SAR - Earnings call transcript Q2 2018 | Saratoga Investment Corp.

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Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corporation Fiscal Second Quarter 2018 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.

remark, open prepared questions. line management’s the we the will for Following Officer, this to Corporation's Saratoga Compliance like I Chief the and At would to turn time, call over Financial Mr. Investment Steenkamp. Henri Sir, please go ahead.

Henri Steenkamp

materially could fiscal from forward-looking referencing with would to I to law. our forward-looking our to call. everyone to cause Investment earnings to projections. Thank the actual do projections. important second that call forward-looking will We you. XXXX required a includes like differ quarter conference refer filings SEC and to We to for factors most our call. and these results unless be Today, welcome Saratoga during we by recent statements Corp.'s not update presentation do statements Today's undertake so you conference ask statements

Officer, press XXXX IR our our will You Events to link and X introductory turn be refer Presentations XX. will section the can find Please website. this conference like is our second for page also to A in distributed & earnings call fiscal A presentation over the would press Relations through earnings be release call last Investor making night. release to October a from P.M. details. Executive to who today Chief I available Christian of remarks. replay our our of Oberbeck, in shareholder quarter now Chairman the few

Chris Oberbeck

Thank everyone. you, and Henri, welcome

earnings. quarter I'm of most this objectives achievement fiscal pleased growth, our continued during and the in quality, we note of achievements our credit recent consider we and to last since As spoke July, core

scale. increased robust pipeline assets, supports Our flexible and available of our capital deal structure liquidity sources, greater and

strong. the categories competitors. continue environment, our credit in quality many Within Investment of terms risen top key remains at far remains originations While has and industry outpacing the indicators in to environment and challenging, to this of performance competitive the Saratoga and be our

deal our increasing size continuing build asset diversified our to objective long-term, quality sources pipeline the building progress returns a two. generating sources base, continue of effective, quarter purpose the of shareholders. briefly recap meaningful on and long-term Investment of of into utilizing to ultimate towards best-in-class available slide liquidity our cost Corp. with BDC and To and consistent robust past of We for effectively flexible a the our and Saratoga

month's million. financial of First, with level investment we net a generating which return on X.X% strengthen of XX XX.X% on having equity million quarter two $X.X and the from portfolio increasing the million $XXX.X for the our sale IRR IRR on equity net unlevered realized realized of whole $X.X XX.X% the and gross a continue quarter, basis. last our investments high gain portfolio on Total Alarm realized on gross quarter Center latest on were up maintaining loss of to the of Network million equity loan call. a unlevered realizations is this total on maintaining discuss our XX.X% credit by on later our $X.X a were primarily unrealized This return My other we'll quality a $X.X million highest of total to investment rating investment, Mercury representing trailing XX.X% on with in our foundation of XX-month of of our gains losses quarter,

increase AUM perspective, XX% our XXX% of current a of year XX, reflects as of a a expanded $XX $XXX the at August of From to as XX% longer million fiscal $XXX increase million X% from increase term from from a end XXXX. XXXX. our million $XXX February increase million, $XXX as under a May XX, management XXXX and XX, XXXX, we Second, from assets million

our repayments totaling a of success remains $XX This we offset quarter by challenging. In QX, and ability within the of our well the continued redemptions the of of originated $XX long-term again as, our strength is over quality continued past our environment ongoing face growth an in of The that AUM of portfolio. years importantly, to its few million. the upward contribute demonstrates as growth investments trajectory in the million, evidence platform in origination pipeline asset persistent to healthy a

a Third, increase This our per the enabled past strengthening $X.XX of quarter of on quarter's XXth per of of continued September has share. quarter. share to financial of increase We $X.XX quarterly the second consecutive the fiscal dividend for XX, share was XXXX. the an foundation our us for per dividend over $X.XX dividend XXXX paid quarterly

adjusted investment have been periods. by same the payments for exceeded net dividend our income of our All

comfortably a are by from we other us distinguishes which As XX%, still currently result, overearning dividend our BDCs.

over of We has potential than to the dividends is our liquidity than year BDCs past the more of two three firms. and one increase remains our only times Fourth, increased three other having strong base larger and are improve.

changing We preserve environment. credit and continue pricing opportunities a dry future to to investment significant in potential powder meet

entered to allows common equity at-the-market available us an management may Saratoga offer $XX which with by stock financing. from assets to new & without agreement March liquidity Company on Our ATM XXXX, up Thalmann existing our of through to end distribution XX, grow year we into or finally, XX% offering. an million current for external any its under time-to-time sale And Ladenburg

of of of company gross $X.X proceeds As NAV average at sold aggregate of million. for XXXX, $X.X XXX,XXX price the an shares net for $XX.XX August XX, million above proceeds

key quarters August indicators and compared This ended quarter performance XX, May performance steady to within XXXX as XXXX. our the XX, saw continued

versus last Our is $X.X last up million up million million $X this adjusted NII XX% quarter, quarter. XX% and versus year $X.X

$X.XX per from NII year share quarter. quarter, last up and this $X.XX adjusted last is Our $X.XX

we progress. at our remain and significant end XX.X% per later extremely more yield points last XXX these year accomplishments X.X% versus Overall, provide up variances. last $XX.XX finally, up and this last any And NII our from detail points with on is year versus $XX.XX quarter. will XXX and up basis And we adjusted share pleased quarter, basis $XX.XX, Our quarter. is X.X% NAV

to the of in size committed often a remain further mentioned high we overall the asset advancing we've quality. our while maintaining base past, As

to our a risen see As under can the look continuing quality slide the to performance our and We trend. have our call With back with the you end to I assets management basis, high. year positive portfolio. our now healthy on three, composition as steadily that, since this to comparative remain would results and over like well turn of review Henri forward financial as credits growth year-by-year on of

Henri Steenkamp

impact was and from four last highlights X.X% up share conversely from When during includes also from investment see many the level second key up benefit you in last year usual XX% our the quarter. by fee impacts at of last AUM for adjusted full last of results. from yield and $XX.X Thank XXXX executed up reflects up scale $X.XX of last XXX NII higher adjusting our to unrealized $X.XX for end increase points metrics and the for month resulted can X% ended of fee the last these August to year's of assets last new up basis full reflects last quarter incentive with incentive you, recapitalized of and XXX up impact accrual the adjusted income related points that $X.X the was gains higher our quarter. and NII XX.X% X.X% NII the $X.XX, performance accrual. year million Easy and adjusted quarter. Slide metrics, from per results last in Chris. of This Across originations XX.X% positive up reduced QX, all and is in XX, quarter last calculation, Adjusted interest basis yield QX but last the NII Ice our QX. the fee from August. year $X.XX positively share capital per and format. was when XX% from from $X.XX These net the greater adjusted increased million investments quarter per from incentive year primarily in share The in

appreciation million unrealized unrealized our loss common on Ice net in sale was investment. also appreciation operations on primarily two to second realized appreciation the in And indicator realized includes a million realized million recognition of four, investments, loss share, a million My loss our earlier. of a was note gains. per The Elyria $X.X per the Mercury on in one, improved $X.XX appreciation Saratoga realized realized was reflect Three, Alarm $X the we Network of realized to, an equity appreciation. weighted legacy The position comprised $X.XX in investment. The remains where loss in losses B the investment $X.X or both transferred completion $X.X performance primarily on $X.X and increase net total performance. our to was of for us, was of due equity. and a a shares million unrealized important The offset million being mentioned Center by the in Class transaction million net [ph] of experienced equity investment. net $X.X assets net $X.X net which appreciation sales $X.X second-lien Easy result on or net CLO preferred reflecting net million realizations a Two, of For to loan $X.X the gain gain Saratoga's million on investments partially of realized our recognition from due adjusted zero resulting and the million the $X.X unrealized a gain unrealized A unrealized million average quarter, resulting Class a as S investments Return our and unrealized in to share. a $X.X on

the are investments down realized equity to earlier. million factor loss And fact BDCs largely the industry and average it's of written new we XX other that industry year for mentioned that a the needs, investments uncharacteristically My the in space ROE increase last on the our was than return stabilized. figures months. previously ago places $X.X a general the Our BDC Alarm as due is on X.X% These in BDC's by Center lower

Sarbanes-Oxley increased QX deployed more for and in year. and the percentage the on fees, and benefits higher professional financing visible to these as increased of period primarily expect improve slide to incentive overall the with income statement expenses, our stabilizing activities figure fees added part filer and continue fees million the last the accelerated expenses of management to expenses interest average year. the from our as operating in the new quarter interest cash debt from grow expenses, further decrease million and reflects upward to will XX that $X.X we and the from an assets. We period of year. this now year scale Despite a full note $X.X to XX-month also This a ROE of a at assets as the and of a assets diminishing asset base X.X% as base end quarters company becoming We've percentage A that trends of and due expenses. couple total X.X% for last an next to excluding our presentation eight metrics have same this past shows quick appendix continue increased be maintained. we this management Total

to from as year-end. million increase was of of on of of last year-end. Moving from this as last slide was end, a $XX.XX XXXX, and as million August $XX.XX quarter as $XX.XX share quarter up $XXX.X of $X.X per $XXX.X million million quarter NAV $XXX.X increase XX, as from and million $X.X quarter five, NAV a

and net income of gains six offset claim. net XX, million the dividends by $X.X ended For million to realized of and earned, million $X.X investment unrealized months August were $X.X XXXX, of

company's In of plan million $X.X program. were company's distributions ATM reinvestment dividend sold shares stock were dividend the through addition, million $X.X the and of through made

steadily at NAV are full of $X.XX sequential were were per share generated top, This share and the a a to shown the of reconciliation incentive since increased changes by major where variances. NII gains. The Starting a and more All assets and fees quarter, share shares. QX. interest of our quarterly see value manageable at basis. down increase Our income there a for changes benefit $X.XX to realized will Slide increased has helps reflecting our financing six our $X.XX share offset per on dilution asset in interest a to increase you break net in couple waterfall numbers due continue net consistent total index is into from NII our zero we XXXX history slide of by per significant the QX increased per higher increased borrowing. the in from changes $X.XX at

generated to for The investments share at Moving and our impact offset $XX.XX available by appreciation QX minimal facilities. by for for QX The $XX.X the as half reconciles QX $X.XX ATM a quarter on DRIP SBA is seven the quarter $X.XX and the of slide, was totaled $XX.XX between this to quarter. dividend debentures, outlines record on dry powder which the the Madison cash, declared net the QX. $X.XX with undrawn were date. available this issuances NAV of for end, NII spread million. us lower per This Slide from are of to and undrawn our

in pleased liquidity our We into are that fact conservative account years balance all nature actually, debt with taking of five nature, especially sheet our the is the our position, long-term overall all plus. and

rising cost part, our For fixed have most the environment. in this interest we also primarily rate

floating same have them time, our rates. without In means although assets we all XX% addition, which a by we big remain need XX% rates. are they external our the LIBOR financing. have for And of two to we through continue already, have investments but of of At over floors, rising beneficiary the the ability short-term grow to

As we have interest changes slide on in can income on of you analyzed from see investments. potential rates eight, the interest impact

hypothetical Assuming is incremental no constant to a $XXX,XXX XXX income were a quarter remain investments our the existing interest alter interest for our of fiscal would to all actions points changes. rates and without that existing as interest taken XXXX increase were any approximately rate This August to basis XX, earnings our of other in per quarter. by full terms, increase

our and XX% and fund and yield assets. excluding range investment loans, our with almost on current that investment past at Now, replacement average on I repayment see assets, our composition Slide syndicated $XXX you nine as despite of for composition of million review these XX% assets in portfolio relatively CLO the XX invested consistent BDC several in to and would the past remained XX, yield our companies the as yield move shows like one of continued yield how portfolio. and levels higher weighted first-lien. nine On remain slide the total our has the through consistent quarterly CLO the can slide with to years our well and of in XX

with to in X.X% yield assets. offset CLO slightly our of our trend core XX.X%, reflects This in decreased This yields to our overall XX.X%, quarter, by decrease consistent long-term an XX.X% a around to in but remain increase XX.X% asset syndicated XX%. and from our

Turning in investments portfolio in of considerably the year-to-date and repayment originations Nevertheless, million. second of the $X.X made repayments, three in exits for $XX four XX, year. net or of million we to fiscal during $XX slide new exceed $XX quarter, of resulting decrease in companies existing a million investments million had $XX million or

as healthcare, up Our investments type industries geography distinct spread terms remain industry, well by diversified large as highly with in on nine in business, education services. a of focus and and

total to investment part exposure have On our equity industry, important served our consist of interest. We portfolio, strategy. Equity an had investment the gas it direct well. oil that us no currently fact remain overall of investments a continue to and X.X%

XX, realized This Chief for our credit we from early investment sale of investment loss financial losses As half you XXXX portfolio helped was the the call interest, or good time-loss see turn our a other net equity President of including on million review. QX loss investment. one and of to will concludes $X.X our realized was sale of million for which Michael past offset This of the grow the Investment $X.X of equity partially Center investments. the on quality of and realized Network on to net recognition primarily and and was combined gain we Despite the now all by years, from second gains market. to our $X.X in I my My Officer a Mercury have for indicator realized. Grisius, accumulated That million overview to other performance slide has the fiscal the of realized $XX.X over quarter $X.X of can consistent an a this This NAV. unrealized realized redemptions fiscal reclassified a due gains, experienced five sale million realized portfolio continues earlier, discussed million. loss our Alarm of be

Mike Grisius

already in we indicates then to take ended transaction the lower of number market's Thank and couple the significantly trend was XX, sizes the And just The it, worsened in last continued period Difficulty] in of year. I'll value to conditions you, is U.S. volume, last I'll down period Henri. it comment a last million. same per $XX downward August in current it the describe compared last July. XX same transactions deal our not is well minutes than significantly The see months run portfolio we performance market as the for XXXX strategy. number eight as and year significantly as on is the below competitive of transactions total spoke extremely since [Technical investment Slide rate. have

provided compression. and that the really we of data dynamic the like entrants companies the spread capital spreads and end new we deliver find middle markedly a created Although allows liquidity to a On is lenders likely further, best attract are and and that middle cycle believe as returns become An continued by expectation multiples credits. see supply/demand market, to aggressive the broader starting leverage seeing new to where changes. driven and through have investor sit this in continued credit This yield higher counterbalance we to profiles, narrowing Thankfully, story industry and risk-adjusted have to growth marketplace our competition the you their LIBOR some in to extended pursuit the junior XX, certain benign shareholders. senior published transactions at receptivity paper, us for has spreads overall increase credits. higher suggest because appetite number have to continued can into spread that increased has tightened has in not of to for are to quality and impact excess market Nevertheless, for secular market. the the economic that of lower imbalance high-quality giving aggressive sheer lower we leverage slide most are of exposed debt in more market and middle sectors

are of almost as May multiples XX% compared low XXXX, XX, rest a at been opposed now X.X this XXXX. With down XX, fluctuation in as times historical X.Xx of four as able of our levels, to leverage August deals we to the of is multiples. to profile As backdrop, XXX% times Irrespective the of invest above QX. risk market, relatively low with have from market of leverage of

We that exceed exercise and we businesses the attractive in models, -- credits risk business to are investment. invest strong investment confident extraordinary the we careful discipline in of and invest our the profiles of the value dollar enterprise that last where only are last exceptionally with return sustainably

consistent last nine months despite nine eight reflects we in this slide consistent generate XX applying strongest of calendar follow-ons, of origination market that the our first while to year criteria. ability investments including and is originations have pace illustrates also ahead With addition, difficult our portfolio months dynamics. six an investment new In and new level established year companies XXXX,

despite Difficulty] without conditions. that ownership, and of over come sources develop business couple rest number continue from for led the deal from equity new XX, have increased also illustrates originations our relationships evaluated new a there strategic deals companies This become come past market XX% our set, focus team sponsors. discipline. been to these skill materially highlights significant and of on deals. experience, of slide has mature private [Technical institutional are had the Moving to on competitive our years relationships source slide to

has While term from three increased in not the top deals by XXXX, size percentage. issued deals of XXXX the first of sheets calendar XXX funnel grown, the to sourced have XXX of the the same increasing quarters in sourced

our how our we we looking to of to maintain years. high-quality the top, are now What giving in quality. has remains In of business further the add-ons past companies deals deals portfolio mix the credit companies validation existing Easy high deals support existing a second our enabled healthy quarter, last we fact, origination past of in same new from a transaction that provided did to deploy at since portfolio number of continuing many XXXX, months we quality, of with us growing. to XX goal platform. that new inconsistent is are strengthening level pipeline development that in reflected Ice of overarching of Furthermore, our of color investment. capital and to find many portfolio calendar XX especially value close see companies the Last months, at while quarter the the of deals similar on to in demonstrated relationships, support existing the seven deals volume due through of strength and and matter No is some noteworthy ability as our healthy more

first-lien reminder, in this investment facilitate recapitalization of the also in million Saratoga's position. increased credit end $XX.X our we to capital, the in of transaction Easy As significant preferred Capital, a completing quarter, of in million Concurrently, Ice a in the repayment $X and facility $XX.X control second-lien while remaining its position. regional invested the the changing total reducing Saratoga of Ice Chicago cost subsequent the competitor At to of growth of with senior resulting equity a million additional and completed significant $XX.X investment providing million Easy a into a conversion acquisition capital market. in Madison new established the QX,

by shareholders fundamental Ice Easy their our and evolution and with supporting with time. and of our recognizing ability history relationship over growth business businesses returns the to the deliver whole demonstrates to outsized value Our our

made for the did could size downsize position, we was which normal the investment the investment confidence us, initial Although that tested with quarter. of our than this we larger we

BDC over stronger when management us the Our overall taking portfolio even into taking is by the quality in only and since assets strong originated is XXXX. account

see rest investments XX.X% XX.X% by on made unlevered BDC. invested is management unrealized team XX, unlevered million realizations. basis, the the on invested of IRR and can our in $XX.X slide the on approximately million in Investment gross Saratoga $XXX.X on XX.X% SBIC a the On combined $XXX.X our IRR of gross is you approximately million As

total the unlevered million our over On is combined the you unrealized on the see IRR on $XXX.X of SBIC XX.X% gross chart right, took weighted can management. Saratoga also and investments since

the within discussed our record Now track discussed. numbers previously above, investments two

First is this and non-accrual million a Taco and Mac we continue investment while that $X.X the months; there work declining first-lien depreciation, first-lien on carries of options. company pursue other reflecting past million unrealized lenders had $X.X of currently developments to QX called put the closely the business fundamentals. investment couple been to We various with in

We this on this until nonaccrual investment resolved. is will keep

Center had called Second depreciation realized. in loss was million completed QX. carried $XX.X is in Alarm second-lien of My A was that the million and sales transaction investment the $X.X unrealized QX unrealized

million Alarm loss on by as a this our well My fair high of solid, As investments. how being portfolio interacts on loss Despite a Mercury gain value of other Network good of realizations, quarter whole. unrealized our of as equal gain the realized other $X.X a a Center, appreciation and on million as net the a this gains and $X.X offset and losses Alarm such million a example is quality $X.X My with as reminder, Center recognition year-to-date,

of leverage. key profile is And compared leverage with of debt relatively comprised investments. portfolio times, XX at senior the SBIC overall you XX, remain low our conservative in X.X see As these mix XX.X% our market to can when on especially of the securities investments of investments slide

accretive on risk senior investments QX favorable of a of from Our is our in second-lien conversion investment our a due us in investment. the primarily to deliver shareholders first-lien The to allows capital Ice out spectrum. reduction stretching program cost this the returns to debt highly without to from Easy

to have with second potential SBA We of a timing about the the discussions license. continue

million our XXXX, various we XX, ended of investment quarter to approximately from XX, see within can our May you as reflecting It license. QX. as procedures, decrease the of leading diligence assets. this strength and of million to current $XX total down capabilities, growing a extremely SBIC quality in origination of growing to total and Credit XX% CEO. our XXXX, quality this repayments million to concludes the of remain top remains committed we million call which culminating $XXX represents review back turn to quality of quarter sourcing we Producing as in remain on asset and over our capacity high as XX, end. and to had well XXXX, This to slide demonstrate diligent my available firm is focus selection. overall results SBIC Overall, high due capacity, of as these SBIC the has had like results quarter's Moving assets our of base that important our approach. market $XXX.X August our us August XX, note available including leverage I'd cash, $XX.X operating Chris? required of to capacity is This during underwriting

Chris Oberbeck

Thank you, Mike.

since by slide outlined has program XXX% XX, cash As our payment the grown launched. on dividend quarterly program

paid dividend and declared the raising gradually we dividends XXXX, the per year fiscal share, of through year. During $X.XX

Total QX. higher our giving XX.X%, year far overearning in declared us increasing pay QX continued of $X.XX dividends dividends year one fiscal per dividend BDC during QX, and regularly we've including $X.XX per also year, XXXX, last per per quarterly addition, by share. recently, and We're share $X.XX most for XXXX share coverages fiscal for share throughout is to In dividend the in for thus industry. September, $X.XX still paid the

one dividend we past the -- three on competition had easily see year. have first places BDC us year-over-year our in only BDCs of which slide you have in X.X% can As grown XX, among growth, and first dividends place

dividend have or has decreased increasing of marketplace. quarters time. see sequential the within of dividend We standing XX in the also payments. a differentiated had pleased dividend to us believe now have consistently either We had increases the while over BDCs our continually no size relative their increases, truly industry We're most improve

appreciation the Moving and longer see you time index the us can place took for in And significantly performance earlier, we X%. indicators as last over return our slide can returns we the strong slide viewed XX which have three year generated BDC the XX, horizon, of the two is BDCs. broader of our total dividends, the of both and when total in when slide industry. discussed beating XX%, management top you context reflecting and XX, places the months, over on capital a to see of our XX all On outperformance return key seven which includes has of seven BDC, year our

on that of XX We continue to and dividend diversity Of the to months' months' expense yield, grown we a the are on capacity. yield scale, latest have starting including the year-over-year is interest as assets both NII the most in achieve metrics. more industry XX share, in latest other our we XX expense across now NAV note dividend and beating reach much ratio NII industry growth, with categories, yield equity, line ratio, investment portfolio, of are high per coverage, marks return are latest months' and while

maintain potential The rate high base, gas and industry. AUM, with which risk. earnings including protection with available risk characteristics strong to growing and of quality the our levels ample These this equity, characteristics of all size attractive discussed quality solidly the to and of on of Moving capital competitive to liquidity and institutions. in portfolio our and Investment highest the call of one addition slide current industries, to attractive are quality that the by include Saratoga including substantial cost cyclical We return highly asset this path a investor per against our buttressed industry of profile solid designed the with grow NII XX%, on dividend, our this long-term ownership on more high base, initiatives being performance, maintaining share, drive in marketplace. potential, outlined low on and on help the credit management is have to growth a interest steady the an minimal of BDC we Saratoga slide oil exposure differentiated XX, will solid yield Investment markets community. of our make is expansion our to With premier overall the a remains BDC,

Finally, We our while expand accomplished lot from slide we've with goal of quality remain asset on benefiting looking are XX, financial sacrificing quarter this without a long-term our our proud results. base scale. course to at credit and

to increase to to our by We investments and also adding our source, team continue capabilities. capacity close, manage analyze, our management and

to is for like and simple again leadership execute should and to objectives, support. on our closing, our shareholders return performance. our which result would their of all ongoing continue consistent I job In in Our to continued thank industry shareholder

for questions. profitability excited We and the like that would ahead Saratoga Investment to the for Corp. lies I call for are growth now open

Operator

our Thank Alexander question And Point Compass comes you. Instructions] Research. from Casey [Operator from first

Your line is open. now

Casey Alexander

I questions. morning. Hi few too have don't good a Nothing I think difficult.

your that will First investment Is grown feeling comfortable Ice that but schedule investments, of looks like income. back of of I of income level which is a the the in some a mean looking X% coming at Easy reset of like you'd PIK I work down? the what's comes have investments, there? to it all, Or you're the quarter at level around to realize income with? PIK it from

Mike Grisius

income growth form management, and is relates best the ownership I bring at being a you think if of take you that's it we The interest there, PIK invest Instead, this of equity PIK of for to performing me as Easy the that that it our we we shareholders. excess business. think quarter, accretive flow ratio. roughly we've growth, might that that a in of given PIK is business internally way a made growth. quite along have given control take suppose basically were and to Easy way history reinvesting we that in that the from business, investment make down, think our and business the we by that flow that thing highly capital deploy excess shareholders generated number as good the see and cash our feel to appreciation which we could the And pay the the the structured the our all exceedingly for pursue about is the can It's We, Casey. business is from not better was that transaction. last with cash the course, to realized And we of cash Let bit. in Ice is, could recently that we've in that, obviously way stab Ice like Two-thirds well.

an election that's we've that So, made.

one PIK we think out, that Ice Easy much take you ratio comfortable is If obviously. more

it's it's So, what Easy we're with I excited about. doing of very we're think but observation, certainly function fair a a mostly Ice, which

Casey Alexander

Go ahead, Chris.

Chris Oberbeck

And Just where rate to is PIK be can it on Ice, get a that interesting financial favorably change. by loan were Easy one actually further much the having PIK, perspective have priced at thing. I it very more want senior to able on we facility. put to structure a a we

less figure to instead PIK having has Mike partial get into built senior investor-friendly much the piece subordinated So, the the addition in to full that more that much much us mentioned, pay and having paper expensive in than a of of is objectives flexibility some cash of growth that, we allowed there, this alternatives. having it more -- loan a --

Casey Alexander

a Easy Yes. terrific Ice has And investment. been recognize I

but some terms in entire might want to you make, because new You a that position. PIK favorable that guys flexibility be ask, would amount of over portfolio, yourself income the investment But to PIK of investments Easy is which entire PIK of and of of, of Ice looking the of have portion worked at less a it six to impact want have that might ways income, the I into put over does Sunday portfolio? the the maybe comfortable you from part really your level income

Chris Oberbeck

as investing speak a acknowledged Ice up to situation discussed strategy and think that income. special of Easy that we're portfolio rest historically. investments. the and if don't look not to mean, has the in Casey. much that, component of have some first-lien mezzanine-type really have Two in our that history, at PIK you really weighting of on sought I because little mean, is and we questions. our to But investing. of our of obviously you Two general the all not be PIK I had We ownership We've too And secured want -- first been a heavy guess, we've tried points I we involvement. have structure we capital think high the nature really investment investment we PIK all, very yes, theory, maybe doesn't have more

has not other been we portfolio. what to general are open So, our in investments, we've PIK done traditionally, but that

Casey Alexander

Well, Okay. much that. answer. Thank for great very you that's a

Any Secondly, as I'm from obliged to ask, listed of because XX% Southeast. of is portfolio know business hurricanes about? companies that portfolio interruptions we should the geographically the

Mike Grisius

Not anything material.

Casey Alexander

Okay.

Mike Grisius

not affected the businesses hurricane, that's portfolio of companies in are the some any are certainly anything meaningful of our path in There that are a the but Southeast way. that in

Casey Alexander

We little license you're a into Any only on chance question every the you're were -- the bit extend even ask. this necessary to are Any you one down it than ask when get second kind question? licensing it's had update for three you of the that came SBIC little SBIC in terms you moving though a little portfolio since license. there? to update maintenance So, months of a the to quarter, second deeper for a where period

Chris Oberbeck

on the to I license. engage an would that we with SBA continue additional just say

in from see our our can you our -- think I the in SBIC. outlined performance we performance,

we're know, performers we best very SBIC among the down as far As there.

we the something can through will But drive. control not hopefully, system. get it's that or so we And

to need continue And which have. questions be in and to well think can we we so the portfolio, our perform to responsive as they have we as we

on And you can't really a that. so we give hard target date

Casey Alexander

cyclically? were to were attachment -- points where originations quarter for -- of than how deals, one of within much deals your greater according Does XX% the your of Saratoga's deals And you XX% you okay. is slides, the this concern the does in done quarter the at six of look Sure, in but that at deals strata times. not of new it Saratoga's this to Mike, done that? comparison new

Mike Grisius

question That's a Casey. great

to that be in why to does just a of competitive, standpoint, we it's getting even marketplace spread it the only that's seems and think attachment concern points. not increasingly us see the I say terms leverage that to referenced from but fair

us. it concern So, does

and to good consistent grow at growing been at As you a predetermined pace that careful. that cautious just with we've opportunities the some know, versus is present going though, themselves pace. exceedingly We're

I our think making good and preservation I to this And it here, is really think to see, points relates on investment pace. asset recent that got attachment drives most but-- to, as going So, let's quarter, I've be investments what the

Casey Alexander

better Yes. And it's has explained attachment sometimes how better a past in company. you deal a point a if higher the

showed to compared just industry. it the I'm going I a feel across to get So, let not for this want where you anything. color what is to

Henri Steenkamp

slightly overall it point Casey, X.X here I'm would has think investment not per but the that portfolio I on come moderate last we Easy the down the our and have point you was the if just think which was I relatively quarter, new attachment quarter. four, noticed times downsizing And also attachment the to -- sure both have and investments levels of Ice a then during combination of

Casey Alexander

Okay.

Mike Grisius

It's also that ones the quarter. lien We're first new this investments. were made

Henri Steenkamp

right. that's Yes,

Casey Alexander

right. I quick more All two questions. have very

put that's a you the what the as investment, if Did little as -- the drove right? right, this though if you -- calculating that did loss I I I as So, the decision? restructuring? realized it bit Center, My remaining investment And capital understand am appears and into Alarm more

Mike Grisius

transaction. of was the part That

of the investors mix that second-lien second-lien in in owner in, right additional a the an to get up required securities, that to step-up -- So, position control order as well. require end current the we the were investment for they

Casey Alexander

-- Ice timing Okay. And of lastly, was a just Was was that quarter? Easy when end perspective, at recapitalized? the the from right

Henri Steenkamp

of the -- August last Yes. I think quarter, yes. actually, day the

Casey Alexander

very Thank helpful. really you Okay. All appreciate questions. for That's my right. taking I it. Great.

Chris Oberbeck

Thank welcome. you. You're

Mike Grisius

Thanks Casey.

Operator

from And Thank question Testa National you. Securities. Christopher next our comes from

now open. Your is line

Christopher Testa

guys. taking good Hey questions. for my you Thank morning

level of Are more composition that Easy bit Obviously, the that to in more of in comfortable Ice. potentially future? terms with portfolio? some concluded you looking sell-down you Ice the of you now and Easy you're little the Or the on sell-down. the a at recapitalization in are touching Just

Mike Grisius

comfortable and we're that with position on bullish we're is investment our answer short investment very and current the think the the company. the I in

sell-down looking we're So, to not presently.

Christopher Testa

Okay.

continue looking where there, using gain completed that? viewing Is to investment competitor. you're obviously, just component to to the potentially Now, a PIK this the like Madison cheaper that from PIK the larger acquisition using Capital. a one Is things very to, of guys it to something them to a the basically kind as look you're alluded right down then a road? do sell this grow how rather, you able credit, and The to a at be continue good you're to of at company get investment way much

Mike Grisius

Well, internally have to sell circumstances exit we the what value. find dry have looking are lot I why the the partner the only and in a to a the in way we terms an but awful reinvest an intentionally looking change powder mind. with generated road, us and enterprise exit to our value grow Warren mind, it? that opportunity a timeframe we fuel business Buffett great of and are but be really we transaction enable business structured cash don't in think may not an that sort an an the would more at flow the help at the and in in good us like think you senior excited down on there's equity that for be could Don't really draw it's that enterprise in point, to have business nice runway accretive able also a of really business growth And about to those for ahead that that of and got we're just of We at but take growth. the financing growth facility a value. little dynamics, in if manner, this philosophy opportunity So, bit

Christopher Testa

it. Got

Chris Oberbeck

customer comment, is Easy of or it's more and got source diverse the substantially highly one And Chris, of sized is group at customers a a really look revenue as It's no Ice, anything. we underlying diversified business business.

underlying relatively is the fundamental of Ice position fine because having Easy larger with a a So, the of we basic diversification fundamentals business maybe business. think these in

Mike Grisius

we that the course, fact equation. management, of of about excited part of with can important destiny control an our along Kind they're the

-- well deploy debt we'll get that is are have we with is deals challenged One things you of go and and that the short the really capital lifecycle repaid. often really, are that a

we management. like this had said, formed planning elect can do -- not when Here, we business have we're a one and a that partnership an lot to found anytime with -- we've And exit that as awful we've we soon. and

Christopher Testa

the And was non-accrual you. it TM just marked quarter-over-quarter. X% Got That's up good with it. color. Thank roughly remaining Restaurant,

Just wondering seeing and the markup any trends the positive there. you're that for reason

Mike Grisius

Well, are with for said, options and company think, some ownership engaged out The the Taco in discussions and pursuing facing we're in as management Mac, I continues challenges we various there. marketplace.

slightly I think wrote this it it we've -- quarter. was down actually

Henri Steenkamp

about Yes, actually. marked down $XXX,XXX,

Christopher Testa

Yes.

Got yes. that, Okay.

Mike Grisius

think in just working And we a in that's reflecting But I improve first-lien continued position are again, actively heavy competition there that and market. that to situation.

Christopher Testa

was refinanced spread just indicative pretty as the guys -- in And of tightening. spread quarter. compression significantly was of all CLO a CLOs? the going Got credit curious Is despite it. in have guys more this market? And the the on there you bunch you light the of Just what's the fee incentive your securities in earned mentioned on weighted structured have average further yield

Henri Steenkamp

No, -- refinance there CLO. refinance the wasn't an a additional of

the go rate, then and that of I interest used to output the saw the was calculate valuation. other was average effective interest of assumptions income, think all into which just is an variables weighted what the you

Christopher Testa

Right.

Henri Steenkamp

a future effective rate higher of If think sort slightly prior I average has little in down end it And weighted rather quarter this that growing. quarters quarters of resulted being probably really than interest to and you saw been you'd anything perform than what expect higher in a keep expect. you'd rate well and come the in at that

Christopher Testa

were I into Are go I'm prices not in today's a assuming no losses? yield to just go you assumptions market. the make up. plethora I'm expecting credit curious of specifically accounting you're understand that that the assumptions tackled it. of lower expecting there's level whole Got on what yield reinvestment And lower that.

drove curious I'm what So, just up? specifically that

Henri Steenkamp

of from of in as the rate were look I immediately assumed increase it and collection, -- we combination it's higher which saw benefiting average biggest slightly that, earned under model, very the at a impacted quarter. the in the by the Chris, defaulted. higher driven think, interest portfolio the as was a XX number valuation, assets was trading lower you much performance that in the also a be well -- driver Because was if to what

drive those [Technical So, and in of interest in collections, weighted a increase average increase the rate. higher combination Difficulty] value

Christopher Testa

Okay, dividend, And the obviously, on just got congrats looking it. at that.

you how of You going at out cash, just PIK, to dividend great. guys curious backing looking of an out which at level earned out are able anything are non-recurring point. us it's backing just just How top at looking whether you're fees? Obviously, that? sort it it how that curious, looking you give terms potential the in I'm kind that of again, some you're if it the of consider going looking forward? by you philosophically, increase idea to always any I'm at at is are you could

Chris Oberbeck

Well, few that. a things on

And basis. a in certain I a you know amount think and cash we've our got we our everyone out -- factor on generally address of tax obviously well we a as obligation to our knows earnings dividend quarterly pay dividends.

carryforwards net We our shelter also of gain. that have the benefit having a capital operating loss

So, our income when our of have can shelter. some that we we covers dividends,

out. -- doesn't enter tax to the So, drive That equation. that pay we don't doesn't need we what

we our double-digit earnings of think I and by had our cash consistently dividend coverage earnings. our sort of

don't as is the we of do as new coming investment. really a an -- beyond new my whole Easy of have Ice I up -- of Easy from result has a lot discussion Ice earlier, to really because PIK sort PIK. is us you think, investment, intention for know a And subject more this it's

PIK cash the type don't of And levels about and think much really so so we thing. our

a So, is our and I comfortable, out pay to think what's but requirements comply with dividend on RIC cushion. view basically our really our leaving

case we've earnings that are looking quarter-by-quarter really we based slightly on it. case But in in of principally the cash in are forward. -- basis at kind of of things how So, adverse going addressed our is

Christopher Testa

you guys about or the investments so, the half which your money. have year Okay, be obviously new follow-ons, past great. other would half of mentioned And that are

first-lien from for deals Are this the what significantly the to demand uses is segueing you seeing up up for straight for primary kind curious, of well? is were M&A the demand last money Just relative more year senior that, new of loans? LBO just and stretch just quarter. calendar pretty for capital the as loans And from showed

Mike Grisius

few sort the that, of usually conjunction I them and was things, the Most had last companies, of the A the out always looking at with control because in one Chris. buy is business wanted passive wanted of to transaction. as just I that faith mean, new case. opportunities, we a capital portfolio help who was them new of of the It's who not partners guy he change in out growth. deploy looked quarter, at lot taking partner capital in them a -- a to and

depends. capital that conjunction is transactions. really in most with of of it So, change But control

lower I there's coming though, of that of in one current and the of think capital the end lot seeing challenges market, out in pointed the one facing less in. that we more volume slides, the a middle market, we're as is more we're in and transaction

some lenders We're seeing look. arriving. senior these junior larger expect So starting to would that the are deals providers. of some than smaller to stretch are we your more point, to of look we them capital They're seeing at

to And difficult be capital. careful. And going to deploy that so that's making environment, really cautious, environment really it we're more in

in are them there's deals for terms of things us. of how just little LIBOR we can in helping of accretive. that Fortunately couple price A us, make been has to bit bump helpful

development the business name our reach has the last marketplace our few grown that is thing quite considerably over in years. and other The

so deals deploy are find that ones the in is And confidence opportunities have great where our that that even our see this we so number returns to environment, can that we nice shareholders. really we sheer capital the of of tough share for risk-adjusted

Christopher Testa

my for all great. Okay, questions. for you taking That's Thank me.

Chris Oberbeck

Thank you.

Operator

for Thank questions. over the back call I Christian I remarks. no Oberbeck, would to At showing like you. am to turn CEO further time, closing this

Chris Oberbeck

Well, again, with I appreciate we speaking would to We like your today. forward for to next joining quarter. support, and you everyone us look thank

Operator

gentlemen, thank your and you participation program. Ladies This today's the concludes in conference. for

You may now disconnect.

Saratoga Investment (SAR) 12 Oct 172018 Q2 Earnings call transcript