, our long-term average return on equity over the past 12 years of 10.1% is well above the BDC industry average of 6.7%. Our long-term return on equity has remained strong over the past decade plus, beating the industry nine of the past 12 years while remaining positive every year. As you can see on slide four, our assets under management have steadily and consistently risen since we took over the BDC 15 years ago, despite a slight pullback in fiscal 2025, reflecting significant repayments. As of the end of the quarter, our assets under management reached an almost record level of $1.126 billion, In part due to this quarter's originations again outpacing repayments, resulting in a meaningful increase in AUM as compared to the previous quarter. Our overall credit quality for this quarter increased to 98.3% of credits rated in our highest category, a result we are proud of given the current headwinds in the industry, while recognizing the credit markdowns discussed. We have two investments on non-accrual status, Pepper Palace, which has been restructured, and our CLO's F note that was written off and placed on non-accrual last quarter, representing 0.0% of fair value and 1.2% of cost, well below the industry average of 3.7%. With 81.7% of our investments at quarter end in first lien debt and generally supported by strong enterprise values and balance sheets in industries that we have historically performed well in stressed situations, We believe our portfolio composition and leverage profile are well structured for the future economic conditions and uncertainty. Our management team is working diligently to continue this positive AUM growth long-term trend as we deploy our available capital into our pipeline while remaining appropriately cautious in this evolving and volatile credit and economic environment. With that, I would like to now turn the call over to Henri to review our financial results as well as the composition and performance of our portfolio.