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SAR Reports SAR Reports Q4-11 NII of $0.25 compared to a Div of $0.00/quarter PRNewswire 01-12 Saratoga Investment Corp. reported net investment income of $0.824 million, or $0.2489/share for the quarter ending 11-30-11. SAR [the BDC] had $0.502 million in management fee income from the Saratoga CLO. Total PIK income was $0.3 million and for the last 9 months PIK was $1.189 million. Due to a large reversal that resulted in $11.211 million in unrealized appreciation, SAR reported a net increase in net assets from operations of $6.213 million [$1.89/share]. Net asset value was $24.32 [retroactively adjusted to reflect the additional shares issued recently] or $29.38 without the effect of the stock dividend [compared with $27.45 last quarter]. My run rate TII [total investment income] projection presumes an increase in portfolio investments to $87 million with a small decrease in average yield to 14.2% - or $12.354 million/year for interest income plus a fee income run rate [the fees generated by its ownership of the CLO] of $0.5 million per quarter. So the TII projection is $14.354 million/year or $3.885 million/quarter. With 3.9 million shares, that is $3.68/year or $0.92/quarter. The NII/TII history is inconsistent [which would logically result in a wide range of potential EPS estimates], but 40% is a conservative guess going forward. And 40% of $3.68 is $1.4720/year. The 2012 EPS [and analyst 'EPS' in income statement NII] expectation is $1.87 [and this was SAR's Q3 of 2012]. If the NII/TII ratio improves to the sector average of 50%, then the NII [net investment income] projection would grow to $1.84. But my estimate is based on a consistent 3.9 million share count - and for 75% of SAR's fiscal year, the share count was 3.3 million. And an adjustment for that [25% of a year at $1.47/year pace and 75% of the year at (45% NII/TII ratio times TII of $14.354 million divided by 3.3 million shares) $1.96/year pace] gets one to a $1.84 EPS number. The EPS estimate for 2013 [which for SAR stats in two months] is $1.94. With zero deb; a $10 million/quarter run rate in closing new deals; and low existing loan maturities -- portfolio growth could easily generate the TII that could make that NII projection happen - if SAR does not mess it up with a poor NII/TII ratio. SAR had 32 investments in 21 portfolio companies with an average maturity of 3.0 years. Floating rate debt was 82.7% of the portfolio while fixed rate debt was 17.3%. SAR [excluding its CLO] had zero non-performing or delinquent investments as of 11-30-11. As of 11-30-11, over 98% of the Saratoga CLO portfolio investments had a CMR rating of strong or satisfactory and one Saratoga CLO portfolio investment was in default. The weighted average current yield on Saratoga Investments first lien term loans was 10.7%; on second lien term loans was 10.7%; on senior secured notes was 18.3%; on unsecured notes was 19.1%; and the CLO subordinated notes was 22.7%. This resulted in an aggregate weighted average current yield of 14.4%. SAR's portfolio composition was: 42.0% first lien loans; 10.3% in second lien loans; 29.7% in CLO; 8.7% in senior secured notes; 2.3% in unsecured notes; and 7.0% in common equity. SAR had debt ['revolving credit facility'] of $0.000 million [SAR did have $0.307 million in 'interest and credit facility fees payable' - but that does not sound like interest bearing debt. With Shares outstanding of 3.310 million, the Debt/share was $0.00 and the Debt/NAV ratio was 0.00%. The Ratio of net investment income to average net assets [stats are for a 9 month period] was 7.04%. The Ratio of operating expenses to average net assets was 6.03%. The Ratio of incentive management fees to average net assets was a negative 1.23%. The Ratio of credit facility related expenses to average net assets was 1.45%. The Ratio of total expenses to average net assets was 8.71%. SAR has a current dividend of $0.00/share - Stats adjusted to reflect current share count Total Investment Income $3.629 million [divided by 3.877 million ending shares on 1-01-12 = $0.9360/share]Incentive fees paid to management = - $1.179 million [- $0.3041/share] Total Investment Expenses [including taxes] = - $2.805 million [- $0.7235/share] Net Investment Income = $0.824 million [$0.2125/share] Realized gain (loss) on investments = - $5.832 million [- $1.5042/share] Unrealized gain (loss) on investments = $11.221 million [$2.8942/share] Net Increase in Net Assets Resulting from Operations = $6.213 million [$1.6025/share] Total investments at fair value $85.379 million Cash and cash equivalents $7.952 million Stats as reported Total Investment Income $3.629 million [divided by 3.310 million average shares on 11-30-11 = $1.0964/share] Total Investment Expenses [including taxes] = - $2.805 million [- $0.8474/share] Net Investment Income = $0.824 million [$0.2489/share] Realized gain (loss) on investments = - $5.832 million [- $1.7619/share] Unrealized gain (loss) on investments = $11.211 million [$3.387x/share] Net Increase in Net Assets Resulting from Operations = $6.213 million [$1.8770/share] Conference Call Notes: There was a slow market environment in the second half of 2011 - but there appears to be some optimism now. SAR enters calendar 2012 with a healthier portfolio and dry powder. Greg Mason with Stifel Nicholas inquired about SAR's two new investments and their pipeline. SAR: On the pipeline - it is quite healthy. We are on the pace to invest about $10 million per quarter. Our new investment in Cos Plating was a senior financing. The loan was at three times leverage - and that company has $3.5 million per year of EBITDA. The investment in Capstone was for $8 million - and $3 million of that was placed in CLO. The loan size was 3.5 to 4 times leverage range. So you are doing $10 million in new investments per quarter - what is pace of loan repayments? SAR: For the next quarter, $1.7 million is scheduled to mature. For fiscal 2013, there is less than $4 million in scheduled amortizations. So at this pace - the portfolio will grow. Can you provide an update of SBIC license process - and what would be initial funding level? SAR: There are lots of steps in the SBIC license granting process. We have the 'green light' letter. Now we are in series of committee meetings where they ask questions; we respond; then there is a new meeting with more questions. We have been at this step for about 2.5 months. This step could last 6 to 9 months. There is a backlog at the SBIC - with lots of people in the queue. We do not have visibility to know where we stand in that process. The next step is having an announced license. SBIC does not provide visibility to inform us as to how much more time step will take. Once we have the license, the first stage of investments is projected to be $25 million from our own cash and $50 million in SBIC debentures Greg asked for an update on non-accruals. SAR wrote off their loan to Sataro. That was on non-accrual last quarter and this quarter. Grant was valued at zero - and SAR realized that loss this quarter. Charles Parker with Morgan Stanley asked about SAR's dividend policy. SAR: We recognize that the dividend policy is important to any BDC stock. We want to see a significant increase in the assets before we go to a full cash pay dividend. Our cash is better utilized to grow the portfolio. SBIC borrowing would be at sub 4% for 10 year money. Our new investments are in excess of 12% to 14% interest rates. That is quite a spread. Our thinking is - we could [right now] increase assets by $50 million with the current credit facility - and with SBIC money we would add another $150 million. When we get there [to that higher level of investments in our portfolio], we could be paying cash dividends. Our objective is to get to a size where we pay dividends, and sell at a premium to NAV. |
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