SAR - Earnings call transcript Q2 2020 | Saratoga Investment Corp.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Saratoga Investment Corp. Fiscal Second Quarter 2020 Financial Results Conference Call. Please note that today's call is being recorded.

parties in all listen-only presentation, the will a be mode. During

open prepared for remarks, management's the we Following will line questions.

Officer, Chief At this over and please Corp's call turn to Steenkamp. Compliance go Financial ahead. time, I to would Saratoga like Mr. Sir, Henri the Investment

Henri Steenkamp

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

be a our call. will we during referencing presentation Today,

press XXXX IR our PM You Events link Presentations release will section can today find website. this our from conference is our refer earnings XXth. second page through also to to A in distributed & for call be X:XX press Please fiscal A presentation the available Relations details. earnings last Investor night. release of replay our of October in shareholder quarter the

Officer, to a to our will who would call introductory I Chief Executive now remarks. turn making the Christian few Chairman like over Oberbeck, and be

Christian Oberbeck

and Henri, you, for one important us, strong has and with particularly Thank welcome, significant a everyone. quarter This fiscal been many accomplishments. second

portfolio, to our support efforts and will quarter's build our liquidity high-quality of All BDC achievements and base. strengthened within utilizing our sector industry upon this grow our capital leadership the

sources, greater continue support flexible capital available of origination our of our While our robust solutions with cost-effective environment pipeline a sources challenging persists, competitive driving combined and and scale. to diversified liquidity, efforts deal

past To quarter's X. on highlights briefly Slide this recap

us First, constituency. small to further in approval SBIC SBA cost additional in a our form long-term we core providing business the support up to enable effective license us capital for $XXX access to of million second received debentures

mean continued a unrealized industry million significantly of of unrealized gross we a quarter portfolio in investment and basis, a registering both a this in X.X%, to by maintaining our with by Second, total foundation gross a beating loan net XX% of on return of our XX% highest on generating financial XX.X% realizations our BDC $X.X having increasing of to-date IRR realized this the XX.X% NAV unlevered million. on annualized level XX.X% total gain of quality, high a XX-month of unlevered trailing QX, investments strengthen IRR and equity on and our credit rating, $XXX quarter,

under assets from Third, a this million our the as same management million last and of as increase increase grew to year. $XXX million quarter, $XXX of quarter $XXX time last XX% a from XX%

a origination with healthy company with This our quarter million the our -- of included total originations. two success continues growing since platform This closed demonstrate $XX year end. in end new since and importantly, portfolio investments quarter eight more originations of new to four

an We dividend of share fiscal five quarter’s XX, increase us per our past consecutive per that quarterly two $X.XX $X.XX second consecutive quarter record. of the only quarterly increase that over on This for the dividend years share dividend continued a for XXXX. XXth paid strengthening financial September per was $X.XX representing of share. of foundation the dividend of one the to quarter, achieved enabled Fourth, We're of increases. has have our BDCs

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

increased the having of one are only over dividends past BDCs year. eight We

in this quarter. look liquidity finally, the strengthened as And and we future, our increased and capital of to structure base meaningfully

gross offering of with the X.X and proceeds quarter. also our $XX.X million we common These with license in sold at were a premium of sold a In with ATM its to we of $XX.X addition shares XXX,XXX benefits NAV to million. quarter resulting a sold for August to gross share. shares gross Subsequent accretion shares the returns, long-term to X.X% NAV issuance in end, potential at $X.XX million during another million SBIC similar receipt through the accretive also per total a proceeds premium of of $XX.X

required These debt-to-equity to equity is new provide the access second million growth. initial ratio. issuances of our total subsidiary capitalization while equity license funding asset order The in to further million debentures $XX.X a pursuant share X-to-X for also SBIC BDC the $XXX capitalization for

recent environment. now to rate address recent on changing credit added priced debenture X.XXX% increased pricing and opportunities future September on approximately and debentures. for at pooling most with of significantly all-in We investment in have XXth a The combining an SBIC X% fees powder expenses dry a

within quarter compared to available August existing strong indicators current our and us new XX, million and performance solid the to assets external without by our delivered continued performance $XXX this end management as under grow performance noted above, allows Saratoga May liquidity return and XXXX as equity quarter quarters key XX, XXXX. Our XX% any of ended on year-to-date financing.

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

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

Henri $XX.XX quarter. Our $XX.XX later. from up up provide year, is last detail NAV and last per from share will $XX.XX, more X% X%

management management has can over see our credits took under of assets BDC since the steadily nine our of we remains risen high. you And Slide ago. years As quality the more on X, than

diligently working We this continue positive trend. to are

portfolio. performance to composition would to call of that, as now Henri over our With turn to back results financial like review our the the well I and as

Henri Steenkamp

metrics adjusting of in Thank adjusted When related unrealized net and performance up last $X.X incentive from the the last to quarter you, XXXX. for XX, $X.X the million our capital as up compared August fee XX% XX% million key quarter Chris. fee incentive year's was QX. gains accruals $X.X ended calculation, X million from for second to Slide highlights NII

AUM up last in increase from The reflects primarily adjusted of level per quarter $X.XX down $X.XX, but share per $X.XX $X.XX $X.XX year, last and outstanding. from income NII and year. was up per last due in from last NII XX% investments quarter. share The from up higher steady interest and with results in in share to share the NII decrease primarily number of adjusted was quarter shares from a the last year year per Adjusted XX% increase last last from higher

Weighted average million ended three for increased XX, million X.X for August shares May three shares X.X XXXX months common XX, million to ended XXXX August shares the and outstanding XX, X.X from months shares and respectively. XXXX the

undeployed quarter basis last points from this adjusted accrual. coupled our of NAV the year, growing quarter. reflecting fee for QX, the Adjusted from down incentive capital NII impact yield investments of XX and XX.X% is and primarily when XX XX.X% only partial our last benefit our with was This up the yield effect basis XX.X% reflecting of new the currently points

a share. portfolio per quarter million million of net operations net net subsidiaries. of The of million net realized blocker Technologies resulting the gains share, comprised Fancy investments $X.X on company's $X.X gain as $X.X resulting deferred investments quarter The our $X.XX a Saratoga net a by net in $X.X $X.XX appreciation tax in expense investment offset was For million gain receipt net million excess as the in from resulting investment, experienced on company's $X.X the Investment's dividend reflects gain realized investment’s of a the gain the well $X.X on gain Censis unrealized of gain cost of $XXX,XXX during on assets weighted of unrealized million investments, or the million and $X.X on million per second the or basis. Chap average in $X.X realization from from we total increase a

$X.X the Censis First, $X.X million million investment. reflects notable multiple The a appreciation unrealized appreciation Technologies unrealized on company's changes:

on million appreciation unrealized investment. our a Ice $X.X Easy Second,

on unrealized Third, Holdings $X.X a appreciation Fourth, million Grey other also unrealized across investments. appreciations on numerous portfolio various investment. investment. our our $X.X the a million smaller unrealized Heller And appreciation Netreo

These increase offset to $X.X equity Chap equity following investment company's the a distribution impact million value primarily as $X.X a realization equity. well investment, rate used of X% in depreciation of the on received company's reflecting the recognized quarter and unrealized appreciations CLO fair a the of million discount the Fancy both reversal the appreciation during were previously this by as the

an performance and indicator unrealized for us, which equity both realized includes important remains gains. on Return

return for on XX of months the industry BDC equity XX.X% above well the quarter, XX.X% last was average the Our and annualized X.X%. for

same touching excluding this period incentive on $X.X the Total and year. last interest $X.X and Quickly expenses, expenses. and financing base to debt management in quarter, million from increased expenses million fees,

total million income tax benefits Expenses from XX.X% of quarters, Excluding increased percentage a to $X.X X.X%. to assets $X.X the in increased from X.X% operating expenses as deferred million. average both

note of end highlighting rate we Of statement sheet in KPIs the quarters in our rate particular again our ahead at We past have last XX slides is BDC, XX, the run year shows the the over and for net XX interest of with has run than of have as current the took historical and the through since tripled presentation, trends maintained. upward also appendix, management Saratoga more year margin well. and income how added metrics Slide balance nine that the our the

million increase Slide was quarter as year the from end year. same increase to from NAV million a million quarter $XX.X of million $XXX.X $XXX.X on a $XXX.X million as $XX.X X, and this at Moving of end, last

up quarter, quarter $XX.XX at only last increases, end, per of NAV from seven we up and up $XX.XX not eight has year-end from the NAV in quarters sequential $XX.XX per three year. from as the $XX.XX now of total quarters. dollars, as have growth share of of last in had last NAV share and as same period of was increased

this Slide on referenced XX. see can You previously the

realized this in $X.X and net net million unrealized blocker $X tax income $X.X of offset by past dividends million expense and declared $X.X of were on investment gains appreciation quarter, and of million For unrealized million earned partially subsidiaries. deferred total net

company's were were $X.X addition, through DRIP million the stock raise offering the X,XXX,XXX during and made distributions dividend quarter. equity shares plan the company's a sold of $XX.X for through net million ATM In

added to share. issuances this during stock quarter Our NAV per $X.XX our

accretive XXXX, steadily of our Our net the history unrealized our increased asset reflecting gains. consistent value and of has benefit and issuances, stock realized since

increased is quarter the $X.XX shares in other ATM deferred a will dilution and expenses base of and increased CLO sequential quarterly from per that management Slide increase basis. income a increase $X.XX changes at last a top, increases were share to tax benefit were in $X.XX NII in fees, NAV $X.XX offset $X.XX share interest $X.XX per significant NII per in you increase per X, a reconciliation share see and from On QX. on $X.XX a income, programs. and increase in non-recurring. a These increases increase DRIP in operating the a share in $X.XX The simple the from Starting major by

the reconciles and of of QX this unrealized to were by per share gains quarter. and dividend by in record QX impact the DRIP investments declared and increase QX the in half $X.XX on the $X.XX lower ATM our programs the $X.XX Moving for net NII QX, net on slide, for $X.XX The NAV generated partially the date. $X.XX accretive our offset with realized

Slide our our undrawn SBA powder This totals of us to million. X XXXX our facility. available the consists debentures as XX, and Madison which cash, $XXX.X outlines of undrawn dry August available

of for our Chris recently million assets need to significantly us based license capacity the second this current dry million increases X% $XXX This allowing low NII no pricing. form external to SBA has our more deployed, by debentures earlier, with mentioned debentures. is without capacity, a $XXX with attached undrawn SBA powder As an SBIC of undrawn with additional our added of million the XX% composition accretive interest financing. grow and approved The on in available being cost $XX expense total cash additional it of also capital the when of our to

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

first of in and in through yield X, fund, Now XX assets investment out of the of are CLO million positions. composition at our I last investments companies portfolio. on lien and move would Starting and one our to lien, Slide invested to which XX% XX review first of in slides with our X like portfolio XX% is $XXX are

BDC and loans, Slide total our yield can assets On excluding well you our core as yield below how XX%. X now our is on CLO the syndicated as see assets,

core CLO place to to LIBOR yields, trend to As decreasing in the by and interest to downward quarter. LIBOR from reduction continues valuation decline buyer yield CLO weighted the average rate continues of the yields market while the from to in the changes our XX.X% generated our yield rate decreased is XX.X% asset yield QX, from on points core reduction last These primarily discount XX.X%. to basis assets and pressure decreasing by effective XX increase, this reflects the the in XX.X% quarter X% XX.X% XX.X% during also overall due driven

to Turning Slide XX.

During companies and $XX.X amortization, we of made exit in for in million in six had increase $XX.X in follow-ons refinancing new investments million net a and plus the investments quarter. quarter, second the fiscal million portfolio one four of and one $XX.X resulting

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

specific category investments services about classification, other as asked really wide that of provide a industries. the to business services across this companies often We’re businesses represents in variety

companies. services currently investments services to human featured management IT resources on website. broadly our business the other to range in services, restaurant advisory different These and many financial in breakdown to XX end XX total. quarter supply is This of presentation classification to in to provided As education from includes our

We investment net our X.X% described. as Of of realized important QX total gains consists investment our $X.X strategy. which had previously remains equity part million an interests, of of overall during portfolio

the including early combined sale a seven net can years equity of you gains as million see had XX, or investments. of $XX.X realized Slide fiscal sale interests, of XXXX, other first of fiscal past of half For the redemption on from we the

took carry over is unused for BDC, and carried NAV, forwards quality helped of ROE. to in continue gains As being This healthy from management NAV. in Saratoga resulting to tax our capital we highlights these credit reflected over the reminder, when to a fully consistent our accretive were performance grow long-term that purposes loss our have that’s portfolio

of our Officer concludes call will Grisius, Investment review. for investment portfolio and Michael Chief That over overview market. the now my financial the turn to I and President an

Michael Grisius

and I'll our as and we on market Thank take see of then to minutes you, Henri. performance current portfolio couple strategy. it, a current the describe comment investment

non-bank to friendly The in price is that persist. Generally and remains aggressive, continued intensify. tolerances. a are this Deal landscape supply the described robust. underlying But I've still and demand banks leverage highly that the conditions competitive has becoming market and calls lenders dominating our expands exacerbating tightens activity as evidenced pipeline past more quarter commercial and direct healthy dynamic borrower

to continue of and XX see experienced impact another yields spread point decreasing to LIBOR in no absolute continue We expansion, reduction basis with fact this to due decline the quarter.

We conditions successful have floors been obtaining of reasonably reduce in helps a of which most new on that market long-term decreasing deals, reflect our impact the environment. current rate

Overall, on generally. we to served these dynamics downward sacrificed quality, put have yields not have pressure but

and we has In the market, kind us of sticking of will this believe to continue face our strategy best. to serve

company assessment directly been to to Our each of with strength approach business investment always long-term ownership management working the a has make thorough underwrite in and the of model. its

in best invest over we for in returns the to producing of seek capital the objective businesses. With risk-adjusted always the shareholders our minds, accretive market downturn of durable the invest long-term. a with possibility our We

quarter Having to a originations the approach a changed has our does profile. there least, in nor that mean record been credit has change not

the proportion In first and our investments a combination hit new actually quality in our rating first to internal time. fact, platform XX% this XX% for of from increased and companies QX, lien of credit through quarter follow-ons, XX% healthy

also We positioned has future downturns. contributed our and successful us believe any to market returns this approach for has well

of is in the With year-to-date, our appreciation believe opportunities market. theme this how overall QX reflects portfolio are $X.X pleased quality that performing. the we and We $X.X of our and underwriting portfolio approach in exist of net and strength our also million with portfolio million

in times, completed previous Now for portfolio well times at leverage to total Slide primarily all quarter. of leverage on increase slightly from was multiples the companies The this market XX, overall year-to-date but leverage X.XX portfolio leverage up average, looking above higher the quarter due our we industry. across below X was slightly are follow-ons which which

relatively historical new our been below portfolio this to line generally and able profile leverage. in a or average risk company maintain have been modest investments the with We've of quarter

highlight, we dollar with and investing value frequently return we leverage, focus our attractive risk exceptionally of remains business on will models considering exceed the sustainably confident that are businesses profiles of than As credits rather investment. the enterprise the where new just strong our last

While leverage absolute metrics the an consideration, always are we relative strength important underlying evaluate of to the leverage business.

For services their platform. an example, software a we developed in to deliver businesses that lending have expertise to

terrific platform exceptional span software-as-a-service others. many and retention utilizing space set diverse governance in with gross a board education, Our widely margins. businesses payroll of industries revenue, hospitality, insurance have can a investments Good this credit customer healthcare, services, and services recurring including characteristics

result, and of typically the valued Because corresponding recurring returns and for are these the we average. of higher to underwriting are is are believe can debt part businesses some a businesses credit our performed these a achieve risk-adjusted valuations strong, As than so businesses These type. in businesses we basis. multiples of lending profiles are good attractive, also high on this revenue

average than In is these the of rest value considerably the portfolio investments lower fact, our loan-to-enterprise portfolio. of

origination addition, companies With follow-ons investment year's consistent while the over and difficult In five portfolio ability our investments level originations on new generate have record par the this five quarter last despite in alone, illustrates applying third new criteria. slide quarter, market to we through that this dynamics. pace, including XX consistent established is long-term, an with

we of and various pipeline AUM. robust factors next big above can quality of from benefited always pace and one the repayments. in past portfolio three that lumpy dependent saw credit be quarter is as jump We a This a within emphasize quarter on the the a factors, perfect growth and pipeline, that from to quarterly example all was including

continue AUM long-term that our and healthy grow term Slide the We over as continue pipeline can to on steadily a we on focus to XX. supported by confident remain longer the demonstrated

and team’s led business set, on have become development to has and experience Our skill new significant continue to sources mature new focus relationships that for relationships deals. our strategic

and solid source market term Our sheets XX business we the formed efforts. past new relationships as months competitive reflecting newly despite are issued number from over companies and development expand a that increase is our XX% Notably, of of of deal our continuously two frothy. progress portfolio

discipline of to no a will The we culture our evidences how we say continue no do breath but deals, of and maintaining our funnel is and investment lot discipline. ingrained profile. credit our preserve this deal shareholders. We if in also to maintain not to our enterprise We we the continue for opportunities of know grow fit our say how will Saratoga value is

remains with demonstrating Our overall quality QX strong portfolio this. credit again

As the investments Slide of management Saratoga see by realized team on on leveraged growth you $XXX on is can made on the approximately million XX% XX, realizations. IRR Investment

investment On the over QX a repayments is XX% short outstanding being average million in unlevered the weighted our time for with Chap before realizing the just very Fancy period $X.X of IRR gain.

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

also previously We highlighted was Medical investment on that our lien Roscoe second non-accrual.

$X.X weakened Our reported. to $X.X investment been as well this is $X.X to as no fundamental that both These There second reflect since issues. of quarter, that down real we performance as lien has last update total million a operational million down zero. written a previously an marks further is value as fair comprises equity $X.X well to of investment the million mark million

strategic We to medium-term. continue with pursue the in to lenders senior near to and work the sponsors alternatives

by the our XXXX, lender the this since we that exceptional investment also the upsized in in and growing are in We and having end a million. company and confident by credit. led investor increased extremely quarter is we been Censis note in Censis its this leader and strength position sponsorship. market $XX management of is business our equity And have this

example high a good another a solid portfolio as was interacts quarter this So quality whole. how of

more for our Technologies, which Censis million appreciation unrealized CLO. positive quarter Holdings among our was the unrealized and Ice, notable investments increases net $X.X and Grey in and others offset realized Netreo a than included total Easy value in Heller depreciation significant Our

can SBIC funded of Now with moving our XX, first million to is see on as invested quarter fully $XXX Slide you license the end.

we second of the And had of debentures. including SBA equity $XX us quarter, quarter $XX license. allows as from funded of for a assets, received already SBIC with SBA approval million which to that million This end access

diligence demonstrate we quality and the Overall, quarter tough procedures. we of we asset strength in platform top remain culminates a Credit our quality approach. committed selection portfolio, market. within our this feel of our remains and results remain diligent in while underwriting overall the operating team, due extremely to high focus, This the and

over This and market concludes my the review Chris. turn to of back to call like the I'd

Christian Oberbeck

you, Mike. Thank

X% past the five $X.XX outlined Slide $X.XX, XX, this sequential representing again on of dividend quarter increases sequential As by our years increase, quarter, increased of increases. we XXth dividend a to

two are We to this. accomplish of only one BDCs

decreasing year-over-year have easily With places Slide past XX or most shows in BDCs increasing of dividends, growth earned us no X.X% the continually that year. one increases quarter within of have either our size of dividend over each the we only eight the top in near and has marketplace. grown their the peers, very us differentiated which the dividend dividends payments, BDCs our having

capital generated BDC the total XX returns includes index months, of our Moving has total X%. last appreciation both XX, return which of dividends, to double and the Slide over XX%,

our is performance XX. outlined term slide, on longer Our next

Our four and five three top place the in year respectively time us all for of and returns horizons. two both BDCs

return the the our return of XX% XX% XX% XXX% over the index five the exceeded years our past three and the Over years exceeded index past of return. return

outperformance of certain XX Slide the placed see our further On the in performance specific context and can broader industry metrics. key to you

coverage, diverse share industry equity, on the dividend months latest dividend yield, XX per year-over-year to NAV latest yield XX continue interest and categories, marks on across achieve portfolio, outperform NII high months growth the including growth. We and return

is have value equity outperformance the moving share latest our return is grown note assets shareholders are growing closer and our averages. we're NAV XX our expense receiving. on our per towards industry that reflects increasingly as Of months and ratio Notably, achieving the scale,

our call BDC to a more the on our and Investment of to including help Slide all community. investor characteristics, base, adding that as to institutions. designed on XX, size outlined Moving quality attractive this slide, Saratoga today achievements the We will discussed believe our is drive on markets are make that initiatives of capital this and highly differentiated competitive

current include: characteristics of levels by the updated NII; ownership strong XX%, the and by risk SBIC maintaining potential; further Differentiating no one our per second and share substantial grow another our shares asset long-term dividend expansion a profile. AUM by issuances, a in NII of rating, growing highest BBB growth XX%; liquidity receipt been with investment management recent attractive sold cost for covered yield has quarter base and which quality a an high with which equity solid management; and strength with in earnings to at of this industry of access to low license; with grade

and cyclical In the including oil contains gas minimal high to addition, quality industry. credit exposure our industries, portfolio

continue to asset at without we scale. Slide looking credit to benefiting quality, on our our from sacrificing XX, goal progress base expand Finally, long-term while

also to simple our our consistent capacity close to analyze, and execute to source, investments team and our manage adding enabling and on increase our by to We continue objectives. capabilities, us management

like their again our support. I'd to closing, ongoing thank shareholders of all In for

growth Saratoga We are that ahead excited Investment for lies for and Corp. the profitability

call the open now to like would questions. for I

Operator

[Operator Instructions].

first Point. Casey comes Our Alexander from with question Compass

Casey Alexander

million quarter. or company never drove is income other of strong and couple guys the to and recurring contributing as to that a results And over a is what well is in this income have this done number the that achieved have I a that has that, questions. before you you What $X.X of factor alluded great Henri, Obviously, not? to historicals. other job increase a that managing portfolio. the extent

Henri Steenkamp

absolutely, Casey, obviously that I Yes. purpose. highlighted on

I think is items things in income there the consider. this One quarter. to is, other two no unusual

there's It of income. dividend always expect you'd no just items. things two other in that any includes or really the you know other unusual So, sort

then Firstly, was in it's prepayment related fee And a Fancy that Chap new a fee couple thousand that relates have of a hundred that advisory the quarter. X% to of originations there of we to realization secondly, investment. the our

unique this no quarter. in So, other items income

obviously quarter. we at originations that why this very it was level high However, our highlighted was very, a

advisory of so, but it well. it because much originations, a as high level that And are we is normally you it view as level was therefore because every single the always partially higher relates recurring at originating at of We was fee than level the quarter, of know. fact that it that a high as to

Casey Alexander

So, that advisory fee less, than less a then by a originations. itself million little $X your little upon just based was

Henri Steenkamp

Yes. $XXX,XXX. It's close, was yes, than around somewhere less -- I a that, little but, probably think

Casey Alexander

take know year. curious number, NII that that’s you and when why you tax curious non-GAAP income dropped adjusted calculate secondly, the also out a -- And adjusted a not NII item, I'm I out it's unusual also? clearly didn't of a benefit that recurring once pull item you number, don't I'm why an from because has and maybe in

Henri Steenkamp

obviously on good with work Yes. assessing from excluded what question. sort adjusted a accountants It's NII. of be our should We

blockers what to As you and an you you single not leave of around what you because know, our quarter, from every have exclude. that a hurdle tax been relates And deferred has the quite view have measures – high element adjusted non-GAAP it will NII. to can be and benefits to can exclude the it

also and volatile structure point, the on blocker NII a can role, strategy always be sort can your and in prepared our to a understand people to quarter-over-quarter that’s that highlight it unique our a so we element tried really of that and However, to basis. and share, have per in remarks

Casey Alexander

I And in is lump I’m discussed going have I've to for now Censis, the to and and concentration this Michael. ask, issue. before in Ice, Easy

XX% get investors of portfolio, almost successful concentration million But Censis degree the of investments. You have of Easy names? you assets. XX% $XX just very with I comfortable portfolio, how in know that that two two portfolio been have the companies Ice encompass suggest the of would total and net

Michael Grisius

the way the the we credit, account strength as size take Casey, is our a as new think we of for I evaluate a underlying investment, we especially business. look well credit, this, into at that when the

we've extremely know One the we’ve we've of we've as relationship that the business. has as been of our to the business our benefit grown, as dated to grown that pretty in business that able strength the businesses with in come has well. so is of the our confidence had that business experience our been where And investments business have things invest grown with and long the

And may I and so we've time. or cases, Ice XXXX in investors in think go XXXX both ‘XX. quite that some it of these are Easy businesses been Censis back for those was to

know that So extremely terrific investments. to operate businesses confidence industry verticals we we and upsize those fundamentally, what's leaders fundamentally well, in feel exposure they're two And that's they're credits. are their they us they our in giving like that both to

Operator

Schleien Our from question with comes Ladenburg. next Mickey

Mickey Schleien

also to want bit strong about you I off talking a -- a leverage. want by start quarter. to congratulate about I on little

you So subsidiary the of else in equal. end the total since back half have the new this including quarter credit you've new of already some realize about all reported. you’d say of availability the of capital equity the envelope, if facility additional SBIC you for as cash have on and you to the there, drew that half the the quarter you've I of issued take injected And And of debentures. was SBA debt-to-equity access then million X.X do to $XXX would equity of

your up the X.X you X.X or to the the last level So above guidance Are go quarters. X.X several comfort at can us? operating been you the is more give or is willing that any to level you've

Christian Oberbeck

for thank question. you that Mickey,

quarter. as very relative the happened basis. talk we concepts most levels this of concentrated about have and that I our There's very good is the we recent our in think every leverage a constantly business fluctuate. lot lumpiness on go a And forward, of may we're among quarter-by-quarter things quarter

out, leveraged in put As $XX can time, be SBIC in might we allocate fund lower How million, license, million, discussed. we or maybe have more us we gives or on funded we relatively we it’s that, we $XX you a access to $XXX situation fluid point as as our debt million. higher to in more access you we it, or how capital. whether to some hand, equity point or constantly cash which our If fund more, leveraged. any At come have that redemptions and relatively in given that's

on we we exactly fixed number that as and think looking have the terms we leverage think be. We that very do -- think is, as where leverage note, we -- will case-by-case basis, be our we in and don't our of so I at should of forward, sound. structure a a go however, so

look covenants. debentures year with the maturity you XX bullet our debentures, no interest If SBIC only at

at pay. is the interest. So no there's a only requirement to No pay There amortization all.

structure of our have maturities bonds are baby bonds baby similar. our four years no Our we now. for On

Henri Steenkamp

Yes.

Christian Oberbeck

and revolving defaults that on rates hard et we And our and investment line no of hard covenants, credit, go cetera. of have you in in fluctuations as redemptions, see it. depending that do which has we in out too And

you mostly and know. are very our soundly of floating rate And of result our of we been the -- with as as very we our originating and have our assets. of So profile we in leverage leverage interacts we've terms book feel that, And is structured, -- comfortable in structure. our with asset assets a terms leverage how

Mickey Schleien

aware Chris. that, dividend we're helped skeptically That’s finance for recap like helpful. for all I looks could you looked recaps And that by are at usually move Thank It market. on. Censis. the pretty the dividend you

understand the So particular I'd thesis like that to transaction? was what behind

Christian Oberbeck

to to relate can trying exactly figure I'm what -- What I you. out Yes.

said think I prepared remarks I in well. exceedingly is is the company what my performing

well pole enterprise that very it is, management that deal are to position very actually we that feel comfortable and But the the confidence in as than do terms as in the exceedingly We structure refinance The I that But supported by the would high the the of that were company degree on in that lead business already on on with sponsorship. ownership the recapitalize are in with well much capital aggressive Mickey, had what value the well, credit, like had we given most enterprise the group, we team importantly, than financing. the knew itself. look the covered, We the of just and -- that it, market. opportunity finance have the we a to equity that believe the offers we team terms primarily better comfortable more terms recapitalized way to know an the We and management of market fact we company know that were we we're we at say, were value? well, we well And and business. business proposed. feel

Mickey Schleien

the assuming chunk management paid also Mike, that. of there in I'm for their sponsor was an efforts? big reward or incentive the got to recap, dividend a But obviously the

Michael Grisius

given interest the that's own they into But recapitalization details the this it management’s a can of in can't get say I well. -- align understands of and sponsorship as typically that case work did how their private with that Well, -- the is that a great the job doing with it’s just company. that we important to I

Mickey Schleien

this liens. the investments climb. your portfolio’s that. the leverage to And behind quarter Mike, thoughts focused Okay. average were continues I But on appreciate first overwhelmingly

increase? to deserve difficult So, how I'd larger is lending it it was Is higher else? or the just like market to understand multiple that what's a may driving something it companies, environment or which is

Michael Grisius

it our think, time credit good is doesn't because And own credit merits. each necessarily so we've just all low on make credit, and perspective, those always from leverage it evaluate the pass deal. that, a did said this always I its we the a just transactions on we And quarter.

was capitalized on and performing of originations in thing to that it the before are out investments companies, we've a color, that might follow-on was portfolio So, of opportunities million years, $XX give then playbook The quarter, our well that this we it very million companies. more would you saw for quarter to reflective $XX of point it's new production really it’s just reflective of and I in that some us. this businesses

and get the a what HMN the upsized been did Censis this front deals and development successful taking that's we've certainly of some investments and we the a the look over lot that us time. time, grew close them. but we and stage write we like grow to top Community head, And over just our time, and you doing off many the put and quarter, to to were [MTP] made a of successful doing and most end off the work done to Expedited check successful their and historically, Mercury, and that support a over successfully at Investors work of I'm of as have smaller my smaller investments. most position they company look We've at the started very that's smaller and in pole businesses, if lot one if at exited of with of They you quarter this are

your back grew, the As the question. companies leverage well, to as profile grew getting

profile follow-ons expanded And also a leverage so, quite company's the where of those profile situations we with bit that. some credit the grew and were consistent

Mickey Schleien

So, a [decline]? portfolio on there’s deterioration of EBITDA meaningful causing the not multiple that's the

Michael Grisius

No. very We softness not about of performance any the seeing the that good trends would underlying at feel portfolio reflect in our We're all. portfolio.

Mickey Schleien

leverage of you us investments your you sense Okay. terms I of Could borrowers, you give to maybe meaningful first again been liens overall second but the in risk-management, on the of portfolio. And sticking still second their the risk are understand lien a how of that first size have liens that manage or average the in focused risk? versus relative proportion

Christian Oberbeck

manage lien risk all strategy taken it's We to lien about the -- never or we it, approach. credit talk taken balance for the where in metrics along. ourselves the the business we've feel the We've like BDCs be evaluate that recognize figure has business. And and gain we comfort that in really understand appropriate always there's broad marketplace we let's of feel we've way we is in and once and approach the we to Well, with underlying assess out that business second then that the said, first a brush a position in sheet. that whether

some comfortable will in are dollar in position So making opportunity where feel being where comfortable and structure one investment better. enough strong that is is Certainly And that's lien at that a a to a first things the like in second capital balance other for deals if say in being we There feel cases is position investment. capital that look have are go than recoup we higher second lien place business don't and a lien we a invest. certainly is we the right don't will get the There lien investment. at we bar second chance to be, much to our sheet. a our will a safer deals look

deploy where will place capital. we a that's So

to portfolio and play it think percent at of each the strokes really It is we to let's percent about about broad lien So, allocate don't say where we evaluating of we way first our think the that of we balance in second it and the function lien. determining in want but strength where looking Y credit a sheet. to deal, X

Mickey Schleien

I understand.

reduction? seeing Could that estimated that's of caused questions yields focused a the Just in us I and a consistent were couple give more with of your what that changes made you that CLO. am the I on assumptions down sense elsewhere. what see came

Henri Steenkamp

Mickey. Sure, Yes.

If unrealized two and that look almost different XX-XX. of was why sort really depreciation you they're sort reason at of is that $X.X buckets, there million, the

reduce are will starting and first therefore obviously that fact we larger value. that as The one the now point that the just equity getting fair is a distribution a

a of to about probably half so, change that. And relates the

in rate and unrealized significant drove as increased of and relates the the and my it which discount in other that was I basis XX% XXX a believe main significant comments. inputs obviously the your driver actually include to far change was that change by largest any The of the or in model the depreciation. points by you half We we other changes noted decrease that your of appropriate

Mickey Schleien

and change about XX, XX.X was was elsewhere. from what I'm the I to in cash It that referring was equity I did the that's or rate what of which of well? the something yield the with consistent appreciate and CLO. the is more That's perhaps performing I flow Henri also the become see pessimistic seeing about. down to No, I estimated asking you've implies discount not

Henri Steenkamp

No.

on So obviously from actual an output yield, the estimated it’s valuation. the

the would then you’ve discount effective input once it all that in put So based down. such drive interest as discount rate, the yield cash once your on you and your flows

adjustment that the driver rate rate change flows, to brought down. discount which also weighted lower primary average in the the effective a was a the and again resulted valuation So larger which of interest cash

Christian Oberbeck

reflection this But a None it's credit change about Mickey, just about This the the though. portfolio. …. market of in one of is more comment --

Mickey Schleien

still was performing flow well. cash The

Christian Oberbeck

Yes. differentials. arbitrage …

Henri Steenkamp

like Correct. Yes. obviously, into The valuation, that go primarily. the the of -- driven comparables most the rates by are market inputs discount

Mickey Schleien

are that has Right, my time. morning. yes. And your Thank very this all you. Those weak, I I understand. market questions appreciate been

Operator

with Tim B. from next FBR. Hayes Riley question comes Our

Tim Hayes

My and the first quarter, one, just very this obviously as you well. performing portfolio is very growth, noted, strong

you up look over the that costs, it’s survey data invest to You of to we've with as in light headwinds you But on quarters, trade, facing this you of labor question, they're small in and couple portfolio touched kind a these compression, this stuff. some but the pipeline? continue guys cycle seem margin optimistic good follow pretty just and How Mickey's what's your of part the for growth first a healthcare later move stages intentionally the or balance of would businesses you report an NFIB more that see headwinds? rising position in a and defensive bit, the more at on the seen overall. you lien all services And function you of move Michael say on companies is guys past do

Michael Grisius

answer me order. them Let in

was, And question small we So in medium the are sized smaller to -- that support? that. businesses headwinds seeing we first the seen we any haven't

really If most think or too doing instance to, we example the you -- have efficient. in much. businesses invest international portfolio margin the very portfolio, businesses really trade that And look for strong Most of labor they're are another about by higher of have trade, whole a we lot that lend affected costs. And of our was at that you our profiles. in, highlighted when you

and increase bit labor through that ride still successfully. very of costs, So in they withstand little can a

the those there's on a We're determine try So thinking and we that. macro hold thinking investment and our that'll during with portfolio. be always And evaluating downturn a for affect if trends. business moving based downturn really that deal what on don't period, a We're determination. business assumption haven't not a could always the on investing entirely will seen in up. interest headwinds invest about that how our watch to in our there or forward well that We

about in is, riskier think way just it position We the really, is because bar to making lien a are another? the which that's second portfolio our higher, before, relates either. a moves is there -- how to question, And we investment, one not not said answer or you're the the shift we any as the in second on making balance concentration it I in As no, sheet.

a was leverage the plenty of had that lien at we depends therefore, So think low that'll have and pipeline enough, were there a investment. seeing? just evaluate that quarter. second to fantastic, doing an that -- characteristics first number a in we're has businesses an the space. it are decide we're given plenty What if downturn, to an lien nature. of business on affect, opportunities we in do are of not if a in deals that But saw there opportunity strength only we we don't the And we a Even our same second invest to in a lien, and that warrant opportunity we doing strong deal are see have and where business that will of would we investment really to the time, sufficient transactions that

Christian Oberbeck

focus, on opportunities companies. secular which think is on is up we and very growing of on relatively our given Mike's the I much points which building at Tim, have sort this our small Saratoga comments, size,

we that or have industry I We're would are circumstances. broad came if probably they we not much to ahead are happen as or done doing those we arise gotten liens second and a organization economic Mike that. necessarily bottoms we have And very and transactions think We recently. too. just more good first liens, had the articulated, But more about up in market the the buying the as driven

have also the don't to So, bottom driven much we we're have the -- up board. but very don't by to across participate

generation really business of are to going weather that are selective a that these headwinds. businesses attractive finding we're new so, very all kind fortune activities of grow our we have despite with be good type And and to businesses

Michael Grisius

to BDC The environment, middle-market add our with environment, emphasize yield said need lean the spectrum. what with under, that. that, to we the I'd sought to especially if to And that we that we’ve point on to management we returns to thing and we've don't need especially get have, SBIC will Even have capital are abundant. highly model we and are where do. out further, consistent we always in the risk more and the continue in just we of safe investments to never that just make this We business that at do with the this that's since that's do opportunities that we've over of that's operated our the accretive lower playbook even took get shareholders what those end can the

Tim Hayes

and several was the past quarters if consistent you Thanks not for years. I pretty the comments with guys feel guys. That really been over like have helpful what saying

sound either competitive So, the And that anything of in mix there all further or decline? compression do if yield standpoint. at doesn't like compression guys LIBOR, you yield, that yield makes So, with I near lot role assume competitive staying portfolio played would say, a it of you of and also pretty then, how there are you pressures is is based the no off you anticipate so, on just the changing? portfolio disciplined. but sense. just a so, to decline But just is out the in it spread from attributed noted even any change most you of And the

Michael Grisius

yield To-date, significant been we just LIBOR. any result been a overall of haven't decline The spread. change in primarily in has

Tim Hayes

last Okay. bit one going me. And I'm here. then little pry question from a to

this an this in a idea You other you companies Could two two investments investment us had new that, us so size quarter? and give any quarter. for give of far new us just you those mentioned investments portfolio of activity

Michael Grisius

No.

the making made that new we're have business development the relationships efforts over about that, and do comfortable but our practice feel building that time. progress We and a we're of disclosing excited we our not with with very --

Operator

with question Our comes from Capital. next Ben Aegis Zucker

Ben Zucker

business them and and Thanks have been questions. point, Most guys sounds your picked and deployment asked you of like activity my this relationships. book a of have on been lot taking answered time but your for growing it development at spending quarter this really of up

metrics have in volatility that there of to ahead largely looking So is quarterly understanding levels lot mean, originations is least of of higher where still generally and subject it at repayments a course, historical been? to Of and that's the that, out origination available I of your capital. be think fair light we're kind as relative your timing as control of can and

Christian Oberbeck

certainly, think lot we've ever a Ben, that origination I we're been. I better at than think

more I many covering bases much there. out we're think we're and more organized

next six be to had going think be we we've a However, some what portfolio really going it's over discovered like will is don't the our the into and but long of on get -- certainly or we results the one they for and redemptions to forecasting want on basis -- thing something we've we're around curtains. we kind our quarterly that we mean, them originations months, say, process visibility and we stick is get do not oh, that I sometimes a

to we that very or close get and our it's that's in we're money we've getting got So on a needs unpredictable three say, quarter-to-quarter and an it acquisition weeks. basis then calls back okay,

we very but we on -- the our is a so, it for predictable. sports can't not inputs, results. focus analogy, Again, And on focus could we like

rates all better. base assets. certainly So much and we as have planning we grown we're We better, think are our need because origination asset higher much we're has to doing organize replace those of to ourselves overall

those any kind not increased we originations. all So level doing of necessarily we're things, of comfortable but forecasting are

Ben Zucker

is that. appreciate -- It's the a wheel business kind definitely little bit itself suppose. hamster of I I a No, like

with lowest think as or as trying on as rate the partner their as I'm or of the them just about possible trying as the align actually up to just are and your competitive that get capital you broad differentiating for a kind that possible to are advisory borrowers they a well? of Following looking in ever, comments -- much they serve and in understand environment. an capital part as about being this business can lenders to guys business ways at your lot stroking, most that are a might be themselves market

Christian Oberbeck

types value-added that's you about, type Well, we constructive lot inside provider and our do described where and talking just which people the of partner they're -- give of aligning are doing ourselves first Those and is what efforts sponsors, transactions a there spent with not they think the I just sponsors capital, a of that the growth what creative where is a business time with the solution-oriented when originations last coming new their focused. us or look parties portfolio. look up of are of but

of and and position services to have situations best find we to we the is, not come for that. And is of yes, be identify sort in of to to we're environment our those. I do a ourselves. just general. align relationships where we're appreciate Because those try preferred like and opportunity, than have rather to trying we and the we to kind sometimes find. investment solution-oriented we mean, trying be want that's a again, where in at we have where to market relationship-driven, that that We're try highest and bidding trying there yes, a to competitive, those So use we we auction an are are to this more avoid but

Michael Grisius

behavior market, move somebody where add a working every and -- because one, get over you're on then they're not becomes dollars it's are us points. that's to to those. businesses seeking operate, seeking or dollar where not we them to lose are people and highest would absolute rate. relationships with subset last seek clearly, that getting successful And can relationships that that how we're and on they players these clear that's they to focused that that lot I who continue And the it at a time to to start building if including the the with been we in just going for are that if relationships another seeking table this bring at some time point, they for there that supporting understand deal to relationship grow understanding is to how We've basis the of those and lowest

Ben Zucker

I'm floors? gone have putting me bps spot of they are historically, Are in if And about pick Understood. maybe you has so you LIBOR, six I or recently? completely moving obviously rate months they that dynamic On rates XX how mean, higher. started that's flipped. to was Henri the an last where a And over just, And -- last like few there let rate floating I'm And loans, loans, below that XX were on you spot? for off based then second. were the when floating at obvious your being getting probably over shift to originating years assumption

rates? that practice is just probably LIBOR there kind downward to now think So I'm of wondering bias and that is how been about short-term in if there's floor a change you any

Henri Steenkamp

just a LIBOR well. that deal few by I'll well. good part it's your item floors and on a as lower because ago as was That's deal negotiated lower, were the Back answer years observation it's when question. good a a

typically way negotiation works we close to as and some can the on we we're So as is -- the floor that. LIBOR to forth a typically and that trying the set current there's back

of very a up, establishing close on More as pretty in originations, at floors more years range recently, been the recent those then bit LIBOR lift if benefit few some in has but successful as higher LIBOR down. where have loans we And and you production of had is older come the X% today. LIBOR looked the didn't of to so the we've many were ago, dated LIBOR a the portfolio our you floors or came

newer those protection have origination and further in should by against So large good LIBOR. declines

Operator

Our next Montgomery. Mitchel comes with from question Penn Janney

Mitchel Penn

SBIC what Censis portion Easy if Ice, the quick. of, Real in is subsidiary? and any,

Henri Steenkamp

Yes.

in think the Mitchel, I off half it of just Censis, my top now is SBIC the about believe, of subsidiary. head, I

actually; a in stand not new then and I I in And the may existing our equity be corrected, of on the had of but SBIC. loan half So Easy it is preferred little debt, be Ice, -- I I the SBIC isn't. believe more the we the could also SBIC, think piece the was subsidiary; about believe is equity -- in

Operator

showing like back this over not at turn am any further time. I I'd questions And the to Christian. call to

Christian Oberbeck

for you Well, quarter. forward thank look with speaking everyone joining us today, we next to and you

Operator

Ladies gentlemen, presentation. this and concludes today's

may a disconnect day. have now You wonderful and

Saratoga Investment (SAR) 10 Oct 192020 Q2 Earnings call transcript