SAR - Earnings call transcript Q2 2025 | Saratoga Investment Corp 8.00%

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Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp.'s 2025 Fiscal Second Quarter Financial Results Conference Call. Please note that today's call is being recorded. [Operator Instructions] At this time, I'd like to turn the call over to Saratoga Investment Corp.'s Chief Financial and Chief Compliance Officer, Mr. Steenkamp. Henri ahead. go Please

Henri Steenkamp

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

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

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

Christian Oberbeck

and year. repayment and return Knowland X include Investment of quarter dividends. Saratoga welcome, the substantial watchlist The NAV Henri, investments of of continued or share investment, nonaccrual overearning resolved resolution Corp.'s this past successful to portfolio highlights you, Thank the this everyone. last our our full and record our will of our per level in increasing

per increases of current to this October XXXX. increased events. the $X.XX against provides levels continued implies of based a growth per and stock a supports on share cushion XX.X% support adverse of annualized X, $XX.XX yield Our on overearning quarter quarter dividends, portfolio the dividend dividend price NAV, The substantial dividends of second share

assets. continue on quarter's from While Investments' largely from of highs, to rate spreads and rates floating Saratoga earnings short-term have decreased rates this their levels benefit interest elevated

long-term now of sheet future. fixed callable largely either costs While but the in balance or are liabilities

attractive Our middle investment in volume ongoing development repayments be lower create despite sponsors high-quality increase of to the recent reflected a seeing over general appear the the of from the opportunities in M&A We market in to M&A. multiple past few of sponsor relationships early stages potential continues constrained months.

$X.XX to addition high-quality portfolio believe two originations, have We to last foundation closed completed The operating Saratoga taken end. favorably current as new portfolio our the At In balance have X the Where quarter Pepper past over strong continues we restructuring the situated decisive and the well be this of nature, in to environment. in significant quarter. year, future resilience including potential Palace we new importantly, of quarter Zollege for restructuring of action. opportunities billion portfolio our the and encountered our challenges companies is investments as challenges. performance economic was subsequent

with the of investments quarter are now and has through in consensual held over prior and Saratoga As of management. remaining sponsors million. brought new combined restructurings control taken And total value being fair at a end, both $X.X CEOs investments former both

capital value. actively in increases future business plan have implement structure potential changes, for which continue to We adjustments, management recovery improvements the and

through its as accrued as full repaid all and transaction. interest investment Knowland principle Our well reserved sale a

reflecting -- reserved This unrealized As and full into interest unrealized recognized $X.X and million million in appreciation we be of to subsequent investments will appreciation. a repayment also million of third XX, XXXX, $X.X previously into quarter quarter booked the the August leaves $X.X end. a recognized that NII, also this

down and CLO our of portfolio a with core return. by value quarter total unchanged the was $X.X net million were quarter, this for portfolio invested capital Netreo $X.X in And in sold quarter. also full million non-CLO this debt relatively marked The was reduction and our of investment overall prior modest a the recovery and remaining JV

value X.X% of while Our is core our now fair above total X.X% non-CLO cost, portfolio above portfolio cost. is

of Knowland industry portfolio Netreo uncertainties in companies on solid have portfolio underwriting repaid related been the performance in overall and well-selected current sponsors Zollege all financial of strong companies to earnings and and the segments. reflects Palace and watchlist. we full, restructurings and have and With completion of four our resolved Pepper The power strong our our portfolio growing

discernment and in continue We environment. current approach the commitments interest with the new market rate to dynamic in of prudence terms

many do the quarter this like the originations meet despite there review one, investments high-quality that where of we demonstrate standards. our overall current not an are periods Our robust pipeline, credit

we quarter, smaller strong portfolio new with companies, company existing we follow-on originated investments benefiting the business investments sheets. X well, in and portfolio models while balance no know During from

With netting XXX.X% leverage the versus XXX.X% regulatory position end against to quarter outstanding cash totaling and leverage from effective $X.X debt. originations quarter to million of net $XX $XX.X million, available $XXX million million our improving this our amortization, leverage -- repayments cash grown has

historically strong X.X% With quarter and in at believe structured and XX.X% for still sheets for $XX.X. Subsequent our end, trends million fully-restructured highest mentioned is two reflecting our being new leverage quality the previously on increased fair XX.X% further X.X% and of lien million with our investments of $XX.X Zollege Palace, increase cost, enterprise well have portfolio currently nonaccrual rates. of we repayment new investments and stress by representing debt the investments in and and challenging credit and balance approximately Knowland portfolio in executed originations economic credits of changes value in conditions And a we portfolio interest in $XX.X in overall had that from and rated our our values for net this to performed two category, situations, and Pepper first Overall, of industries supported quarter well respectively. to companies end positive pipeline of quarter two in follow-ons. only generally

paramount preservation SBIC the through available revolving substantial and to capacity $XXX strength, companies facilities portfolio At million investment million a cash. balance license, maintained million from credit two particularly and $XX.X for environment, III pf in we sheet quarter our end, always, As in $XXX.X existing with and million our our current $XXX us. liquidity, support remain NAV

Saratoga our as May performance XXXX. level key performance Investment's quarter quarters of solid XX, and second to within August indicators XXXX, demonstrated the compared a ended XX,

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

XX year share this X.X% and is X.X%, XX.X% XX.X% up year Adjusted is up NII return on equity year and adjusted Our $X.XX NII up last last XX.X% Latest X.X% quarter, down XX% $X.XX quarter. last is XX.X% up last from $X.XX from from last from per from last yield quarter. quarter, and this months quarter. from

from up and $XXX.X and end last per Our NAV quarter. share last X.X% up $XX.XX, our quarter million from $XX.XX from $XX.XX And last was quarter. last down from NAV million $XXX.X year million is year X.X% $XXX.X up

While to illustrates over has decade, last seen industry, average our years average remained is industry consistently XX well these strong XX return the past on core equity of XX long-term last past a industry's months portfolio, the of and above years. Slide the over the the number at beating X.X% versus BDC has small the X markdowns X XX.X% our credits how BDC in

under on restructured solid down quality ago, BDC of being can two over the and Slide and credits Palace and XX remain you with steadily has the assets since credits X Zollege. a last took X, our our consistently see on quarter years from successfully As the management we risen nonaccrual, Pepper

evolving this capital our to available Our time positive trend and portfolio. the into as and to our performance over our would of volatile we our diligently as With I management call credit team financial cautious deploy like composition to this at now in same the as appropriately continue review that, results well the is environment. pipeline to while working being turn back Henri

Henri Steenkamp

quarter million XX.X% Chris. this the QX you, performance quarter. from Of increasing weighted highlights which August XXXX, from million Slide from for of NII highlighted. were year. most second key last Chris XX.X% outstanding last this Thank already the up ended XX, average Adjusted metrics common year note, XX.X our shares, shares X in QX and last up and of $XX.X year quarter, increased fiscal

the due full million going nonaccrual reversal including $X.X investment's income repayment accrued investment were of of reserve increases the interest quarter's interest. was following end, status quarter on This primarily to previously Knowland that to the

X.X% Investment fees debentures incentive million This million interest and year quarter. and last income quarter offset and to on reflects the $X.X by issued last during not and increases various year fiscal a fees notes does in weighted average primarily last debt $X.X and resulting fees second expenses interest incentive financing taxes two, year; and X% the rate million management higher AUM SBA represented future management compared reflect quarter, basis, increased for and unchanged average and to base and quarter. and of past consistent last decreased impact investment expenses, were XX.X%, increased million total from interest excise assets the the excluding earnings. and an rates. yet with from $X.X increased The first, income Total last $X.X down as from declining year of from new million annualized last $X.X income expense from

for XX including shows the the we trends at the the statement past year. and XX% a and increase in our of have have that upward over Also, maintained, quarters through X again interest income the slides net XX the metrics presentation sheet KPI added appendix margin we end the past in balance

quarter X. XX again how as Slide NAV XX chart following of increase our last as also $X.XX quarter quarter increased past million to $XXX.X QX increase $XX the year. same nonaccrual NAV has and this and this our to up important last end, This with investments per resolution recent million a quarter was share of million highlights from compared as $X.X up per from share, the on metric Moving a QX. the includes historical which well, quarters, this of

since the in value and accretive, XXXX, long as term, growth increase net long-term share. our per the asset by been has has this increased NAV demonstrated steadily Over

years, NAV per up per XX%. is share X over past the or $X.XX Over share

unrealized the from quarterly a release consistent will and reduced the NII $X.XX, realized nonaccrual lower this share the We X, a non-CLO in Starting major due see our basis. primarily per continue NII other decrease to of $X.XX adjusted NAV changes top, at reconciliation share Knowland resulting a in benefit offset Slide originations simple expenses, of you and on the On by income adjusted sequential from to per in income gains. of $X.XX net up quarter. operating and increase interest the from was history

half over net $X.XX This the the realized increased by to the the slide, the excess due lower NII and than QX losses of gap per offsetting primarily more $X.XX, On NAV earned share dividend million. unrealized spread us as and was $XXX.X powder SBA to quarter appreciation. Slide credit undrawn available available which X outlines secured end, debentures the undrawn facility. dry between our of totaled cash,

with liquidity debentures an This quarter pricing, thus assets its to level additional us of NII for and fully without million available also of financing of SBA end deployed, available quarter very million XX% accretive. by allows end and to when external the $XXX cash accretive need available $XXX low-cost our grow with

We effectively future needed. also bonds baby to against debt. decreasing that if X% creating should include margin, protect This of rates, is potential shows of us debt a column allow our protection interest any our which year, call either natural within options the plus our all now or next our net showing callable interest $XXX a million

next long that with conservative our our and our no a covenants Also, debt $XX secured in of way during debt Bank that especially structured taking such from the position, and this We and and account million both our Oak during debt available volatile sheet no nature remain that access times. diverse X nature Live we Additionally, non-SBIC with balance liquidity within revolving our in of maturing into credit numbers. the to BDC have pleased be included such to public almost including liquidity term is is private facility can quarter, the overall leverage our upsized we our these in million fact years. sources X-year almost all $XX stressed

of would fund I XX Slide billion Slides the invested review companies, and one composition fair through portfolio one and to Now yield AUM in on is X our investment highlights $X.XX and value joint CLO like at we X that and XX venture. of now move this portfolio. to have

Slide on CLO, of our yield percentage of first how time, is XX.X% positions. Our our first BDC which our over On last especially is total can in core lien see has [XX%] past lien years. you changed investments, the assets, out XX, X excluding the

remaining rates yield decline the end unchanged of quarter relatively the BDC with and XX.X%, being core at at This our quarter. quarter, same remained during base seen the some the fiscal

diversified increased rates The investments current. see is XX.X% to The our CLO values. continue how on the Slide last which months. our that are you from XX diversity performing through lower and securities. our finance next see quarter, JV, XX addition spread the the CLO are U.S. XX, over to XX breadth to yield XX.X% distinct in fair industries industry And structured decline over in and portfolio can reflecting expect We the to and shows CLO Slide slightly represents, investments

Moving of the of on Netreo important booked Pepper This for investment other gains to net realized accounting part for of years, interest fiscal our year. overall early Slide losses realized our of the from a the Zollege, strategy. which past sale $XX this of an sale slide or XX equity redemption Palace combined net This equity XX. shows we is and investments. X.X% consists of million portfolio or of remain interests, that had

This performance That our long-term financial portfolio helped concludes credit NAV my portfolio realized and quality, our gain has is highlights long-term healthy ROE. in grow our review. reflected and

now Grisius, market. will an of investment Our Officer, overview provide Chief Investment Michael the

Michael Grisius

I the on on investment then you, with in portfolio the changes strategy. and perspective Thank spoke our on Today, last market current since will performance Henri. comment focus everyone our we and

calendar to willing number volumes over market are of Year-to-date toward signs We where where down trend XXXX and believe volumes transactions significantly lower making million deal down firms interest influencing lower transact. to between in prior market a still to expectations. up. to XXXX. are middle deal market return more the rates decline are activity yet pick year for operate middle their factors below order over in a and has middle are in Elevated deal broader on of financing we $XXX longer PE While further activity, debt improvement, and including showing and the QX the disconnect holding deal sellers buyers meet assets expensive through

is The especially an capital combination M&A tighten as low volume causing and lenders of remain win to spreads of compete to deals, leverage to premium historically supply ones. full abundant and

less result, some experiencing extremely this volume cases, elements. on like offering we in has positive a to further payoffs anticipating our This saw pricing quarter, due some we're leverage aggressive assets. we're historically low As of deal lenders and positive low

alone payoffs our XX our we've outpaced past positive repayments and over been the On side, experiencing months. the fewer activity follow-on deal has

the less investments side, has activity lower more to On prior positive market made in than it difficult platform find quality periods. new

relationships be marketplace, to I'll and terms be the to in achieve new Since Now presence quarter investment ability manner run. we've we our a we platform to that the growth closed the long out in our development investments place two deployment. accretive market in continue is healthy the pipeline our solid. end, portfolio that that and capital built is believe best middle initiatives, point give shareholders also lower in us confidence that said, of in with overall combined to the business to expect we our ongoing

larger and ownership As much more investment the we're with market, through compared actively due the conservative less documents is and are and more covenant generally portfolio our ongoing structures are end The when able and diligence capital considerably our The to management our middle the to equity. evaluating in to manage more robust. perform legal ability with interaction is leverage protections stronger greater. features of

has us record being a reflects when and first due to supporting team middle made management portfolio. and making credit that number ever-shifting result, an our stayed portfolio. we and economy decisions. other of being returns, investment of expectations second, among has The seen in a of proactive this. our has of successfully realized offers that managed managing our And best on managing market disciplined As and that the importance to particularly the cycles focused In interest have experience rates, through continue aware we believe rising environment returns the factors, the risk-adjusted largely lower track Saratoga inflation for

continue usual, deploy to to bar remains capital. underwriting find opportunities high as yet we Our

As deployment as seen XX, portfolio has recent follow-ons on thus existing delayed demonstrated to far asset by companies draws. our continued performance XX this calendar year, more characterized been with including Slide

our two long despite consistent investments new ability generate of new companies invested our this and the the second end, quarter subsequent investments solid, quarter, ours. originations over and and flow to follow-ons. executed we no new year deal end in $XX.X While a approximately remains through dynamics and ever-changing the new platform increasingly-competitive term fiscal Overall, is two market strength in of we million to portfolio of

quarter, to portfolio be prior as But with issues portfolio is and financial I of engaged XX.X% shortly. and teams. actively cost. results our our industries values contact touch close managing portfolio Portfolio the historically our in quarters, above BDC the of list continues have are that lien in XX% are well two X.X% that have and or and remain portfolio all And previous we value stress situations. There portfolio debt in our our enterprise portfolio companies in actively investments management the is and management generating remain on in watch strong we in or generally addressed. nonaccrual its fair discussed core at healthy. supported our important, our by previously companies of critically companies general, with been will discussed first performed above is in them

energy exposure. or commodities no have direct We

nonaccrual namely produce businesses revenue high quarter. retention. of as degree investments three recurring Pepper have now addition, Zollege strong on revenue Palace our of portfolio and last the majority investments compared of demonstrated historically as In We have to of comprised and a is two that only

but X.X% or their million value fair the them is fair $X.X We portfolio continue just of value. hold on nonaccrual remaining to our total restructurings following

leverage leverage portfolio last at our can X.Xx, around debt and Total the overall industry have leverage. Pepper you from multiples on Palace for remained Zollege, same was the remains Looking unchanged that industry Xx slide, while see quarter. relatively excluding

data provides on XX Slide deal more flow. our

deal the is our of As deal as effort prior down discussed. the in previously because you part top market of see, made to can the and conscious we pipeline activity is our considerably part improve quality a down from in because periods, pipeline

broader because we've We reinforces highly are of growth flow rigorously again. starting the significant ability flow dependability to to strengthens the we it marketplace progress execute the noteworthy in our building see deal remain is screen of deal signs deeper best in in relationships investments. made Overall, to on the our and opportunities selective and as

our As remain portfolio returns see you can overall solid. credit Slide quality XX, on and

businesses As outcomes reasonable deploying demonstrated taken models we in that enterprise team by the year, nonaccrual and as perfect cautious credits we our under capital confident value watchlist the of focused scenarios, will remains will and are actions the not the on and as our perfect from We can't over all and strive be on of strong last be the the past thorough possible, but underwriting achieved sustainably our dollar investment. approach. exceed we -- we [indiscernible] where to had have business be

of working XXX XX.X% a of senior Over realized those invested XX few of years on achieving realized attractive just our all investments, gross same we've constructed unlevered credits, a that lien $X.XX dozen invested losses performance first We've think successfully exited portfolio investments. had on Even plus account for current discrete billion realized equals that Over profile realizations. time these portfolio $X.X with of together, X and We economic the companies. frame, we this in returns we've billion been combined return predominantly the on write-downs debt. unrealized particularly capital is into XX.X%. taking

nonaccrual and both two repaid, on Zollege Pepper still only sold a with combined Netreo fair now $X.X red only With investments we have Palace and and as with of million. restructured value but Knowland remaining classified

a have The majority equity Palace and business control quarter, situations, taking has specialists Board with Pepper become in who successfully of the we and CEO experience the substantial completed the similar turnaround member. the was working in business. During invested us significant have over with been successful restructuring

As quarter down recognized $XX a marked a we million million. of restructuring, this result realized the $X.X to loss the investment million and further of $X.X

the and balance this owner dollars Zollege in the the partnership the investment, us first of our the fair the is of term former taking leadership. restructuring and the He team levels. We former a invested reassembled with ultimate company business all investment the value And subsequent to are of and still that that of in of current its Knowland company sheet has business, loan and the enterprise during key to $X.X some in goal working reserved the immediate following levels as manage shareholders to lien previous the senior starting objective the a over equity resulted the as profitability meaningful full well leading our management million. Of quarter exceeding our great in founder actively with quarter and interest. and in value principle with those returning accrued first repaid is to end, have us

to When recover recover that write-up In of investment customers to the ultimately same this made that in allowed its past the investment, payoff recognized to into from in capital. of it enabled this from QX attracted up to economic plus with, produced the to all as that recognition $X.X the total several our and value return million in attributes interest that acquirers interest will the credit its including attract be the account remains addition taking industry will $X.X investment attributes third additional the to and into an and of pandemic, unrealized marking on mention over in the us QX it to strong for It's a and the into $XX be interest quarter due worthy Knowland us the there value at strategic of million. begin leadership in with million appreciation income reflect making P&L, par. change recognizing fair investment up

return realized This a our shareholders. for investment XX.X% produced unlevered

of gain preferred $X.X realized A due the markdowns recognized had our and the And the sale on credits. JV we investment depreciation million primarily company. the million resulting unrealized BookXtime quarter, In CLO individual this of from $X.X reflecting Class addition, to

yielded Our our record exceptional returns as this track on strong approach of long-term performance our invested overall has capital recovery our seen slide. realized by and investment and remains

to on XX. Moving Slide

and You currently up and debentures new million allowing our SBIC with license are can we see ramping deployed, III our of funded fully undrawn SBIC second available, cost is license $XXX lower to I'd us existing. to CEO. of new concludes businesses, like my and call support the continue small U.S. market, turn and the review to both Chris? our This back over to

Christian Oberbeck

Thank you, Mike.

Slide XX% As past the on on a both of evaluate general quarter, X impact Board earnings. at to on including $X.XX a level latest years, paid will environment's and per dividend dividend our Directors basis, considering August economic X respectively. The our ended XXXX. XX, of and current least over share factors, company was from Though quarter this interest XX, and for X% outlined on continue quarterly XX, rate the a XXXX, the the reflects increase unchanged September last

of future cut base begun deleveraging has interest cuts a overearning the Fed further which declines. and dividend against adverse Saratoga's rates building potential the and has come events is As cushion NAV, unclear, rate QX to by will a pace effect its providing still at

Moving XX. to Slide

of Our generated both index dividends, BDC months, XX and the capital uncharacteristically which returns low total the and total last return same underperforming The period. has over of appreciation for XX% X%. the includes

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

months' the performance index, of Since the in return below industry's places been our impact the XXX% our discrete slightly performance BDC now return management total took the has the reflecting is index and with of X-year the us recent over BDC [indiscernible] while issues. credit XXX%. the XXXX, almost in versus line latest Our X-year XX

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

the positive metrics We focus are on and dividend on per equity, all yield primarily are and continue discrete as NII growth to reflect shareholders and NAV nonaccruals, year share The NAV coverage, growing such of our and share, equity to discussed. our the Pepper return past due on previously long-term metrics two which are lagging Zollege return per Palace this value and receiving.

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over one of to long BDCs industry continue and NAV done it accretively term, We return remains grown the on long-term long-term be have the X.Xx the and average. our to we've equity few

Moving on to Slide XX.

on leading the markets attracted differentiated size this call a All slide are will with highest that drive to BDC our We of in and we is capital quality performance ownership our are initiatives believe discussed, characteristics designed community. shareholders. differentiating make of this of discussed many characteristics, the that ensuring previously outlined industry the Saratoga management help Investment our institutions. include adding investor in one XX.X%, at of base, more the levels These our including maintaining aligned to

confident in navigating current the term. sheet, in liquidity and structure our challenges reputation, underwriting will environment. strategy historically Looking market management and in the ahead uncovering experienced on strong that through Saratoga's balance Slide and future and And XX. capital shareholders team, time standards We remain well opportunities that and long near and our us tested benefit the investment will serve

our like for again questions. the would like would I And I support. closing, now call their of In shareholders all to ongoing to open thank for

Operator

[Operator Instructions].

Our of Lucid line Zwick first of comes Erik from Capital Markets. the question

Erik Zwick

just of that start on? any to one-off could issues the, your the to they there more meet I Were have if about kind did or add commentary kind just some new and characteristics guess, wanted platform little individual there. with market kind up a color investments credits characteristics. quarter, were Where the coming short? decided just bit of more that on you you that the first common the gave I in would each pass you Wondering you that of reviewed been for investments reviewed of recent of the the most not

Michael Grisius

example, question for bar. This a them Mike. were were had like for comfortable they individual unique was of ones didn't them, credits. to that concentration, with. investment had -- directly, we were Yes. we own concentrate is customer couple our I them answer that your what the of to Each above To recall suitable more feel but elements their unique

Erik Zwick

some to of rates? got basis could is kind you so from callable rates. gave how point guess the balance XX on that more of of then the you Mike. cuts there. coming Fed sheet to debt We've interest Market basis that's from, know to as Thanks, the say, But refinanced. and balance in quarters. And of stands would far. short-term each base sheet obviously over I quantify amount rates I impact moving the predicting Henri, today, and points portfolio the funds reduction you be [indiscernible] commentary XX have appreciate the in that of sensitivity NII that terms the I

Henri Steenkamp

Yes, so market have a in risk Erik, we so MD&A our in table actually section. the

than see cash can sensitivity. ability take refinance you basis just some other our of the it our that debt probably that X% out what some there And that's provide like So might is XX It that's that now. to and -- basis current $X.XX doesn't of obviously, it points variables lower is XXX originating our points there. deal definitely any static actions a looking very in as any utilizing that is be and new a then we and on X.X% factor opportunities are at right might about quarterly perspective, on you basis. obviously Every exactly the said,

Erik Zwick

risk. landing bit about it harder period did maybe that to position Great. markets given again callable, a worst-case a confident refinance through be think And to you the cash refinance go follow-up recession to and feel are opportunity have or of notes debt before guess little a to your trying maybe had some and of at dividend hard you a that for that, I if a you'd we kind into into guess, quarter we able That's helpful. on two fair be Is the assessment? a scenarios, those manage just went not made I to where the that

Henri Steenkamp

Yes.

Erik, of think, immediately, reset is one monthly that reset always they I that increases the either have to quarterly. So with to regards consider things or assets don't occur rate we or decreases right?

the XX where upon Fed X situations have of flows the basis that points, could you So depending only later months through rates but timing our AUM. by changes

But significantly time. a in dividend this we at does so at moment. after still impact quite And we're the immediate. overearning effect is obviously the the point of us not It time, period think

Erik Zwick

PIK looking one, forward looking up most amount quarter? nonrecurring quarter-over-quarter. was rate a quarter, recent last interest just it I then guess there? the into third is decent the that anything on Or the at And going of was that

Henri Steenkamp

No, that actually, nonrecurring interest a of related is it's because that, then actually, investment, because that Most -- our is quarter-over-quarter you cash. you see what to rest and one-off question. most the there good a PIK-related that of of Erik, portion was Knowland the released was was whole reserve see increase

Erik Zwick

helpful. that's Okay, great,

back going would better rate run about of kind it. the prior to way think a to be So

Operator

from comes Raymond Our next of the line question Robert of James. Dodd

Robert Dodd

credit on the mentioned you quarter the On X the biggest we Slide on calendar quality. quarters, still issues, first to on sourced going only in see pipeline the the were the a can XX, year-over-year that sheets XX%. mean, I sheets term down early back Erik's you issuance to The right? is and down term I in relatively 'XX question, deals, issued, mentioned And slide market, is and decline process. mean that's lot for term XX%. you But unique of

other So it rather things kind on on of deeper earlier of on talking is process is what too stripping and in ask after than diligence? or much Or is the customer that you're early? like up issues some the concentration the the leverage seeing that's due are what you're about these things

Michael Grisius

narrowing of in deals we there's matches couple do items. seen But for a win of sheet anyways really kind careful term lot we're that mean, up it. look, processes being that people we've we vis-a-vis end There that, on Yes. lot a before I It's the term to front I a we diligence done them deal. so a than thing we more good. of other We've -- And our issue if exactly gating because -- like we are a -- are this on be of we we tell and a say, me feel remaining one sheet. a the going a on the compare like to things reason work that firms. generally, lot issue of are others to how more hard it's would how

take relationships execution, our that approach it's certainty that and of greater But we way. that win gives often deals we an

sheets it approach way our the the some on is just careful, marketing term we the set So don't out I vis-a-vis throw competitors we think of we're process. in that

us So that the other diligence in of of might that sheet. comfortable credit where we didn't the cases a make an directly, did see sheet, term term we people. answer issuing could to But fair and more official elements differentiate question us versus because your a not issuing were it amount was we

Robert Dodd

On Zollege only got on away Knowland long on Got on your Netreo process Pepper congratulations of because it. in color. level not Appreciate been earlier you've What's and -- optimism much that restructured. just Palace, back. ago which the obviously it's obviously, are everything that and recovery

In time potential it is months values, recovery meaningfully like for years? terms are Any or frame, getting the that I all to XX than mean then of current that of higher X like or the happens fair if we a X there? kind color

Michael Grisius

ball had wish it's wish the I Yes, asking I for -- commend that. I question. mean I crystal you on I -- certainly a

it. the I'd about think Here's way

First of would lot is I competitors. than say that all, our just of context. our a different many DNA

It people, really to say would of to the chops a would best like right find management in to they had not the think lot then terrific some the negotiate are new our those where come able and have deals businesses I a in change manpower these to with the think, where control, experience our to managers new and also we've to just, investing to of of we've capital we've that and structure got we teams alongside get an operate gotten just recapture alignment try probably interest very shareholders. deals. of try to us where people be them value got with and for way we the resources, took feel awful good competitors So I in

get there's as were did. intact there point businesses are the same At that that, they challenges businesses that well. in time, originally these liked the clearly to said were to having facing the Now elements of that we what

try it's some both they're back that. the of and elements and companies management projects, so and we probably teams to to on those think charged no And businesses going get early some are progress, capitalize of cases to those those with to on are it's but making track time. are the I take But doubt, really in strong. that wouldn't oversell want

Robert Dodd

more One I it. Got if can.

dividend, income of at in was -- remember, I think, $XX I -- If mean, the On I time. looked that I not mean, at I year the undistributed million, the the spillover. beginning

that share. $X almost So was a

You've overearned since then. obviously

on even on can So you your obviously any balance sustained. the colors go rates give us lot, a much currently, if undistributed sheet have -- be perspective dividend how that down that what how long you spillover in can because

Henri Steenkamp

sure. No, Yes.

works, all So about. we've towards you've prior Robert, way the counted year-end the dividends spillover million $XX year that paid the dividends the count right? post your talking towards since February is been spillover, that So has

new So current that's obviously is same the a rig new our then spillover up good, for from the from a the covering earnings like March At spillover X, year. perspective. time, building

it's be about also to at $X dividend what is of a we that that we would as would and point interest we your to and think at way out the up probably in is built out about have context been how spillover be there over some point. of of the per paid rates. much we declining so, point is think again some dividend of have paid to share spillover -- that's And be could thought think need it part and currently the about And about obviously,

Operator

Next of Mickey line question Ladenburg of comes from Schleien Thalmann. the

Mickey Schleien

how middle base that I volumes M&A over wanted Hope quarters? next forward get the implies the all your is you curve lower perspective the potential market anticipate reduction Mike, several to on well. in rates will impact

Michael Grisius

typically, That's activity it's the answer. I recovery. would tough back All middle larger the middle some really there to else equal, with it's rates market generally really seen that I that pre-pandemic signs go the of of standard lags you you say market, that. is cost down influence the middle question are if And middle positive capital a now, even coming signs that for of remarks. I deal in deal lower down, times, some has market kind at mean coming lows. debt all-time market lower a and that of look outlined interest this, Historically, activity. -- the showing on prepared we've they're my Right reasons

in So think that, might an one spur that help would increase deal activity.

in the know that point, businesses deals It's with that in by will amount populated do some at that's of a lower I market they presence the middle see the that of assets getting most The one there historically. And and assets we've thing that investments there market. we've the it has on trade the outpace be activity in those And have a change that some our at will at we name the deal it in new capital is the end far opportunity in are ultimately, built for payoffs in that are of for reasons at long our really confident our reasons of our a will people as that, funds and to that the transact grow will lot owned as the And that the will holding back, economy. why There platforms right very our sellers PE in by driving made the and market all to are longer point, time. and price baby run marketplace businesses given are we're that lot boomers. comes the than into there marketplace, historically. right deploy are are that

Mickey Schleien

it's to not why its of decided reset the markets. for or talked what decided That's curious And Saratoga did CLO's now that do that? that little off reinvestment notice that run about you portfolio the a I how to are broader period? And portfolio and expectations outside not And liabilities, helpful. you your will bit the I'm

Christian Oberbeck

part our very of a a going are of important A investments Mickey, I that's things couple and of one think question. on. obviously good

the have CLO On of been asset the world, that. there's there's loans So the sequence, is as the and side on of reset, The -- refinancing lot tremendous because primary right? in supply of assets a and same from syndicated sort M&A, the demand side, as lot and the liability been we is the explored supply the new of many of not raised CLOs of a originated CLOs. there of not new the of demand

and time. level of in advantage marketplace not the that the dynamics this in the at CLO, to liability time area would but of entire improved also a at equity which part side, necessarily the would thought given have on we take structure new the currently, we moment so And liability basically the required refinance rates this investment reset of of

We short a have non-call that. period on

And the the further we runoff attractive and in investments, sort prepared find mode we're improve in we're we more market for are to and so should to meantime, do sort But that. ready reset the CLO it operating of prepared that ready and a CLO. in particular of

Mickey Schleien

fund? willingness I Chris, first agree comments the liquid spread more of -- Do continue senior severe. mean your with all, loan to And markets compression on to grow the completely been fund your you. that and your I in given view has also the impact

Christian Oberbeck

the say has it just created product Again, compression spread just I of it's of -- you there's absence primary M&A activity the it And but marketplace. of to depends, absence referenced. lot I depends. the hate guess the I just a and in dislocations mean

so mean abate? does point, that change? change just I that When it it will when does at And some but hasn't.

obviously we experience ready. in And and so have And this years poised many marketplace. we're of

to warranted can view current And think liability take best advantage incremental be current stance. the not structure improvements continue sort things of equity as when of this make space, and to of step so what's up? into ready our I financing we is then it. that our right on And Should now investments or we're change, the

Mickey Schleien

as discount, I that the Why capital best couple stock a uses discount your is of haven't capital. quarters? would the at in seem much NAV, understand. terms of done at that trading it today, would not be a the the given one still repurchasing to of obviously, last at your you in of BDC, stock liquidity, but Chris,

Christian Oberbeck

Well, stock with trading considerations. which own very portfolio. we're our happy obviously, is to buy I the guess is NAV of opportunity portfolio which our and There's below short-term in there's a the lot our considerations, view,

And so that is attractive.

this thing sort is what grow even in is On it though the the leverage the and a we is acquiring we -- reason build this then had of would context, attractive increase other question and side, is up issues -- equity have we amount leverage. to our tremendous that leverage do an do that other million, the increase of we have part with. could And our of cash investment. And portfolio the we've $XXX side financing right to have to in for over

we're is we M&A So There's stage up want opportunity have asset a the tremendous capital, long-term was run, change, just But able real year, like to in to and growth. this slowdown might it, and for experiencing and it the long opens the substantial we're deploy it in able right? and on set everybody the might this X-month market a in sense new repurchase but something, make more I it we build to side. made the M&A period stock. deployment relationships sure if that been that have to could or mean, change next

companies have more refinancing out of can attractive in -- we needing side, there, is if a on economic problems to having terms gets refinance liquidity business have be important defensively. mean to a important for both the it's things but think and the cash other situation. and deal more robust, up is should open offensively, lot I which We -- that, the also having

So to past? stance think investment had of the have at we another thoughtfully several And our sort and prepared question as have assets in of do being take what do growth Yes. incremental think And do the prudent the capacity and million and of hundred for to moment, with more right we I than it? asset the it's maintain structured dollars very up carefully. by we is, more cash now, we

of important growth time had quickly is it we've in periods do But of most think sometimes, uses takes longer. run is can the improving our improving where share. earnings the and capital And of we our that and to we long our that there's and where then place periods time NAV per

Mickey Schleien

-- question. of on Henri follow-up And terms It per liquidity, which us I talked little And to a is the is just which more we a a is in of undistributed bit. a lot and insight you lot expect a is $X, on to calculus? income timing decision taxable over UTI? deemed $X Could that for about share, Board understand, of give the perhaps part little terms the a in can distribution take what Chris.

Christian Oberbeck

question? distribution we're A that deemed exactly to -- it going Is in we Again, talking that. fully you're your haven't about how determined do kind.

Mickey Schleien

Yes. Yes.

Christian Oberbeck

think that to Look, to large fair has And was cycles. in do. out the an I I you'd amount of mean to figure have option of that. obviously, relative your there's how a industry all an distribution complication in-kind is

deemed been very magnitude that something a on I probably next distribution and think think that not that be that's is, quarter But more finally it's determined. or required precisely be the calculation this the what not not our may substantial distribution but will at going we has of that to I is revealing may number, in time don't be that's appropriate. believe a

Mickey Schleien

that below that NII rates the of current XXX basis sensitivity recent per end with to And last asset shows Henry in and were where risk question. decrease is table would understand. most result alluded rates, on and my I in your in point sort about interest decline $X.XX of and line the base question at a a with that quarter which also adjusted forward curve the NII share follow-up per That the market quarter, dividend. would

review So tactics you just avoid can that plan to to you pursue what situation?

Christian Oberbeck

has but a that off, waive years of been the guess couple think forward not accurate the anything over I to and... I not comments there, of bunch Sure. curve last

Mickey Schleien

Agreed.

Christian Oberbeck

it's decline of course And predictions. saying prediction in that not not history for long say a saying There's time is not we're great a has of the exact that not the to going but the we're terms to not of just not occurred. going it's but And been interest -- those rates. occur,

still economy strong and the I working. think is

robust So would not. interest would the such cut you a question that in is why have a and have when you And or drastic economy in rates.

that happen. will there's still mean a when question I So

And calculation, is you right? essentially, Your dimension, and our down XXX quarter, points Interest you right? then so basis rates this would go the is last what do? question have one look right? Okay. tactics, that though And at

can to question that is, if I deploy different there's -- does we question bunch the something have our get be incremental do need that then that what mean were dynamics many And we -- have need the you're to model, have, our we come taken of capital capital. the running there's have a to we assume deploy, could refinancing like that that -- so deploy right? do and new is, refinanced be things. some to happen, if first right? You and But to capital, marketplace. investment we Maybe cash, of most the is deals -- which more SBIC you if down a that other

we that a of deploy the deals mitigants, find going asset we're I'm not is unless we tactic the attractive. say because the to So to find deployment one not going that's capital

there environment, attractive coming. of some type that in may very be But investments

I longer-term debt could think have that cheaper Henri have has the out fixed that the restructure instruments, sort can callable, variable do spread, call we We access rate we in bonds there. of all our we that's some past rate are of we some discussed floating debt could our debt. more our baby replace of lower of with and -- of and

have disposal we that happen. at of should lot a factors our so And

the would period our impact that place. lags. so deployment. as it of then side, XX words, liability because time then some some months sorts of cuts And at discussed, we is the targets certain there's decrease is other probably I stuff The to all of would won't time, -- the adjustment That to that, of think of take tactical adjustments us. And because that wouldn't and In we that during right? a hit probably do all cost place there's of X of and thing of and And Henri there of full mentioned lot Even don't place, funding. should want if there's these to other lags this -- once, of have take things before like that a would we things.

the that would So we I focusing think things are be main on. those

Henri Steenkamp

purposefully rate perspective. call portfolio a XX The of a is fixed And we especially funding static right? We structure had very the our immense shouldn't cost basis always debt It just as very views did. we options the structured debt be way effectively. declining Because points environment. think the understated, value, have our in

XXX is already from baby currently And cheaper what being so our that know than points various revised we what now. basis it by is are bonds plus banks

the there's sort So built-in Fed you already has with suggested will at private cuts move financing the our right down as issuance And as history and there baby that a move cost mark of that. -- bond of time. value rates rates hopefully,

when time $X.XX So act in that would on to have meaningful sense. that it you that a makes the we'd And referenced. place in impact the obviously right right

Operator

back to Christian no questions Thank you. now Oberbeck time. I'd turn I'm it remarks. at this further showing for to like closing

Christian Oberbeck

analyst support with Well, and Saratoga. their at Thank speaking our forward their journey appreciate next quarter. all and and we look coverage, to We our you our everyone thank of shareholders here for want all you. following we to

Operator

does conclude participation the in This Thank you conference. for program. today's your

disconnect. You may now

Saratoga Investment Corp 8.00% (SAJ) 9 Oct 242025 Q2 Earnings call transcript