Home Financial News Alert: Saratoga Investment Corp. (NYSE: SAR)

News Alert: Saratoga Investment Corp. (NYSE: SAR)

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On Wednesday, Shares of Saratoga Investment Corp. (NYSE: SAR), loss -0.16 percent and now trading at $22.66 in the current trading session. The current trading range of the stock ranges between $22.58 and $22.85.

Saratoga Investment Corp. (NYSE: SAR) (“Saratoga Investment” or “the Company”), a business development company, recently declared financial results for its 2017 fiscal year end and 4th– quarter.

Summary Financial Information:

  • “In fiscal year 2017 we maintained our focus on expanding assets under administration, maintaining our strong investment quality, broadening our shareholder base, diversifying sources of low-cost liquidity and increasing our pipeline of available deal sources,” said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. “We achieved market-leading results. In fiscal year 2017, we continued to boost our quarterly dividend by 12.00 percent while increasing it every quarter, paying a total of $1.930 per share through a special dividend and our regular quarterly dividends. Our investments in our business growth and origination team facilitated us to keep apace of heavy redemptions, putting a record $127.00M in new capital to work. AUM and NAV continue to grow. Total shareholder return for the most recent 12- months is almost 50.00 percent, and we remain at the top of the BDC space in terms of total return performance, both short- and long-term. In addition, we are well structured for a potential higher interest rate environment, with over 80.00 percent of our investments having floating rate interest rates and all of our presently outstanding debt fixed-rate and long-term. This has been another strong year for Saratoga Investment, and we are extremely happy with the strong and leading risk-adjusted investment performance we have delivered for our shareholders.”
  • Michael J. Grisius, President and Chief Investment Officer, added, “Throughout fiscal year 2017, the steady expansion of our asset base continued, with a yoy rise in our investments at fair value of 3.00 percent, and a 208.00 percent rise since 2012. Despite a market environment defined by reduced transaction volumes and high levels of repayments, we were able to review an boostd amount of deal opportunities and deploy capital at a pace sufficient to grow AUM. Furthermore, we were able to do so generally at multiples below the market average. We carry on to see demand for financing in the markets we serve and believe that our investments in new business expansion and origination capabilities will result in a continued robust and productive pipeline.”
  • As of February 28, 2017, Saratoga Investment boostd its assets under administration (“AUM”) to $292.70M, a rise of 3.10 percent from $284.00M as of February 29, 2016, and a rise of 5.40 percent from $277.50M as of November 30, 2016. This boost reflects the record originations of $126.90M new investments throughout the year finished February 28, 2017, offset by noteworthyrepayments of $121.20M during fiscal year 2017, generating a gross unlevered IRR of 17.00 percent for the fiscal year. These investments and repayments for the year are inclusive of the $41.1M in originations and $26.50M in repayments during the quarter finished February 28, 2017. Saratoga Investment’s portfolio has continued to grow this quarter and remains strong, with a continued high level of investment quality in loan investments with 94.10 percent of our loans at our highest internal rating for this quarter.
  • As a result, both the year and quarter finished February 28, 2017 benefitted from higher investment income as contrast to the prior period – investment income boostd to $33.2M for the year finished February 28, 2017, up 10.30 percent from $30.10M for the year finished February 29, 2016, and up to $8.40M from $7.8M for the same quarterly periods, a 7.2 percent boost. This boostd investment income was generated from an investment base that has grown by 3.10 percent since last year, resulting in both higher interest income and other income. The investment income boost was offset by (i) boostd debt and financing expenses from higher outstanding Notes payable and SBA debentures this year reflective of the growing investment and asset base, (ii) boostd base and incentive administration fees generated from the administration of this larger pool of investments, and (iii) boostd total expenses, apart from interest and debt financing expenses, base administration fees and incentive fees, reflecting higher administrator and deal research fees.
  • Net investment income on a weighted average per share basis was $1.680 and $0.190 for the year and quarter finished February 28, 2017, respectively. Adjusted for (i) the incentive fee accrual related to net unrealized capital gains, (ii) the loss on extinguishment of our 2020 notes, and (iii) the interest on the 2020 notes during the call notice period while the 2023 notes were already issued and outstanding, the net investment income on a weighted average per share basis was $2.010 and $0.490, respectively. This compares to adjusted net investment income per share of $1.9 and $0.450 for the year and quarter finished February 29, 2016, reflecting a rise of 5.80 percent and 8.90 percent, respectively.
  • Net investment income yield as percentage of average net asset value (“Net Investment Income Yield”) was 7.60 percent and 3.50 percent for the year and quarter finished February 28, 2017, respectively. Adjusted for (i) the incentive fee accrual related to net unrealized capital gains, (ii) the loss on extinguishment of our 2020 notes, and (iii) the interest on the 2020 notes during the call notice period while the 2023 notes were already issued and outstanding, the Net Investment Income Yield was 9.10 percent and 8.80 percent, respectively. In comparison, Net Investment Income Yield was 8.60 percent and 9.80 percent for the year and quarter finished February 29, 2016, respectively. Adjusted Net Investment Income Yield was 8.60 percent and 8.00 percent for the year and quarter finished February 29, 2016, respectively.
  • Net Asset Value (“NAV”) boostd $2.10M from $125.10M as of February 29, 2016 to $127.30M as of February 28, 2017.
  • For the twelve months finished February 28, 2017, $11.10M of dividends were declared, while $11.40M was earned ($9.70M of net investment income and $1.70M of net realized and unrealized gains). There were also $5.10M of stock dividend distributions made through the Company’s dividend reinvestment plan (“DRIP”), representing four quarters’ dividend payments and one special dividend; these issuances were partially offset by $3.30M in share repurchases.
  • NAV per share was $21.970 as of February 28, 2017, contrast to $22.060 as of February 29, 2016 and $22.210 as of November 30, 2017.
  • The decrease in NAV per share includes the $1.50M, or $0.250 per share loss associated with the extinguishment of our 2020 notes.
  • During these twelve months, NAV per share reduced by $0.090 per share, mainly reflecting the $0.30M, or $0.060 per share boost in net assets (net of the $1.930 dividend paid during fiscal year 2017), offset by the dilutive impact of the 122,373.00 shares issued during the year. These shares consisted of 315,447.00 shares issued following the DRIP, representing four quarters’ dividend payments and a special dividend, offset by 193,074.00 shares that were shares repurchased during the year.
  • Return on equity for the year and quarter finished February 28, 2017 was 9.00 percent and 3.90 percent, respectively, contrast to 9.40 percent and -1.30 percent for the comparable periods last year.
  • Apart From the $1.60M realized and unrealized losses on our legacy investments in Targus Group International (“Targus”) and Elyria Foundry Company, LLC (“Elyria”) over the past twelve months, in addition to the loss associated with the extinguishment of our 2020 notes and the interest on the 2020 notes during the call notice period, the return on equity for the last twelve months finished February 28, 2017 was 11.30 percent. Both Targus and Elyria are legacy investments that pre-date Saratoga’s administration of the Company.
  • Earnings per share for the year and quarter finished February 28, 2017 was $1.980 (counting $1.70M net gain on investments) and $0.220 (counting $0.20M net gain on investments), respectively, contrast to earnings per share of $2.090 and loss per share of $(0.070) for the year and quarter finished February 29, 2016, respectively.

Investment portfolio activity for the year finished February 28, 2017

Cost of investments made during the period: $126.90M

Principal repayments during the period: $121.20M

Investment portfolio activity for the quarter finished February 28, 2017

Cost of investments made during the period: $41.10M

Principal repayments during the period: $26.50M

Additional Financial Information:

For the fiscal year finished February 28, 2017, Saratoga Investment stated net investment income of $9.70M, or $1.680 on a weighted average per share basis, and a net gain on investments of $1.70M, or $0.3 on a weighted average per share basis, resulting in a net boost in net assets from operations of $11.40M, or $1.980 on a weighted average per share basis. Net investment income reflected a one-time $1.50M loss associated with the extinguishment of Saratoga Investment’s 2020 notes. The $1.70M net gain on investments was comprised mostly of $12.40M in net realized gain on investments offset by $10.60M in net unrealized depreciation on investments. The net realized gains mainly relate to realized gains on our investments in Take 5.00 Oil Change, LLC and Legacy Cabinets, Inc during the year. The net unrealized loss was due mainly to (i) $9.80M change in unrealized depreciation related to these two realizations, with unrealized appreciation being adjusted to zero resulting in a change in unrealized depreciation for the year, and (ii) $1.60M unrealized depreciation in our legacy Elyria investment. This contrast to the fiscal year finished February 29, 2016 with net investment income of $10.70M, or $1.910 on a weighted average per share basis, and a net gain on investments of $1.00M, or $0.170 on a weighted average per share basis, resulting in a net boost in net assets from operations of $11.60M, or $2.090 on a weighted average per share basis. The $1.00M net gain on investments consisted of $0.20M in net realized gains on investments and $0.70M unrealized depreciation.

Adjusted for (i) the incentive fee accrual related to net unrealized capital gains, (ii) the loss on extinguishment of our 2020 notes, and (iii) the interest on the 2020 notes during the call notice period while the 2023 notes were already issued and outstanding, the net investment income was $11.50M and $10.60M for the years finished February 28, 2017 and February 29, 2016, respectively – this is a rise of $0.90M year-over-year, or 8.30 percent.

For the quarter finished February 28, 2017, Saratoga Investment stated net investment income of $1.10M, or $0.190 on a weighted average per share basis, and a net gain on investments of $0.20M, or $0.030 on a weighted average per share basis, resulting in a net boost in net assets from operations of $1.30M, or $0.220 on a weighted average per share basis. The $0.20M net gain on investments was mostly comprised of $0.090M in net unrealized appreciation on investments offset by $0.070M in net realized losses. This contrast to the quarter finished February 29, 2016 with net investment income of $3.10M, or $0.540 on a weighted average per share basis, and a net loss on investments of $3.50M, or $0.620 on a weighted average per share basis, resulting in a net decrease in net assets from operations of $0.40M, or $0.070 on a weighted average per share basis. The $3.50M net loss on investments consisted of $4.00M in net realized losses, offset by $0.50M in net unrealized appreciation on investments.

Adjusted for (i) the incentive fee accrual related to net unrealized capital gains, (ii) the loss on extinguishment of our 2020 notes, and (iii) the interest on the 2020 notes during the call notice period while the 2023 notes were already issued and outstanding, the net investment income was $2.80M and $2.50M for the quarters finished February 28, 2017 and February 29, 2016, respectively – this is a rise of $0.30M yoy, or 10.60 percent.

Total expenses, apart from interest and debt financing expenses, base administration fees and incentive administration fees, boostd from $4.20M for the year finished February 29, 2016 to $4.30M for the year finished February 28, 2017, remaining consistent at 1.40 percent of average total assets for both years. For the quarters finished February 28, 2017 and February 29, 2016, these total expenses reduced from $1.250M to $1.160M.

Portfolio and Investment Activity:

As of February 28, 2017, the fair value of Saratoga Investment’s portfolio was $292.70M (apart from $22.10M in cash and cash equivalents), principally invested in 28.00 portfolio companies and one collateralized loan obligation fund (“CLO”). The overall portfolio composition consisted of 54.30 percent of first lien term loans, 30.00 percent of second lien term loans, 5.30 percent of subordinated notes in a CLO, 3.40 percent of syndicated loans, and 7.00 percent of common equity.

For the fiscal year finished February 28, 2017, Saratoga Investment invested $126.90M in new or existing portfolio companies and had $121.20M in aggregate amount of exits and repayments, resulting in net investments of $5.70M for the year.  For the quarter finished February 28, 2017, Saratoga Investment invested $41.10M in new or existing portfolio companies, and had $26.50M in aggregate amount of exits and repayments, resulting in net investments of $14.60M for the quarter.

As of February 28, 2017, the weighted average current yield on Saratoga Investment’s portfolio for the twelve months finished was 10.80 percent, which was comprised of a weighted average current yield of 10.50 percent on first lien term loans, 11.70 percent on second lien term loans, 12.70 percent on CLO subordinated notes, and 5.30 percent on syndicated loans.

As of February 28, 2017, 83.10 percent of Saratoga Investment’s portfolio is in floating rate debt, with many of these investments having floors. For most of these investments, the relevant 1-month or 3-month LIBOR rate is presently above the floors. Saratoga Investment has analyzed the potential impact of changes in interest rates on interest income from investments, and assuming that the investments as of February 28, 2017 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 boost of about $2.20M to interest income.

Portfolio Update:

During the quarter finished February 28, 2017, Saratoga Investment boostd its first lien investment in Easy Ice, LLC to $26.70M to facilitate a change of control transaction at the company. Concurrent with this transaction, it also invested $8.00M in a noteworthy preferred equity position. As part of a further recapitalization that is presently in advanced stages, there is expected to be a repayment of a noteworthyportion of the first lien investment in the near term.

Liquidity and Capital Resources:

As of February 28, 2017, Saratoga Investment had $0.00M in outstanding borrowings under its $45.00M senior secured revolving credit facility with Madison Capital Funding LLC. At the same time, Saratoga Investment had $112.70M outstanding of SBA debentures, $74.50M of Baby Bonds (fair value of $77.10M) and an aggregate of $22.10M in cash and cash equivalents.

With the $45.00M credit facility and the $37.30M additional borrowing capacity at the SBIC partner, in addition to the $22.10M of cash and cash equivalents, Saratoga Investment has a total of $104.40M of undrawn borrowing capacity and cash and cash equivalents available as of February 28, 2017. The proceeds from the DRIP totaled $5.10M of equity investments in fiscal year 2017. Saratoga Investment also has the ability to issue additional baby bonds through the existing shelf registration statement.

On December 21, 2016, the Company issued $74.50M in aggregate principal amount of our 6.750 percent fixed-rate notes due 2023 (the “2023 Notes”) for net proceeds of $71.70M after deducting underwriting commissions of about $2.30M and offering costs of about $0.50M. The issuance included the exercise of substantially all of the underwriters’ option to purchase an additional $9.80M aggregate principal amount of 2023 Notes within 30 days. Interest on the 2023 Notes is paid quarterly in arrears on March 15, June 15, September 15 and December 15, at a rate of 6.750 percent per year, starting March 30, 2017. The 2023 Notes mature on December 30, 2023, and commencing December 21, 2019, may be redeemed in whole or in part at any time or from time to time at our option. The net proceeds from the offering were used to repay all of the outstanding indebtedness under the 2020 Notes, which amounts to $61.8M, and for general corporate purposes in accordance with Saratoga Investment’s investment objective and strategies. The 2023 Notes are listed on the NYSE under the trading symbol “SAB” with a par value of $25.00 per share.

On March 16, 2017, we reached an equity distribution agreement with Ladenburg Thalmann & Co. 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 May 15, 2017, the Company sold 60,679.00 shares for gross proceeds of $1.40M at an average price of $22.490 for aggregate net proceeds of $1.30M (net of transaction costs).

Share Repurchase Plan:

In fiscal year 2015, the Company declared the approval of an open market share repurchase plan that allows it to repurchase up to 200,000.00 shares of its common stock at prices below its NAV as stated in its then most recently published financial statements. During fiscal year 2017, this share repurchase plan was extfinished for another year, through October 2017, and boostd to 600,000.00 of common stock.

As of February 28, 2017, we purchased 218,491.00 shares of common stock, at the average price of $16.870 for about $3.70M following this repurchase plan.

Dividend:

During fiscal year 2017, Saratoga Investment declared and paid dividends of $1.930 per share, composed of $0.410 for the quarter finished February 29, 2016, $0.430 per share for the quarter finished May 31, 2016, $0.440 per share for the quarter finished August 31, 2016, $0.450 per share for the quarter finished November 30, 2016, and a special dividend of $0.2 per share in the second quarter of fiscal year 2017. In addition, on February 28, 2017, Saratoga Investment declared a dividend of $0.460 per share for the fiscal quarter finished February 28, 2017, paid on March 28, 2017 to all stockholders of record at the close of business on March 15, 2017.

2017 Fiscal Year End and 4th– Quarter Conference Call/Webcast Information

When:  Wednesday, May 17, 2017, 10:00 a.m. Eastern Time (ET)

Call:  Interested parties may take part by dialing (877) 312-9208 (U.S. and Canada) or (678) 224-7872 (outside U.S. and Canada).

A replay of the call will be accessible from 1:00 p.m. ET on Wednesday, May 17, 2017 through 1:00 p.m. ET on Wednesday, May 24, 2017 by dialing (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (outside U.S. and Canada), passcode for both replay numbers: 11205097.

Analyst recommendation for this stock stands at 2.00.