On Friday, Shares of Saratoga Investment Corp. (NYSE: SAR) showed the bearish trend with a lower momentum of -0.18%. The stock opened its trade at $21.82 and after floating in a price range of $21.82 to $22.34.
Saratoga Investment Corp. (SAR) declared financial results for its 2019 fiscal third quarter.
“Our third fiscal quarter of 2019 continued the growth of our high quality asset base and sustained industry leadership in key performance metrics,” said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. “This quarter reflects the full impact of July’s $28.75M equity offering and August’s new $40.00M baby bonds issuance, all of which was deployed by the end of this quarter. This has contributed to the increased interest income generated this quarter. We also again increased our dividend for the seventeenth consecutive quarter, a $0.01 increase to $0.53 per share, while continuing to over-earn our dividend by 23.00 percent as compared to this quarter’s adjusted NII per share. We remain well-structured for rising rates, with 83.00 percent of our interest earning investments having floating-rates and through their LIBOR floors, and all of our debt, except for our Madison credit facility, being fixed-rate. And subsequent to quarter-end, we successfully refinanced our CLO and upsized it to $5000M of assets, with a corresponding increase to interest and management fee income.”
Michael J. Grisius, President and Chief Investment Officer, added, “During this fiscal quarter, we were able to originate a healthy $73.70M of investments and grow our assets under management by 13.00 percent, without sacrificing the strength and the quality of the credits in our portfolio. The fact that we’ve been able to consistently accomplish this underscores the continued growth of our sourcing pipeline, and the strength of our originations team and their investment judgement. We have added eight new portfolio companies since May this year. We remain confident that sticking to our long-term strategy of identifying and underwriting high quality credits will continue to garner positive results.”
As of November 30, 2018, Saratoga Investment increased its assets under management (“AUM”) to $443.80M, an increase of 13.00 percent from $392.90M as of August 31, 2018, and an increase of 31.00 percent from $338.80M as of November 30, 2017. The increase this quarter reflects originations of $73.70M, offset by amortizations and repayments of $23.40M. Saratoga Investment’s portfolio has grown this quarter and credit quality remains strong, with a continued high level of investment quality in loan investments, with 98.60 percent of the loans this quarter at Saratoga Investment’s highest internal rating. Included in this quarter’s originations is also an investment in one new portfolio company. Since Saratoga management has taken over the management of the BDC, $299.10M of repayments and sales of investments originated by Saratoga have generated a gross unlevered IRR of 13.40 percent.
For the three months ended November 30, 2018, total investment income of $12.80M increased $3.30M, or 34.70 percent, compared to $9.50M for the three months ended November 30, 2017. This increased investment income was generated from an investment base that has grown by 31.00 percent since last year. The weighted average current coupon on all investments decreased slightly to 10.80 percent, primarily due to an increase in equity positions on which there is generally no interest income, which increased to 8.7.00 percent of the total portfolio from 8.40 percent last year. In addition, this quarter’s investment income was up 12.50 percent on a quarter-over-quarter basis from $11.40M for the quarter ended August 31, 2018.
As compared to the three months ended November 30, 2017, the investment income increase was offset by (i) increased debt and financing expenses, as the growth in AUM this year was partially financed from increased SBA debentures and the recently issued $40.00M baby bond issuance, and (ii) increased base management fees generated from the management of this larger pool of investments.
Net investment income on a weighted average per share basis was $0.69 for the quarter ended November 30, 2018. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income on a weighted average per share basis was $0.65. This compares to adjusted net investment income per share of $0.69 for the quarter ended August 31, 2018 and $0.54 for the quarter ended November 30, 2017, reflecting a quarter-on-quarter decrease of $0.04 and a year-on-year increase of $0.11.
Net investment income yield as a percentage of average net asset value (“Net Investment Income Yield”) was 11.90 percent for the quarter ended November 30, 2018. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 11.20 percent. In comparison, adjusted Net Investment Income Yield was 11.90 percent and 9.6.00 percent for the quarters ended August 31, 2018 and November 30, 2017, respectively.
Net Asset Value (“NAV”) was $173.30M as of November 30, 2018, an increase of $29.60M from $143.70M as of February 28, 2018, and an increase of $34.50M from $138.80M as of November 30, 2017.
- For the nine months ended November 30, 2018, $14.20M of net investment income and $0.10M of net realized gains were earned, offset by $1.20M of deferred tax expense on net unrealized gains in Saratoga Investment’s blocker subsidiaries, $2.50M net unrealized depreciation on investments and $10.20M of dividends declared. In addition, $27.60M of common stock was issued, net of offering costs, and $1.60M of stock dividend distributions were made through the Company’s dividend reinvestment plan (“DRIP”). 10,373 shares were sold through the Company’s At-the-Market (“ATM”) equity program during the year.
NAV per share was $23.13 as of November 30, 2018, compared to $23.16 as of August 31, 2018, $22.96 as of February 28, 2018 and $22.58 as of November 30, 2017.
- For the nine months ended November 30, 2018, NAV per share increased by $0.17 per share, primarily reflecting the $0.12 accretive impact of the last nine months 1,233,154 share issuances, including the equity offering, the ATM and the DRIP, and (ii) the $0.40M, or $0.05 per share increase in net assets resulting from operations (net of the $1.53 dividend paid during the nine months of fiscal 2019).
Return on equity for the last twelve months ended November 30, 2018 was 10.10 percent, compared to 10.20 percent for the comparable period last year.
Earnings per share for the quarter ended November 30, 2018 was $0.49, compared to earnings per share of $0.45 for the quarter ended August 31, 2018 and $0.71 for the quarter ended November 30, 2017.
Investment portfolio activity for the quarter ended November 30, 2018:
- Cost of investments made during the period: $73.70M
- Principal repayments and amortizations during the period: $23.40M
Additional Financial Information
For the fiscal quarter ended November 30, 2018, Saratoga Investment reported net investment income of $5.10M, or $0.69 on a weighted average per share basis, and a net realized and unrealized loss on investments of $1.50M, or $0.20 on a weighted average per share basis, resulting in a net increase in net assets from operations of $3.70M, or $0.49 on a weighted average per share basis. The $1.50M net loss on investments was comprised of $1.00M in net unrealized depreciation on investments, $0.40M of net deferred tax expense on unrealized gains in Saratoga Investment’s blocker subsidiaries, and $0.070M in net realized loss from investments. The $1.00M unrealized depreciation is primarily due to $1.60M of unrealized depreciation on Saratoga Investment’s CLO equity investment, mostly reflecting the transaction fees of the refinancing and upsizing post quarter-end , $0.40M unrealized depreciation on the Company’s Roscoe Medical investment, and $0.70M unrealized depreciation on the Company’s Health Media Network investment, reflecting a partial reduction of previously recognized unrealized gains to reflect the value that has actually been realized subsequent to quarter-end. These depreciations were offset by $1.20M unrealized appreciation on the Company’s Easy Ice investment, most notably the participating preferred equity, and $0.70M unrealized appreciation on the Company’s Netreo Holdings investment. This compared to the fiscal quarter ended November 30, 2017 with net investment income of $3.00M, or $0.50 on a weighted average per share basis, and a net realized and unrealized gain on investments of $1.20M, or $0.21 on a weighted average per share basis, resulting in a net increase in net assets from operations of $4.30M, or $0.71 on a weighted average per share basis. The $1.20M net gain on investments consisted of $1.20M in net unrealized appreciation on investments and $0.020M in net realized gain.
Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $4.80M and $3.30M for the quarters ended November 30, 2018 and November 30, 2017, respectively – an increase of $1.50M year-over-year, or 49.00 percent.
Total expenses, excluding interest and debt financing expenses, base management fees and incentive management fees, increased from $1.20M for the quarter ended November 30, 2017 to $1.30M for the quarter ended November 30, 2018, decreasing from 1.40 percent to 1.20 percent of average total assets.
Portfolio and Investment Activity
As of November 30, 2018, the fair value of Saratoga Investment’s portfolio was $443.80M (excluding $4.20M in cash and cash equivalents), principally invested in 36 portfolio companies and one collateralized loan obligation fund (“CLO”). The overall portfolio composition consisted of 53.60 percent of first lien term loans, 29.20 percent of second lien term loans, 5.00 percent of unsecured term loans, 3.50 percent of subordinated notes in a CLO, and 8.70 percent of common equity.
For the fiscal quarter ended November 30, 2018, Saratoga Investment invested $73.70M in new or existing portfolio companies and had $23.40M in aggregate amount of exits and repayments, resulting in net investment of $50.40M for the quarter.
As of November 30, 2018, the weighted average current yield on Saratoga Investment’s portfolio for the twelve months ended was 10.80 percent, which was comprised of a weighted average current yield of 11.20 percent on first lien term loans, 12.10 percent on second lien term loans, 10.10 percent on unsecured term loans, 13.30 percent on CLO subordinated notes, and 3.40 percent on equity interests.
As of November 30, 82.60 percent of Saratoga Investment’s interest earning portfolio is in floating rate debt, with many of these investments having floors. For all of these investments, the relevant 1-month or 3-month LIBOR rate is currently above the floors. Pursuant to the disclosure included in Item 3 of Saratoga Investment’s Form 10-Q for the quarter ended November 30, 2018, assuming that the investments as of November 30, 2018 were to remain constant for a full fiscal year and no actions were taken to alter the existing interest rate terms, a hypothetical change of 1.00 percent in interest rates would cause a corresponding increase of approximately $3.30M to interest income over twelve months.
Liquidity and Capital Resources
As of November 30, 2018, Saratoga Investment had $11.80M in outstanding borrowings under its $45.00M senior secured revolving credit facility with Madison Capital Funding LLC. At the same time, Saratoga Investment had $150.00M SBA debentures outstanding, $114.50M of baby bonds (fair value of $116.70M) issued and an aggregate of $4.20M in cash and cash equivalents.
With $33.20M available under the credit facility and the $4.20M of cash and cash equivalents, Saratoga Investment has a total of $37.40M of undrawn borrowing capacity and cash and cash equivalents available as of November 30, 2018. The proceeds from the ATM and DRIP programs totaled $0.80M of equity investments in the third fiscal quarter of 2019. Saratoga Investment also has the ability to issue additional equity or baby bonds through the existing shelf registration statement.
On September 27, 2018, the SBA issued a “green light” letter inviting us to file a formal license application for a second SBIC license. If approved, the additional SBIC license would provide the Company with an incremental source of long-term capital by permitting us to issue, subject to SBA approval, up to $175.00M of additional SBA-guaranteed debentures in addition to the $150.00M already approved under the Company’s first license. Receipt of a green light letter from the SBA does not assure an applicant that the SBA will ultimately issue an SBIC license and the Company has received no assurance or indication from the SBA that it will receive an additional SBIC license, or of the timeframe in which it would receive an additional license, should one ultimately be granted.
On March 16, 2017, Saratoga Investment entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc. and B. Riley FBR, Inc., through which Saratoga may offer for sale, from time to time, up to $30.00M of its common stock through an ATM offering. As of November 30, 2018, the Company sold 358,496 shares for gross proceeds of $8.10M at an average price of $22.54 for aggregate net proceeds of $8.00M (net of transaction costs).
On December 3, 2018, the Company completed the third refinancing of the Saratoga CLO. This refinancing, among other things, extended its reinvestment period to January 2021, and extended its legal maturity to January 2030. A non-call period of January 2020 was also added. In addition and as part of the refinancing, the CLO has also been upsized to approximately $500.00M from its prior $300.00M in assets. As part of this refinancing and upsizing, the Company invested an additional $13.80M in all of the newly issued subordinated notes of the CLO, as well as also purchased $2.50M in aggregate principal amount of the Class F notes tranche and $7.50M in aggregate principal amount of the Class G notes at par. Concurrently, the existing $4.50M of Class F notes and $20.00M CLO 2013-1 Warehouse Loan was repaid.
On November 27, 2018, Saratoga Investment announced a dividend of $0.53 per share for the fiscal quarter ended November 30, 2018, payable on January 2, 2019, to all stockholders of record at the close of business on December 17, 2018. Since the end of fiscal year 2018, Saratoga Investment has paid three dividends, $0.52 per share for the quarter ended August 31, 2018, $0.51 per share for the quarter ended May 31, 2018 and $0.50 per share for the quarter ended February 28, 2018.
During fiscal year 2018, Saratoga Investment declared and paid dividends of $1.90 per share, composed of $0.46 for the quarter ended February 28, 2017, $0.47 per share for the quarter ended May 31, 2017, $0.48 per share for the quarter ended August 31, 2017, and $0.49 per share for the quarter ended November 30, 2017.
Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock, pursuant to the Company’s DRIP.
Share Repurchase Plan
In fiscal year 2015, the Company announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published financial statements. During fiscal year 2017, the share repurchase plan was increased to 600,000 shares of common stock, and during both fiscal years 2018 and 2019, this share repurchase plan was extended for another year, most recently through January 2020, at the same level of approval. As of November 30, 2018, Saratoga purchased 218,491 shares of common stock, at the average price of $16.84 for approximately $3.70M pursuant to this repurchase plan.
The Stock’s performances for weekly, Monthly, Quarterly, half-yearly & year-to-date are mentioned below:-
On a weekly basis, the stock is 3.43%. On a Monthly basis the stock is -4.60%. The quarterly performance for the stock is -5.91%, while the half-yearly performance is -11.15%. Looking further out we can see that the stock has moved 10.50% over the year to date. 2’s beta is N/A whilst the stock has an average true range (ATR) of 0.71. Other technical indicators are worth considering in assessing the prospects for EQT. RSI for instance is currently at 58.02.
The price target set for the stock is $24.33 and this sets up an interesting set of potential movement for the stock, according to data from FINVIZ’s Research. The company has a market value of $164.48M and about 7.48M shares outstanding.