Q3 2022 Saratoga Investment Corp Earnings Call

January 6, 2022

[music].

Good morning, ladies and gentlemen, thank you for standing by welcome to Saratoga investment Corp's fiscal third quarter 2022 financial results Conference call.

Please note that today's call is being recorded.

During todays presentation, all parties will be in a listen only mode. Following management's prepared remarks, we will open the line for questions.

At this time I would like to turn the call over to Saratoga investment Corp's, Chief financial and compliance officer, Mr. Henri Steenkamp. Please go ahead Sir.

Thank you I would like to welcome everyone to Saratoga investment Corp's fiscal third quarter 2022 earnings Conference call. Today's conference call includes forward looking statements and projections and we ask you to refer to our most recent filings with the ACC for important factors that could cause actual results to differ materially.

Really from these forward looking statements and projections, we do not undertake to update our forward looking statements unless required to do so by law today.

Today, we will be referencing a presentation during our call you can find our fiscal third quarter 2022 shareholder presentation in the events and presentations section of our Investor Relations website, a link to our IR page is in the earnings press release distributed last night.

A replay of this conference call will also be available from one P. M. Today through January 13th please refer to our earnings press release for details.

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

Thank you Henri and welcome everyone.

Our fiscal 2022 third quarter performance continues to reflect the strength and resilience of our financial position portfolio companies.

Despite the unprecedented global impact continuation of COVID-19 impacts, we feel very fortunate to overcome its challenges, thus far and to be in a position to benefit from the upside of the ongoing recovery and substantial increase in market activity.

We believe Saratoga continues to be well positioned for potential future economic opportunities and challenges are.

Our existing portfolio companies are performing well our current business development activities allow us define and evaluate a healthy level of new investments.

Our AUM contracted slightly this quarter to $662 million as we originated $59 million in new platforms were follow on investments offset by $66 million of repayments, including a $7 3 million realized gain on the sale of our great How're investment and a $2 6 million realized gain.

Our Texas teachers' investment.

These investment gains demonstrate how our strategy of taking equity positions in our portfolio companies when available and when it makes sense to us has paid off well with this quarter's $10 million of realized gains increasing our total net realized gains earned $61 million or approximately $5 per quarter and outstanding.

Shares over the past four years.

We continue to bring new platform investments into the portfolio with two added this fiscal quarter and all of our originations were madewell and an extremely high credit bar, we set for all investments.

The performance of our existing portfolio also grow our NAV per share by 1% this quarter to $29 one seven cents.

$9 a month seven.

Again, a historical record for the BDC.

With this quarter's increase being the 16th increase in the past 18 quarters.

To briefly recap the past quarter on slide two.

First we continued to strengthen our financial foundation in Q3, while maintaining a high level of investment credit quality with over 95% of our loan investments retaining our highest credit rating at quarter end up from 93% last quarter.

Generating return on equity of 14, 6% on a trailing 12 month basis.

And registering a gross unlevered IRR of 11, 9% on our total unrealized portfolio.

Our current fair value, 3% above the total cost of our portfolio.

And a gross unlevered IRR of 16, 4% on total realizations of $753 million.

Second our assets under management decreased slightly to $662 million this quarter, a 1% decrease from $666 million as of last quarter. This remains a 21% increase from $547 million at the same time last year, and a 19% increase from $554 million.

As of year end.

Our new originations included two new portfolio companies and six follow on investments in.

And our current pipeline remains robust with almost a $120 million of debt originations since quarter end.

Third despite improving economic conditions balance sheet strength.

<unk> liquidity and NAV.

Preservation remain Paramount for us our current capital structure at quarter end was strong.

$343 million of Mark to market equity supported by $238 million of long term covenant free non spic's debt $207 million of long term covenant free Spic's debentures, and $12 $5 million of long term revolving credit borrowings.

Our quarter end regulatory leverage of 237% substantially exceeds our 150% requirement.

We have $258 million of liquidity at quarter end available to support our portfolio companies with $76 million of the total dedicated to new and follow on opportunities in our IC to fund.

And $144 million of cash that will be fully accretive to earnings when deployed of which more than three quarters has already been deployed since quarter end.

The all in cost of your new Spi that is currently less than 2%.

And the total committed undrawn lending commitments outstanding to existing portfolio companies are $21 million.

And finally based on our overall performance, including improved liquidity, the overall portfolio and financial performance and the recent deployments of cash.

All directors increased our quarterly dividend by <unk> 53 per share for the quarter ended November 32021 payable on January 19th 2021.

We will continue to evaluate the amount of our dividends on a quarterly basis as we gain improved visibility on the economy and fundamental business performance.

This quarter saw a strong performance within our key performance indicators as compared to the quarters ended November 32020, and August 31 2021.

Our net our adjusted NII of $6 $1 billion, this quarter up 10% versus $5 $5 billion last year and down 13% versus $7 million last quarter.

Our adjusted NII per share was <unk> <unk> this quarter up from 50 last quarter and down from 63 last quarter.

Latest 12 months return on equity is 14, 6% optimal level percent last year and up from 14, 4% last quarter.

Our NAV per share is $29 17 up 9% from $26, 84% last year and up 1% from $28 97 last quarter. This is the highest quarterly earnings per share for Saratoga investment since inception of our management in 2000 path and.

We will provide more detail later.

As you can see on slide three our assets under management have steadily and consistently risen since we took over the BDC more than 11 years ago and the quality of our credits remains high with no non accruals currently.

Our management team is working diligently to continue this positive trend as we deploy our available capital into our growing pipeline, while at the same time being appropriately cautious in this evolving credit environment.

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

Thank you Chris Slide four highlights our key performance metrics for the third quarter ended November 32021.

When adjusting for the incentive fee accrual related to net capital gains in the second incentive fee calculation and for Q2 calculations the interest on the redeemed.

Baby bond during the whole period adjusted NII of $6 1 million was down 13 point CRM Hussain from 7.0 million last quarter, but up 10, 1% from $5 5 million as compared to last year's Q3.

Adjusted NII per share was <unk> 53 up three from <unk> 50 per share last year and down 10 cents from <unk> 63 per share last quarter.

Across the three quarters weighted average common shares outstanding were $11 5 million for this Q3 and $11 2 million for both last quarter and last year's Q3.

The increase in adjusted NII from last year, primarily reflects the higher level of investments and results in higher interest and other income with AUM up 21% from last year offset by lower interest rates and tighter market spreads.

The decrease from Q2 was primarily due to the non recurrence of the $6 million Taco Mac interest reserve release last quarter as well as the reduction in other income, resulting from lower advisory and prepayment fees generated by lower originations and repayments this quarter.

Adjusted NII yield was seven 3%. This yield is down 10 basis points from seven 4% last year and down 140 basis points from eight 7% last quarter.

For this third quarter, we experienced a net gain on investments of $3 $9 million or <unk> 34 per weighted average shape and a <unk> 8 million realized loss on the repayment and termination of our Madison credit facility or <unk> <unk> per weighted average share, resulting in a total increase in net assets from operations of $8.

$3 million or <unk> 73 per share or EPS.

$3 9 million net gain on investments was comprised of $9 $9 million in April realized gains and $2 5 million of deferred tax benefit on unrealized depreciation offset by $6 million of net unrealized depreciation and $2 4 million of income tax expense generated from realized gain.

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The $3 $9 million net realized gain comprises a $7 3 million realized gain on the sale of the Companys grey Heller investment and a $2 6 million realized gain on the company's Texas teachers investment sale.

The $6 million Nathan unrealized depreciation reflects firstly, the $7 $7 million and $2 6 million.

So previously recognized depreciation on the Grey Heller and Texas teachers equity realizations, respectively, and secondly, a $2 6 million of unrealized depreciation on the company's CLO equity investment reflecting market volatility.

Partially offset by a one 1% increase in the total value of the remaining portfolio primarily related to improvements in market spreads EBITDA multiples and or revised portfolio company performance all of the net reduction in the value of the non CLO portfolio in the first quarter of last year has been more than reversed.

Since May 31, 2020, and the overall portfolio fair value is now two 9% above cost.

Return on equity remains an important performance indicator for US, which includes both realized and unrealized gains our return on equity was 14, 6% for the last 12 months.

Total expenses, excluding interest and debt financing expenses base management fees and incentive fees and income taxes decreased from $1 $6 million to $1 2 million as compared to last year, reflecting certain optimizations realized during Q3 and fiscal 2022. This.

This represented 6% of average total assets on an annualized basis down from one 1% last year.

We have also again added the kpis slides starting from slides 26 through 29 in the appendix at the end of the presentation that shows our income statement and balance sheet metrics for the past nine quarters and the upward trends. We have maintained a particular note is slide 29, highlighting how our net interest margin run rate has continued to increase.

In Q3 and has almost quadrupled since Saratoga took over management of the BDC and has also increased by 8%. The past 12 months, while still not th receiving the benefit of putting to work a significant amount of Q3 and deploy cash.

Moving on to slide five.

<unk> was $342 6 million as of this quarter and an $18 $5 million increase from last quarter and a $42 7 million increase from the same quarter last year, primarily driven by realized and unrealized gains and to a lesser degree accretive ATM equity issuances during.

During Q3, no shares were repurchased while 520000 shares were sold for net proceeds of $15 2 million at an average price of $29 16.

NAV per share as of 11 30 was $29 17 up from $28 97 as of last quarter and from $26.84 as of 12 months ago.

You will see we added our historical NAV per share to this chart this quarter, which highlights our NAV per share has increased 16 of the past 18 quarters our net.

Net asset value growth has been accretive as demonstrated by the consistent increase in NAV per share we continue to benefit from our history of consistent realized and unrealized gains.

On slide six you will see a simple reconciliation of the major changes in NII and NAV per share on a sequential quarterly basis.

Starting at the top adjusted NII per share decreased from 63 per share last quarter to 53 per share in Q3.

<unk> decrease in non CLO net interest income at 910 combined decrease in CLO interest income and other income of one <unk> increase in base management fees and a <unk> <unk> dilution were partially offset by a <unk> <unk> benefit from lower operating expenses.

Moving onto the lower half of the slide this reconciles the <unk> NAV per share increase for the quarter.

The 45 of GAAP NII steady for Samsung <unk> gains and unrealized depreciation and one cent of net accretion were partially offset by a one <unk> net expense related to income and deferred taxes on realized gains and unrealized depreciation the 52 cent dividend paid in Q3 and a <unk>.

Loss on extinguishment of date.

Slide seven outlines the dry powder available to us as of November 32021, which totaled $257 6 million.

It was spread between our available cash Undrawn, SBA debentures, and Undrawn secured credit facility.

This quarter end level of available liquidity allows us to grow our assets by an additional 59% without the need for external financing with $144 million of it being cash and thats fully accretive to NII when deployed and $76 million of SBA debentures with an all in cost of less than 2% also very.

Creative.

As we've mentioned before this past October we closed a new three year $50 million revolving credit facility within senior lender finance. This facility replaces our existing Madison facility and with a floating rate of LIBOR, plus 4% with a 75 basis points floor has reduced our credit facility cost of capital by 100.

At this point.

We remain pleased with our available liquidity and leverage position, including access to liquidity and especially taking into account. The overall conservative nature of our balance sheet and the fact that almost all of our debt is long term in nature with no non <unk> debt maturing within the next three years and mostly fixed rate.

Now I would like to move on to slides eight through 11 and review the composition and yield of our investment portfolio.

Slide eight highlights that we now have $662 million of AUM at fair value or $643 million at cost invested in 42 portfolio companies and one CLO fund.

<unk> percentage is 76% of our total investments of which only 3% of that is in first lien last out positions.

On slide nine you can see how the yield on our core BDC assets, excluding our CLO and syndicated loans as well as our total asset yield has dropped below 9%. This year. This is partly due to continued tightening of spreads in our market, but also due to a mix shift as some of our high yielding assets, we repaid this quarter.

In addition, our equity position this fiscal year has almost doubled from five 7% to 10, 3% in Q3, but much of that increase is due to the appreciation in existing valuations from strong performance. While some of the equity increases also in the four months of a third equity earning dividend income that is.

Collected in our other income line in the P&L rather than an interest income as a reminder, most investments have a 100 basis points, Ohio flaw.

The CLO yield also decreased to 11, 6% quarter on quarter, reflecting current market performance. The CLO is currently performing and current.

Turning to slide 10 during the third fiscal quarter, we made investments of $58 $6 million in two new portfolio companies and six follow on investments offset by $66 $4 million in three repayments plus amortization, resulting in a net decrease in investments of $7 8 million for the quarter.

On slide 11, you can see the industry breadth and diversity that our portfolio represents.

Investments are spread over 54 distinct industries with a large focus on health care software.

Services and education and health care services. In addition to our investment in a CLO, which has included a structured finance securities.

Of our total investment portfolio 10, 3% consists of equity interest, which remain an important part of our overall investment strategy.

For the past two fiscal years, including year to date Q3, we had a combined $72 9 million of net realized gains from the sale of equity interests or sale or early redemption of other investments.

This quarter alone, we generated $9 9 million of realized gains from two of our realizations and over two thirds of these historical total gains were fully accretive to NAV due to the unused capital loss carryforwards that were carried over from when Saratoga took over management of the BDC.

This consistent realized gain performance highlights our portfolio credit quality has helped grow our NAV and is reflected in our healthy long term Roe.

That concludes my financial and portfolio review I will now turn the call over to Michael <unk>, Chief investment officer for an overview of the investment market.

Thank you Henry.

I'll take a couple of minutes to describe our perspective on the current state of the market.

Then comment on our current portfolio performance and investment strategy.

Since our last update we see market conditions continuing to be increasingly aggressive.

Exceeding where they were pre COVID-19, and very much a borrower's market.

Liquidity conditions remain exceptionally robust.

We have seen significant transaction volumes and usually an unusually high M&A activity tightening credit yields and greater leverage multiples and an aggressive capital deployment posture overall.

Especially going into year end.

High demand for quality deals is pushing down spreads.

Pricing and leverage metrics are among the most competitive levels we've ever seen.

As a result, there is increasing pressure for investors to compete in other ways, such as accelerated timing to close and looser covenant restrictions.

Now that said lenders in our market are still wary of thinly capitalized deals and for the most part are staying disciplined in terms of minimum aggregate base levels of equity and requiring reasonable covenants.

Our underwriting bar remains high as usual, yes, we continue to find many strong opportunities to deploy capital as we will discuss shortly.

Calendar year 2021 has been a strong deployment environment for us with a record origination pace.

Follow on investments with existing borrowers with strong business models and balance sheets continue to be an important avenue of capital deployment as.

As demonstrated with six follow ons to this past fiscal quarter.

And the previous and nine in the quarter before.

We have seen this pace continue subsequent to fiscal quarter end with further investments in two new portfolio companies and nine follow ons.

Most notably we've invested in 23, new platform investments since the onset of the pandemic.

Portfolio management continues to be critically important and we remain actively engaged with our portfolio of companies and close contact with our management teams.

We have found that they are generally position themselves to benefit from the uptick in general economic activity as the economy has recovered.

All of our loans in our portfolio are paying according to their payment terms and so in addition to not having any new non accruals through COVID-19, we have zero non accruals across our whole portfolio.

We also recognized $3 9 million and net realized and unrealized gains this quarter, which means that our overall portfolio has more than recovered the unrealized depreciation associated with Covid last year and the fair value of Saratoga has overall assets now exceeds its cost basis by two 9%.

We believe this strong performance reflects certain attributes of our portfolio that bolster its overall durability.

76% of our portfolio is in first lien debt and generally supported by strong enterprise values in industries that have historically performed well in stress situations.

We have no direct energy or commodities exposure.

In addition, the majority of our portfolio is comprised of businesses that produce a high degree of recurring revenue and have historically demonstrated strong revenue retention.

Our approach has always been to stay focused on the quality of our underwriting.

You can see on slide 13. This approach has resulted in our portfolio performance being at the top of the BDC space with rich with respect to net realized gains as a percentage of portfolio at cost.

We are at the top of the list of only eight bdcs that had a positive number over the past three years.

Our strong underwriting culture remains Paramount at Saratoga, we approach each investment working directly with management and ownership to thoroughly assess the long term strength of the company and its business model.

We endeavor to peer deeply.

Deeply as possible into our business in order to understand accurately its underlying strengths and characteristics.

We always have sought durable businesses and invested capital with the objective of producing the best risk adjusted accretive returns for our shareholders over the long term.

Our internal credit quality rating reflects the impact of Covid and shows 95% of our portfolio at our highest credit rating.

As of quarter end.

Part of our investment strategy is to selectively co invest in the equity of our portfolio companies when were given that opportunity.

And when we believe the equity ups in the equity upside potential.

It has been our experience that there is significant overlap between those businesses that meet our strict underwriting requirements and those that possess attributes that make them attractive equity investments.

This equity co investment strategy has not only served as youll protect protection for our portfolio, but also meaningfully augmented our overall portfolio returns as demonstrated again this quarter with our Texas teachers and Grey Heller realizations.

We intend to continue this strategy.

Now looking at leverage on Slide 14, you can see that industry that multiples were relatively unchanged from.

Calendar Q2 to Q3, yet remain at historical high levels.

Total leverage for our portfolio was 413 times, a slight increase from last quarter, reflecting primarily the additional capital we have provided our existing portfolio companies and not increase leverage levels from our new platforms.

Through past volatility, we have been able to maintain a relatively modest risk profile throughout.

Although we never consider leverage in isolation, rather focusing on investing in credits with attractive risk return profiles and exceptionally strong business models, where we are confident the enterprise value of the businesses will sustainably exceed the last dollar of our investment.

In addition, this slide illustrates our consistent ability to generate new investments over the long term.

Despite ever changing and increasingly competitive market dynamics.

During the first four calendar quarters, we added 12, new portfolio companies and maybe 35 follow on investments.

Moving on to slide 15, our team's skill set experience and relationships continue to mature and our significant focus on business development has led to new strategic relationships that have become sources for new deals.

Our topline number of deal source remains robust, but it's dropped the past two years initially due to COVID-19, but more recently, reflecting our efforts to focus on attracting a higher percentage of quality opportunities.

Most notably the 67 term sheets issued during the last 12 months is markedly up from last year's pace showing that we are generating more shots on goal.

What is especially pleasing to us is that almost half of our term sheets issued over the past 12 months and seven of our 12, new portfolio company investments are from newly formed relationships.

Collecting notable progress as we expand our business development efforts.

But there are a number of factors that give us measured confidence that we can continue to grow our AUM steadily in this environment as well as over the long term.

First we continue to grow our reach into the marketplace as evidenced by several investments. We've recently made with newly formed relationships.

Second we have developed numerous deep long term relationships with active and established firms that look to us as their preferred source of financing.

81% of the term sheets issued or for transactions involving a private equity firm.

Third.

We continue to see plenty of investment opportunities and industry segments that are experiencing long term secular growth trends and within which we have intentionally developed expertise.

And this is supported by origination pace subsequent to quarter end, we have executed approximately $130 million of new originations in two new portfolio companies and nine follow ons and had repayments of approximately $11 million and one exit for a net increase of almost 100.

$20 million.

As you can see on slide 16, our overall portfolio credit quality remains solid.

The gross unleveraged IRR unrealized investments made by the Saratoga investment management team is 16, 4% on $753 million of realizations.

In this quarter, we realized a $7 3 million realized gain on the sale of our grey Heller investment and a $2 6 million realized gain on our Texas teachers' investment for a combined Q3 IRR of 22, 2%.

On the chart on the right you can see the total gross unlevered IRR on our $619 million of combined weighted <unk> and BDC unrealized investments is 11, 9% since Saratoga took over management.

The two the two largest unrealized depreciations remaining due to COVID-19 or in our Nolan group in situ education investments both of which are more dependent on in person human interaction and remain our only yellow rated investments we.

We do not believe the remaining unrealized depreciation changes our view of their fundamental long term performance.

Even with those current markdowns, our overall portfolio value is now almost 3% above its total cost.

Our investment approach has yielded exceptional realized returns.

Moving on to Slide 17, you can see our first FDIC license is fully funded.

Our second Spic's licenses already been fully funded with $87 5 million of equity of which $207 million of equity in SBA debentures have been deployed.

There is still $3 million of cash and $76 million of debentures currently available against that equity.

When comparing this quarter to much of last year.

The portfolio has proven itself to be both durable and resilient against the impact of COVID-19, and the subsequent market adjustment really underscores the strength of our team platform and portfolio and our overall underwriting and due diligence procedures.

Credit quality remains our primary focus, especially at times with such high activity levels as we are seeing now and.

And while the world isn't continuous flux, we remain intensely focused on preserving asset value and remain confident in our team and the future for Saratoga.

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

Thank you Mike.

As outlined on slide 18, the board of directors declared a <unk> 53 per share dividend for the quarter ended November 30 of 2021 payable on January 19th 2022, this reflected a <unk> or 2% increase from last quarter.

Of directors will continue to evaluate the dividend level on at least a quarterly basis, considering both company and general economic factors.

Moving to slide 19, our total return for the last 12 months, which includes both capital appreciation and dividends has generated total returns of 46% above the BDC index of 32% our longer term performance is outlined on our next slide.

Over three and five year returns, our three and five year returns place us in the top 14 and top seven respectively of all Bdcs for both time horizons over the past three years, our 71% return exceeded the 50% return of the index all over the past five years our 122.

<unk> return greatly exceeded the index was 58% return.

Yield and dividend growth, which are both consistent and at the top of the industry and reflects the growing value our shareholders are receiving.

Not only are we one of the few bdcs have grown and we.

We've done it Accretively buy also growing NAV per share 16 of the past 18 quarters.

Moving on to slide 22, all of our initiatives discussed on this call are designed to make Saratoga investment a highly competitive BDC that is attractive to the capital markets community. We believe that our differentiated performance characteristics outlined on this slide will help drive the size and quality of our investor base, including adding more.

<unk>.

Differentiating characteristics include maintaining one of the highest levels of management ownership in the industry at 15%.

Access to low cost and long term liquidity with which to support our portfolio and make accretive investments receipt of our second spic's license, providing a sub 2% cost liquidity.

Triple B, plus investment grade rating and active public and private bond issuances solid historic earnings per share and NII yield.

<unk> and industry, leading historic and long term return on equity accompanied by growing NAV.

And NAV per share putting us at the top of the industry for both a high quality expansion of AUM and an attractive risk profile.

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

We remain confident that our experienced management team historically strong underwriting standards and time and market tested investment strategy will serve us well and battling through the challenges in the current and future environment and that our balance sheet capital structure and liquidity will benefit sure Saratoga shareholders in the near and long.

Term.

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

Thank you.

You'd like to ask a question at this time. Please press the Star then the number one key on your Touchtone telephone.

To withdraw your question press the pound key.

Our first question comes from Casey Alexander with Compass point.

Hi, good morning.

Thank you guys are doing a great job, but I do have a few questions for you. My first one is for Henri Henri.

Re did the credit facility this quarter.

But there are bdcs that are smaller than Saratoga that have credit facilities from traditional banks that are still significantly lower cost than the Encino line that you guys did what is this lender finance credit facility program give you then a traditional bank at a lower rate would not.

Yes.

Okay. It's a good question and it's a very important one that we obviously have very intentionally considered and constructed a balance sheet in this way. So the traditional credit facility that you see from banks and that most if not all bdcs have done.

Generally have covenants that.

Have BDC level covenants in them, so things like tangible Nick with EBITDA.

Multiple quarters of negative.

Bottom lines et cetera, and the facility can be triggered and repayment can get triggered through the BDC level covenants, we have constructed a balance sheet from the stock from from the time when Saratoga took over as our balance sheet debt.

Going to not have covenants that could put.

Franchise as a whole at risk.

You potentially had an event that was just specific to this.

This HPV this this credit facility entity.

And al facility is structured in a way that again similar to the Madison facility, which was like that as well it doesn't have any firm wide BDC wide covenants, it's a really really important feature to us.

Yes, we are paying up for it but it provides us flexibility so that we have cash available if we need but.

But doesn't put any of the franchise the business as a whole at risk because of something very specific to the market that could happen in the SPV itself. So it's really choosing structure about price for us and especially because we have the FDIC capacity <unk>.

On secured lending rates have come down so much it's still enables us even with this higher rate in this facility to achieve our cost of capital goals that we wanted to.

Yes, if I could just weigh in a little here on that.

As well just to add to Henry's.

No.

Very thorough explanation.

Okay. So you remember back to the dark days of.

March of 'twenty in April of 'twenty, there were a number of bdcs that and proppant, but very successful ones that wound up getting out of formula with their low cost lines of credit and some of them had to make some very substantial capital contributions to avoid default or modify their facilities.

Really extreme moment.

At that time, the Madison facility and we didn't have any of those concerns obviously, we got a lot of other concerns, but concerns about our capital structure and having differ.

Defaults and those type of things we're not.

Were not something we had to worry about at that at that moment and that's always been very important to us.

Your point is well taken that there are lower cost approaches to financing, but those come with lots of formulaic requirements.

I think Henry outlined some of the covenant ones Theres also diversity. There is also like mix of what you have in your portfolio and things like that and at some point in time facilities like that may make more sense to US then they do right now, but we've been working very hard forever from the very beginning.

Having a capital structure that allows us.

Unfortunately for whatever.

For whatever reason it is where we live in an era.

Lots of Com and then some massive down spikes and we just want to make sure that we're.

We are insured against the massive down spike and really not only defensively, but also offensive.

We were able to keep investing right through that very dark period in that in that second quarter of.

20, and made some very good investments and built some very strong relationships by being ready and able really adverse environment to just continue with our business and so that's really kind of the thinking behind it.

And again to your point is well taken about optimization of cost.

Cost of financing, but we're also trying to optimize.

Safety and concern and again not to.

Not to go too far into it but but.

What we were able to do in that quarter because of our financial structure.

Paid enormous dividends to Saratoga in terms of investments, we were able to make at that point in time.

We think way more than offset whatever excess costs, we had in that facility.

Alright, thank you for that answer.

My next question again kind of back to Henry.

Henry Mike sort of everybody, but.

Is this quarter.

In the fiscal third quarter, you made fairly aggressive use of the ATM, but $15 million is it fair about for an ATM in one quarter.

I can assume that you knew you had in the pipeline a lot of deals that we're going to be closing in December.

Because that clearly is is what happened.

But would you characterize your usage of the ATM in this quarter as a normal rate and above normal rate would you add.

As you see originations moderating.

Over the rest of the year, there would be less aggressive use of the ATM just like to get some sort of nuance around the usage of the ATM in that particular quarter.

Sure Casey.

A very good question and a very important one I think on a very high level. If you look at the overall BDC industry and I know you are an expert in it.

Periods of time, when Bdcs have been able to raise equity capital has not been continuous right and there's periods of time, where you can raise money and then there is actually longer periods of time, where you can't raise equity money because of trading below NAV.

Conditions and alike. So on one level, we're looking at kind of a long term horizon, which is R. R. Our broad based growth trend and our broad based growth trend is significantly up our relationships are building I think as Mike went through in his presentation.

We're developing a lot of relationships and a lot of deal flow I think that the level of recent months.

Shows you know not only are our relationships to generate the deal flow, but also our ability to execute and so we believe in the long run.

Stronger and more robust equity base is important for us to achieve our growth objectives.

Objectives.

Our natural growth inside the markets that we're in and so so.

So part of it is is really taking advantage of the market's receptivity to equity raises.

When it's available.

One thing so we're not we werent really tying it specifically to this.

This next quarter in this next set of originations it was really much more of a broad broad gauged, what kind of equity levels are appropriate over our next.

1234 years as we as we look out into the future.

In terms of what we intend to do going forward.

Part of it is going to be driven by market receptivity and part of it is going to be driven by how we see the environment in terms of originations in our capital structure.

Okay, well I would just.

Kind of interject into that the Atms are sort of the spigot for available near term liquidity, but you don't want the ATM to become.

So much supply did it retards the potential appreciation of the stock.

That's something that.

Shareholders have to be aware of as well.

Mike My next question is for you.

Is I'm going to ask you to put on your your telescopic goggles and try to give us a feel for how far does yield compression go and at what point in time does it potentially bottom out or does it bottom out are we moving to a new paradigm of yields that.

That are going to embed themselves in the lower middle market.

Oh Boy, Oh Boy Casey that's cool.

If I had a crystal ball.

Yes.

Look.

I think it's a fair question and certainly we've seen yield compression and over the years I've I've off I have often tried to look forward and think about that from a macro level and one of the things that I've learned over the years thankfully is that.

For us.

The way we look at it is we want to make sure that we're seeing plenty of deal opportunities, where we can deploy capital in a way that's accretive for our shareholders and if you look at.

The yields that we book new deals at this past quarter, which is averages north of 8% lets say somewhere eight to eight 5%, we can deploy capital at that level very accretively for our shareholders, especially as our cost of capital has come down I think our cost.

The capital and the FDIC is less than 2%.

Henri mentioned, where the institutional bonds are priced at et cetera, that's something that we can continue to do in a way that's very accretive for our shareholders I would say this too that in really hot markets and we're in one now for sure and it's a reflection of there being such a long period, except for Covid.

Where the Covid scare, where there hasnt really been a massive disruption in the markets and the economy. In general there are people that are doing deals right now that never saw a downturn. We are competing with people that were probably in high school and when the last recession happened. Unfortunately, but this management team has been through a number of cycles.

<unk>.

And so were we.

We're really careful about making sure that we're preserving our capital base and we believe firmly that you make money in credit by not losing money.

We've been successful at doing that so far so that's kind of a bit of a long winded way of saying that we're not going to put ourselves in a position where we're going to stretch for yield in hot markets. You've got a you've got to make sure that you continue to focus on credit quality and getting the best assets in your portfolio sort.

Currently at a spread that is accretive for your shareholders, but not making the mistake of saying Oh, we need to have a yield thats X because thats, where bdcs typically get a yield and in so doing you end up expanding your risk profile quite considerably which would be the case in this market.

That wouldn't be a wise move so that's the approach that we've taken I think.

Fortunately the way we've constructed our balance sheet.

There could still be more compression in yields.

And we're comfortable that we could deploy that capital very accretively and the comments I make an accretive capital deployment are of course without taking into account. The the returns that we typically get on our equity co investments, which as I mentioned getting 16, 4% unlevered.

Turns on realized investments of over $750 million.

That's also happening not just by spread but by much of what we've done in terms of.

Investing in equity in a way that's been very beneficial to our shareholders. So.

Hopefully that gives you a perspective of how we think about it hard for us to.

Try to time.

Or or predict too much where spreads are going to go.

Okay. Thank you for that Mike and I have one more question and I apologize if I'm if I'm co opting the call just a little bit but a couple of years ago. When Covid hit. This is for you Christian a couple years ago. When Covid hit the company had kind of a dramatic response and of course, there were shutdowns at the time.

Two years, we roll forward here.

And we're dealing with the omicron variant and Saratoga has a much more measured response almost feels like you are on the offense to a great extent does that because Saratoga now has a playbook the portfolio companies have a playbook that private equity sponsors have a play.

Book.

And and these variance and inconveniences are just that an inconvenience and you guys put the playbook to work and you know what youre going to do.

Well Casey.

I wish where that where exactly the case.

But I guess I'd say, a couple of things I think when when when the when the.

When the whole Covid thing hit.

There was this massive shock to the system a massive decline in the stock market.

Massive dry up of liquidity and all sorts of things reminiscent of 2018.

Going on in the marketplace and plus a tremendous amount of mystery around what Covid would do I mean was it the black death were going to have 30% fatalities I mean it was just.

A whole bunch of things that were completely unknown I think as we fast forward to today.

There's a lot more experience, there's a lot more there.

The vaccines.

Treatments there as the herd immunity, there's a lot of things going on that have made this law.

Less of a mystery and more of.

That's kind of a quantifiable manageable risk if you will on the crime.

I think everybody is still learning about that.

Sort of coming on is real fast and furious so to say that we have a playbook for omicron is maybe.

We're.

We're just not in a position to say we do have one.

The early data I mean, I'm not saying anything.

Not an expert on this field, but I mean, it looks as if.

The marketplace in general is viewing omicron as something that we're going to get through the pandemic moving to endemic I mean, there's a whole lot of thinking around that line with the information we have at hand.

No.

But in terms of the response in terms of art playing offense I think.

Again back to going back to that time.

20.

Everything kind of dried up and all the incoming calls to us were about how do we rescue our capital structure kind of thing where now we're sort of an environment, where massive acquisitions growth and so we are.

Responding to.

A lot of what the market is presenting to us.

Obviously using all the credit.

The skills, we have to try and structure things that we think.

Take advantage of the moment, but also protect us if there is a reversal in the future and I think if you look at our credit metrics. If you look at.

Our attachment points and all those types of things and the types of companies where financing.

We feel pretty good about our portfolio as we did back then.

But so.

I would just say that also I think financially I think we're in a.

The stronger position than we Werent back then and our knowledge base is better and the world is better I think theres more tools to apply against something that's better understood.

For the moment.

Hey, Chris Let me just jump back a little bit too.

To help augment that the one thing to think about Casey less of a reaction to the COVID-19 environment and having a pain plan around it.

Most of the success that we're having recently in deploying capital at a greater pace is really just a reflection of the investments that we've made in the franchise over the years one of the things that we've done and we're very proud of is we've been we've built some very deep relationships with.

<unk> that we.

Invest capital with.

Support their portfolio companies. So much of what we've done really well is getting that repeat business from existing relationships and you can see that especially in our follow on activity.

Where we find good businesses to support and then the owners of those businesses come back to us for more capital and that really is a great underpinning of a support for our balance sheet and it's been it's been an avenue for growth for us.

Especially exciting about what we're doing now and there is still work to do and that also excites us because we think the upside is quite substantial is that.

In this environment visa b going back a few years ago, we've really been successful in growing our relationship set and that takes quite a while we do a lot of that any of these relationships many of them we've been quoting for years.

And so I.

I think just to reiterate I think we had 12 new portfolio companies. This past calendar year and seven of them are with new relationships and so if you were to go back a few years of separate and apart from anything related to Covid et cetera, we wouldn't have had.

Seven new portfolio companies with new relationships and that's just a reflection of the investments that we've been making in building the franchise and they are continuing to do.

Guys. Thank you for taking my questions I apologize to the other analysts for having so many questions but in this case. This was stuff that I just really really wanted to know about so thank you very much.

Thank you Kay and thanks, Casey Thanks Casey.

Our next question comes from Sarkis, <unk> with B Riley Securities.

Hi, Good morning, and thank you for taking my question here.

Just wanted to kind of get an understanding and maybe a balance between your comments on that as being especially a borrower's market tighter spreads the aggressive leverage multiples.

It being pretty competitive out there relative to.

If we kind of look at the comments the $130 million in new originations after quarter end just wanted to kind of get a sense for how are you underwriting in this environment. Given that you mentioned that you are bar remains high.

<unk> that with the comments.

And just kind of the environment in general.

Well it's.

It's the challenge that we face all the time in our business.

Sort of.

Use the term that we've always got one foot on the gas and one foot on the brakes as opposed to one on the gas and then taking it off the gas on the breakthrough Youre always trying to manage growth but.

Trying to keep your underwriting bar really high and I think we've done a really good job of it over the years. It's one of the reasons our growth has been candidly slow and steady over the year as we continue to turn down far far more deals than we do and many of the other players in the marketplace that you know are going ahead and doing.

Some of those deals it doesn't mean that we always make the right decision.

But.

Our track record speaks for itself. So we have remained disciplined we have not changed our underwriting bar at all we certainly are seeing more deals in this marketplace and we're seeing we're more quality deals in this marketplace, but I think most importantly, we're seeing deals.

Some relationships that we didn't have before and so that it now has enabled us to kind of cast a wider net if you will or a higher quality net.

And as a result.

It's enabled us to deploy more capital while keeping our underwriting bar are the same as it has been now if you look at just to put a finer point on.

The post quarter end production most of that was with follow ons with existing portfolio companies and that really has been a recipe for success for us.

Do want to make a point there we will do a number of deals that are sub $10 million or $15 million initial investments many of our competitors won't bother with deals that size, but we will do the extra work.

To get there.

Capital deployed and really good businesses and Thats been an avenue for us to deploy more capital over time many of our larger deals were once it started off quite a bit smaller.

So that that's a little lot of even post quarter end production was a little less reflective of a super active M&A market, which there certainly is one a more reflective of us deploy.

Deploying capital in existing portfolio companies.

Yes, if I could just add a little to that.

I think I think.

<unk>.

Our guiding principle from the very beginning and our credit process has been as Mike said underwriting first price second and.

Recognizing there's a correlation.

Our risk adjusted return equation, but in the weighting of that risk adjusted you have price and risk and I think one of the things that we've been very careful about is making sure that we will we will.

We would rather underwrite a.

Super solid credit for less price than less credit for more price and I think that principal has been guiding us throughout this so so even though it's quote a borrower's market I think as Mike articulated there's quite a number of companies that we finance.

They don't have quite as many.

They're not auctioning the whole process, there's a lot of value add to our partnership with them in terms of helping them execute on their deals thats not pure price. So it's it's.

Our relationships and service its confidence it's a lot of things like that so we're able to.

Have sort of a.

You added pricing, if you will and what we do with quite a bit.

Most of what we do.

For that matter. So yes, we have to reflect their larger market. We also reflect the quality and nature of what we're providing within the circumstances and the deals that we're looking at but again I think the thought to leave you with is that.

Even in.

Sort of quote a borrower's market there is a lot of selection going on in our shop.

Towards the the credit quality side of it.

That's very helpful. Thank you and one.

Final one from from my perspective, I think if I look at slide 11 in the industry snapshot. Thank you mentioned 34 industries in that table.

If we look at the industries and sectors today that you're looking at <unk> underwriting.

Has anything shifted and where you are willing to invest or go or maybe take on more size in certain industries.

Versus where you've historically been any comments around that.

Well I think.

Youll notice in in that slide that there is one a lot of diversity, but.

And it's across a number of industries.

And the common.

Credit characteristics across them.

Still the same we're looking for businesses that really offer a compelling value proposition to their customers.

Customers in a way that we think is sticky they are leaders in their field. The end markets that they're operating in have good positive dynamics. They are led by really strong management teams.

And so they can be in a lot of different industries, but they have those common characteristics. We have always I shouldn't say always but over sort of the last five years, let's say we made a.

Distinct effort to develop expertise.

In three particular areas, we still are generalists, and we want to see businesses that have all the elements that I just described but in addition to that we've.

We have developed expertise in health care.

Education, and then more broadly investing in SaaS business models and those are areas that we.

We feel that we have very very strong underwriting capabilities and youll see us continue to deploy capital in those areas because one.

Those industries generally in SaaS is more of a business model and an industry, but nonetheless.

They're less there.

They are less cyclical for one.

And if you have a business that can bring a greater level of productivity or a greater outcome to those end markets.

You're generally going to take share in those end markets because they are notoriously.

<unk>.

Unproductive and not there are industries that have been underinvested in that respect and so if you're a business thats coming to market in a way that is helping take costs out of the system are driving greater productivity in those particular end markets and SaaS I would say that's true just in general that's a lot of what that.

That business model is offering you.

Youre going to do well regard generally regardless of.

The direction of the economy takes so hopefully that gives you a sense of how we think about it.

<unk>.

As well.

Yes. It does thank you much.

Thanks Circuit.

Our next question comes from Bryce Rowe with Telsey group.

Thanks, Good morning.

Wanted to kind of follow up.

Maybe ask the question around.

Post quarter end activity.

A bit differently.

And wanted to get a feel for if you think about that that activity, having already been been closed or book here in the.

In the in the period post quarter end.

Mike maybe you could speak to kind of what the what the pipeline.

Line building process might be.

From this point forward.

And how to think about more broadly you mentioned.

More broad broad based growth trends given the business development you will have done over the last several years, how does that kind of translate into what you think from a.

Portfolio activity or origination activity.

Going forward, maybe on an annual type basis as opposed to thinking about quarterly.

Yes, I'm glad you go ahead.

Let me just jump going before.

That high level, and then I'll pass it onto the team here.

I think that.

Obviously.

Doing that the level of originate net originations we did at the end of the quarter was extraordinary in our history I think it's a testament to our team that both they were able to originate all of that and that they were able to execute all that.

In such a short period of time, so I think I think.

That's something that we're very proud of having gotten to the level of being able to generate that and execute that so I think that's a very important.

Sort of.

Proof of capability, if you will of our franchise. So so I think that shows what we're capable of doing now.

The things, we're not able to do is to predict what's coming our way in.

So.

Looking on any given quarter or any given month or any given week.

One of our weeks was $50 million a week are we going to do 52 of those would love to do 52 of those but but but that's probably not in the cards right now.

So what we need to do from a market standpoint is we need to be ready willing and able to.

React and address and proactively go after.

What fits our criteria when its available and.

And so it happens to be a very robust time why is it so robust right now.

A lot of.

There's a lot of theories out there in the investment business, you've heard tons of them bright part of it is pent up demand from 'twenty, because there was very much that happens.

There is some pent up demand there as the threat of tax changes in Washington, There is there is a robust economy.

Antitrust so let's get our deals done now before that I mean, there's just so many things going on that have sort of lift the fire under sort of M&A fever. If you will and there is tremendous records being set in M&A from the smallest of companies all the way to the most senior theres demographic trends with baby boomers, saying.

This is a good time.

65 years old I want to take.

Take some money off the table. There's just so many factors contributing to why people might be wanting to sell right now and then in a changed environment. Maybe next year that that kind of can dissipate that's not something that we're in a position to predict.

But what we what we try and do is be in a position to.

To handle what comes at Us and if it and if it does continue we're going to be there to be able to execute on that and if it doesn't we're going to be prepared for that as well and so so that's kind of R. R.

Our broad look and Mike Im sorry for cutting you off I think you have something to say as well.

No no no.

Terrific.

Way to describe the macro perspective, and so all else equal if the macro environment stays where it is.

We feel good about our pipeline we feel good about the investments that we've made in our infrastructure and relationships. So.

We are we feel that our capacity to invest capital.

Barring any changes in the macro trends is very solid and probably greater than what it has been historically.

We as you know don't put up.

Good to hear you ask the question more on an annual basis, because we certainly don't think about investing in quarter to quarter ever. That's the first way you get into trouble I think as you know I can't remember, how many years ago, but there was one quarter, where we did actually did no deals in <unk>.

And then Thats kind of what you want from an investor right somebody who just says if im not seeing a good deal opportunity I'm not going to do it just because.

That's what we do for a living so.

We feel good about our ability to deploy capital and probably given the investments that we've made out of a.

A big greater pace than we have historically.

But we're always going to be watchful of market trends and we're certainly not going to make.

Any decisions that would.

<unk>.

Be related to where we lower our underwriting board, we're going to be just as disciplined in that respect.

Okay.

Helpful and certainly appreciate that.

Kate the approach and the perspective.

Maybe a question here for for Henry on on the revenue side of things on the income statement.

It looks like you guys.

Some more dividend income here in.

In the quarter.

I'm, assuming that's related to the.

The preferred equity investments that were made earlier in the year and it looks like both of those now have been repaid just kind of curious how you think about that line item going forward is there another source of dividend income that Youre seeing right now and then also wanted to just get any level of commentary you have around.

The CLO the CLO yield given your comment about market volatility and seeing that youll kind of move around as much as it has over the last year year and a half.

Yes sure Brian.

Your first question, Yes, we had three investments that had preferred equity that was paying a dividend income and two of them have been.

Repaid during during the I think one this quarter one the previous quarter. So so we're down to one investment Artemis wax investment.

That has still preferred equity that pays dividends, so youre going to see that dividend income line come down.

But there is still one investment that you will see dividend income from.

For the for the rest of for the most part other dividend income comes in at occasions from some other investments, but not that material as significant as you had on the preferred equity side.

So that will simplify that line because I know, that's a little bit more complicated.

And then secondly.

Second question was on.

Sorry, My question was on CLO, sorry, yes. So as you know the CLO valuation is a lot of different variables that go into it.

And one of the variables that impact the valuation and then also impacted the weighted average effective interest rate that drives our interest income on the CLO equity as market performance.

And there were really two changes that impacted our cash flows this quarter from a market perspective, one was the change in the LIBOR curve LIBOR effectively increased 35 basis points through the quarter and it creates a timing difference between.

The time period that our assets reset at the LIBOR resets for the assets, which.

Which is more on a quarterly basis versus where on a liability side. It resets on a monthly basis, so that created a reduction in our cash flows.

Because of the LIBOR curve change and then secondly, we also saw.

A couple of more investments that were deemed in default because we deem investments that are trading below I think it's 80.

As being in default just for valuation purposes doesn't mean, they are in default just for valuation purposes and.

And so we saw an increase in those assets during the quarter again from them from a market perspective, and a marketing perspective. So the combination of those to decrease the cash the projected cash flows over the life of the CLO, which then drives the weighted average effective interest rate down.

So obviously, depending on what the market does over the next two months through the end of February.

You know that.

Debt.

Could drive a change in the interest rate again, and obviously as you know the test is as of quarter end. So it's sort of not really relevant to what the market's doing now it's really where the market is at the point in time at the end of February.

Got it great Thats good color. Thanks.

For me.

Our next question comes from Mickey Schlein with Ladenburg.

Yes, good morning, everyone.

Perhaps a question for Mike one of your new investments. This quarter was an LFR, which is in the restaurant sector and as we all know that can be very difficult.

To underwrite so could you describe what attracted you to LFR in and in particular, how much leverages there in this deal.

Good morning, Mickey and thanks for the questions. Obviously these are private companies. So we don't get into too much of the details on.

The great details in particular with the business, but but I can say that in this case, we obviously have good experience in the restaurant space and.

The underwriting bar was quite high this is a business that is.

<unk>.

Drives that.

The majority of its cash flow as a franchise or.

It's a business that's been around successfully since the sixties its unit economics for its underlying franchisees are stronger than most of its competitors in the space.

And we did an awful lot of diligence to get very comfortable that we're in a good spot very good spot in the balance sheet.

Relative to our debt so and its.

Generally in the.

<unk>.

In the scheme of looking at the deal relative to franchise or leverage multiples. It's very much on the low side of where you typically see a franchise or get leveraged.

I appreciate that Mike.

Henry just curious I suspect it may be due to timing, but but why did you fund some of your investments this quarter with SBA debentures. When you have so much cash on the balance sheet.

Okay. That's a good question Mickey it's always a balance.

We tend to try to sort of.

Balance funding in the IC versus outside the <unk> when.

When we have excess cash like we had this quarter, but at the same time once you fund outside the FDIC you cant lay to put the investment into the FDIC and so we try to never make decisions on funding.

With just a short term view or short term lanes, we tried to focus on sort of where are we going to get the highest return over the long term.

And so.

So in this quarter, where we had excess cash we sort of balanced debt, whereas normally if youre cat. If you don't have so much sufficient cash it will just automatically always going to the FDIC because that's the highest return.

Alright, I understand thank you Henry.

And Henry.

If I'm not mistaken there was a reversal for professional fee accruals can you just clarify that and what's the outlook for that line item.

Sure Yes.

We've always tried to optimize costs and this year as we have been growing we've actually been growing and building not just on the sort of the origination side, but also on on the expense line item side and the actual back office side and so we've optimized some of our processes and optimize some of our vendors.

In a way where some of our accruals were.

We're higher than they would needed to and so we had a release of some of the expenses, reflecting the activity sort of over the first nine months or so of the year.

I think sort of going forward.

Definitely this quarters is not a run rate can be used going forward, it's probably more appropriate to use sort of the run rate from a quarterly perspective that we had in prior quarters, but.

Our our sort of optimization has allowed us to release some of the some of the accruals, we had and it was really across accounting legal and valuation.

Alright, I appreciate that Henry and my last question a lot of moving parts.

Difficult for us to triangulate what.

Where do you stand on undistributed taxable income can you give us a sense of where that number is and how you intend to manage that.

Yes, I think on the I haven't run the latest rig count.

As of right now, but I think we went into the into the year if you recall.

With about a quarter and a half spillover, that's obviously been covered completely.

We most likely based on our current dividend rate and our earnings rate. We will have a spill of I think going into the end of February and I guess into March into next year, but.

We'll we'll sort of assess that the biggest testament of that is during our <unk> period, but you can expect it to be a spillover at the end of February.

I understand those are all my questions.

Today I appreciate your time thank you.

Thank you thanks Niki.

Our next question comes from Robert Dodd with Raymond James.

Hi, guys a question about.

Origination makes them more interested in the future obviously I mean.

You've done a lot of follow on questions.

There is great because you know the company as well.

Underwriting comfort is probably higher but can you give us any idea.

Given you've done so many.

I think something.

Something approaching two thirds or three quarters of your portfolio companies have been follow on.

12 months something like that.

Should we expect that it would be less follow ons.

In 'twenty, two or do you expect that pace to stay elevated in those.

Portfolio companies, maybe to be serial acquirers.

And.

I mean, if there is a change in mix would that change the dynamics of.

Spread compression or yield compression are you getting the same spreads on a follow on is the existing loan to that business and lowest spreads on new investments. So is there any dynamic at play there.

Maybe I'll take that on a high level.

To begin with I think what you're touching on is in a really important part of our investment strategy I think a lot of our investments I think as Mike was mentioning in his his portion we do a lot of small small deals we start out with sometimes as low as five or $10 million of initial investment, but were often investing and growing companies.

Companies that grow through acquisition and so that's a very important part of what we do and we think it's very helpful for us on pricing as a matter of fact, because we get in and we established pricing when the when the companies are smaller and then as they grow.

Better able to maintain perhaps some of our pricing then we would have.

If they if they were kind of going out to the market de novo. So we think it's a helpful.

Strategy.

But it's also really what we do right.

That's part of what our appeal is that we'll get involved with a company that Scott.

Growth plans.

That are coming into fruition, sometimes growth by acquisition, sometimes its internal funding, sometimes it's more aggressive internal funding and so.

We are the type of partner, where we're kind of in an active dialogue with heart with our our growth investments on what they need and when they need it and then from their standpoint, they don't want to take down more money on the front end and they need to they don't want to pay more interest fees et cetera. So there's kind of a sort of a.

Partnership exercise going on between <unk> and us.

As to when to find what they need when and so they want some just in time funding and so there's kind of a combination of things, but it's much more of a reflection of our investment strategy and the types of companies, we're investing and then some.

And sort of a market phenomenon if you will.

Now in terms of.

What proportions will have I think are.

<unk> of our growth objective is to have more new platforms, because new platforms, then lead to more follow on investments.

Those platforms and so and then more investment opportunities with the sponsors of those new platform. So we're very interested in the new platforms that we're also very interested in supporting our existing portfolio.

Mike do you have something to add to that.

No I think you've covered it by and large but but it's a very good question.

There is a sequence that.

You may.

A bit of a pattern that you may see in our portfolio over time, along those lines, where will we will make an initial investment in many of our initial platform investments are on the smaller side.

And we intentionally are looking for opportunities to invest in some of these smaller companies, where we know we're going to do the hard work at the front end and then we'll have there's nothing better than getting a call from.

The owner of a company Thats doing really well and they're looking for more capital to execute on an acquisition that makes sense or to fuel their further growth.

And so there is a pattern there now.

Right.

At some point, especially for the private equity owned platforms, they're going to look to exit and you've seen that pattern as well, where we get to a certain size and.

And oftentimes at some point.

They exit the deal. It's one of the reasons why we are anxious to try to co invest in the equity when we get that chance, but re reloading our balance sheet with new platform opportunities as is.

Key to making that game plan work and we've been successful so far and expect that we're going to continue to do that.

Got it.

Alright, Thanks, a lot.

I thought I'll ask you increase the dividend this quarter to 50 today.

And that dividend this quarter, even in a quarter where.

<unk> activity was.

It was quite low so clearly that dividend.

Is there any solid to me looking into December obviously significant AUM growth much more activities that we should see income I mean I would expect.

Yes.

We didn't publish is still going to be.

A question the question is so.

What's the framework Christian as a member of the board.

You said the board evaluates.

The dividend at least quarterly can you give us any color on what need.

Expectations might be the low.

But what.

What the framework is for another dividend increase given what appears to be.

Continuing to continue expansion in women's apparel platform.

Yes, So I think that's I know that's not.

Excellent question and that's something that we are constantly.

Evaluating ourselves I think probably the.

The base level principle here is as a BDC.

A registered investment company, we have requirements for dividends.

Right.

They don't always have to be cash dividends, but theres a dividend requirement.

I think Henry touched on it we have our year end.

In February and then we've got a tax filing in November and so we need to be in compliance there is some fly.

Flexibility around spillover amounts. So you can have in effect push forward some of your tax obligation.

But there's a limit to how far you can push it push it forward. So so our first principle here is what our underlying requirements for payout.

And so we look at that and then the second is.

As liquidity and then.

You may recall.

Back in.

In March of 'twenty when.

<unk>.

The impact of Covid was so heavily felt both.

In the markets in the country in the world.

We had zero spillover at that moment, and so that was a store of liquidity if you will.

We could have gone to sort of four quarters worth.

Liquidity from that source had we needed it.

We did we did avail ourselves of some of that liquidity, which created some of the spillover. So we look at spillover we look at our.

Cost spillover is like a 4% cost of capital.

You get an excise tax of 4% on anything you haven't spillover. So theres a cost to spillover and then we have a cost to all of our other financing. So if we look at it in that context, and we also look at it as what our sources.

Liquidity.

Things go against Us or.

Go against the marketplace in General and then and then we also want to have a dividend rate that is sustainable in the future and borrowing crazy events and so what we're trying to do is establish a trajectory and a.

A level of our dividends that that our investors can have confidence that our sustainable. So those are kind of the main factors that go into it.

As you can.

Well imagine every quarter is a slightly different picture when it comes time to make that declaration.

And so that's.

That's what goes into it and we do do a fresh re look at everything.

Certainly every quarter and actually more often than that.

Got it I appreciate that thank you.

That concludes.

Today's question and answer session I would like to turn the call back to Mr. Oberbeck for closing remarks.

Well, we appreciate everyone's time and attention to Saratoga and want to thank everyone for joining us today and we look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

Sure.

Okay.

Sure.

Okay.

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Good morning, ladies and gentlemen, thank you for standing by welcome to Saratoga investment Corp's fiscal third quarter 2022 financial results Conference call.

Please note that today's call is being recorded.

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

Following managements prepared remarks, we will open the line for questions.

At this time I would like to turn the call over to Saratoga investment Corp's, Chief financial and compliance officer, Mr. Henri Steenkamp. Please go ahead Sir.

Thank you I would like to welcome everyone to Saratoga investment Corp's fiscal third quarter 2022 earnings conference call.

Today's conference call includes forward looking statements and projections, we ask you to refer to our most recent filings with the S. E. T. Four important factors that could cause actual results to differ materially from these forward looking statements and projections, we do not undertake to update our forward looking statements unless required to do so by law today.

We will be referencing a presentation during our call you can find our fiscal third quarter 2022 shareholder presentation in the events and presentations section of our Investor Relations website, a link to our IR page is in the earnings press release distributed last night.

A replay of this conference call will also be available from one P. M. Today through January 13th please refer to our earnings press release for details I would now like to turn the call over to our chairman and Chief Executive Officer, Christian Oberbeck, who will be making a few introductory remarks.

Thank you Henri and welcome everyone.

Our fiscal 2022 third quarter performance continues to reflect the strength and resilience of our financial position portfolio company.

Despite the unprecedented global impact and continuation of COVID-19 impacts we feel very fortunate to have overcome challenges, thus far and to be in a position to benefit from the upside of the ongoing recovery and substantial increase in market activity.

We believe Saratoga continues to be well positioned for potential future economic opportunities and challenges are.

Our existing portfolio of companies are performing well, our current business development activities allow us define and evaluate a healthy level of new investments.

Our Texas teachers' investment.

These investment gains demonstrate how our strategy of taking equity positions in our portfolio companies when available and when it makes sense to us has paid off well with this quarter's $10 million of realized gains increasing our total net realized gains earned to $61 million or approximately $5 per quarter and outstanding.

Shares over the past four years.

We continue to bring new platform investments into the portfolio with two added this fiscal quarter and all of our originations will madewell and an extremely high credit bar, we set for all investments.

The performance of our existing portfolio also grow our NAV per share by 1% this quarter to 29 seven cents.

$9 about seven.

Again, a historical record for the BDC.

With this quarter's increase being the 16th increase in the past 18 quarters.

To briefly recap the past quarter on slide two.

Generating return on equity of 14, 6% on a trailing 12 month basis.

And registering a gross unlevered IRR of 11, 9% on our total unrealized portfolio.

Our current fair value, 3% above the total cost of our portfolio.

And a gross unlevered IRR of 16, 4% on total realizations of $753 million.

Second our assets under management decreased slightly to $662 million this quarter and 1% decrease from $666 million as of last quarter. This remains a 21% increase from $547 million at the same time last year, and a 19% increase from $554 million.

As of year end.

Our new originations included two new portfolio companies and six follow on investments in.

And our current pipeline remains robust with almost a $120 million of net originations since quarter end.

Third despite improving economic conditions balance sheet strength.

<unk> liquidity and NAV.

Preservation remain Paramount for us our current capital structure at quarter end was strong.

Our quarter end regulatory leverage of 237% substantially exceeds our 150% requirement.

We have $258 million of liquidity at quarter end available to support our portfolio companies with $76 million of the total dedicated to new and follow on opportunities and I see two fund.

And $144 million of cash that will be fully accretive to earnings when deployed.

Which more than three quarters has already been deployed since quarter end.

The all in cost of your new Spi.

Currently less than 2% and the total committed undrawn lending commitments outstanding to existing portfolio companies are $21 million.

And finally based on our overall performance, including improved liquidity, the overall portfolio and financial performance and the recent deployments of cash.

Word of directors increased our quarterly dividend by <unk> 53 per share for the quarter ended November 32021 payable on January 19th 2021, we will continue.

To evaluate the amount of our dividends on a quarterly basis as we gain improved visibility on the economy and fundamental business performance.

This quarter saw a strong performance within our key performance indicators as compared to the quarters ended November 32020, and August 31 2021.

Our net our adjusted NII of $6 $1 billion, this quarter up 10% versus $5 $5 billion last year and down 13% versus $7 million last quarter.

Adjusted NII per share at <unk> <unk> this quarter up from 50 last quarter and down from 63 last quarter.

It is 12 months return on equity is 14, 6% up from 11% last year and up from 14, 4% last quarter.

Our NAV per share is $29 17 up 9% from $26, 84% last year and up 1% from $28 97 last quarter.

Is the highest quarterly NAV per share for Saratoga investment since inception of our management in 2000 and Pat Henry.

And we will provide more detail later.

As seen on slide three our assets under management have steadily and consistently risen since we took over the BDC more than 11 years ago and the quality of our credits remains high with no non accruals currently.

Our management team is working diligently to continue this positive trend as we deploy our available capital into our growing pipeline.

At the same time being appropriately cautious in this evolving credit environment.

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

Thank you Chris Slide four highlights our key performance metrics for the third quarter ended November 32021.

When adjusting for the incentive fee accrual related to net capital gains in the second incentive fee calculation and for Q2 calculations the interest on the redeemed.

Baby bond during the whole period adjusted NII of $6 1 million was down 13 points of <unk> from 7.0 million last quarter, but up 10, 1% from $5 5 million as compared to last year's Q3.

Adjusted NII per share was <unk> 53, <unk> up three from <unk> 50 per share last year and down 10 from <unk> 63 per share last quarter.

Across the three quarters weighted average common shares outstanding were 11 5 million for this Q3 and $11 2 million for both last quarter and last year's Q3.

Adjusted NII yield was seven 3%. This yield is down 10 basis points from seven 4% last year and down 140 basis points from eight 7% last quarter.

For this third quarter, we experienced a net gain on investments of $3 9 million or <unk> 54 per weighted average share and $1 8 million realized loss on the repayment and termination of our Madison credit facility or <unk> <unk> per weighted average share, resulting in a total increase in net assets from operations of $8.

$3 million or <unk> 73 per share or EPS.

$3 9 million net gain on investments was comprised of $9 $9 million in realized gains and $2 5 million of deferred.

Tax benefit on unrealized depreciation offset by $6 million of net unrealized depreciation and $2 4 million of income tax expense generated from realized gains.

The $3 $9 million net realized gain comprises a $7 3 million realized gain on the sale of the Companys Gray Heller investment and a $2 6 million realized gain on the company's Texas teachers investment sale.

The $6 million net unrealized depreciation reflects firstly, the $7 $7 million and $2 6 million reversal of previously recognized depreciation on the grey Heller and Texas teachers equity realizations, respectively, and secondly, a $2 6 million unrealized depreciation on the company.

Hello equity investment reflecting market volatility.

Since May 31, 2020, and the overall portfolio of fair value is now two 9% above cost.

Return on equity remains an important performance indicator for US, which includes both realized and unrealized gains our return on equity was 14, 6% for the last 12 months.

This represented 6% of average total assets on an annualized basis down from one 1% last year.

In Q3 and has almost quadrupled since Saratoga took over management of the BDC and has also increased by 8% the past 12 months, while still not yet receiving the benefit of putting to work a significant amount of Q3 and deploy cash.

Moving onto slide five.

During Q3, no shares were repurchased while 520000 shares were sold for net proceeds of $15 2 million at an average.

<unk> price of $29 16.

NAV per share as of 11 30 was $29 17 up from $28 97 as of last quarter and from $26.84 as of 12 months ago.

You will see we added our historical NAV per share to this chart this quarter, which highlights our NAV per share has increased 16 of the past 18 quarters our net.

Net asset value growth has been accretive as demonstrated by the consistent increase in NAV per share we continue to benefit from our history of consistent realized and unrealized gains.

On slide six you will see a simple reconciliation of the major changes in NII and NAV per share on a sequential quarterly basis.

Starting at the top adjusted NII per share decreased from 63 per share last quarter to 53 per share in Q3.

Moving onto the lower half of the slide this reconciles the <unk> NAV per share increase for the quarter.

The 45 of GAAP, NII 34 cents of naturalized gains and unrealized depreciation and one <unk> of net accretion were partially offset by a one <unk> net expense related to income and deferred taxes on realized gains and unrealized depreciation the 52 cent dividend paid in Q3 and a <unk>.

Loss on extinguishment of date.

Slide seven outlines the dry powder available to us as of November 32021, which totaled $257 6 million.

This was spread between our available cash Undrawn, SBA debentures, and Undrawn secured credit facility.

Sure.

<unk> points.

We remain pleased with how available liquidity and leverage position, including access to liquidity and especially taking into account. The overall conservative nature of our balance sheet and the fact that almost all of our debt is long term in nature with no non FDIC debt maturing within the next three years and mostly fixed rate.

Now I would like to move on to slides eight through 11 and review the composition and yield of our investment portfolio.

Slide eight highlights that we now have $662 million of AUM at fair value or $643 million at cost invested in 42 portfolio companies and one CLO fund a first lien percentage is 76% of our total investments of which only 3% of that is in first lien last out.

<unk>.

Equity positions. This fiscal year has almost doubled from five 7% to 10, 3% in Q3, but much of that increase is due to the appreciation in existing valuations from strong performance. While some of the equity increases also in the form of preferred equity, earning dividend income that is reflected in.

Our other income line in the P&L, rather than an interest income.

As a reminder, most investments have a 100 basis points, Ohio flow.

The CLO yield also decreased to 11, 6% quarter on quarter, reflecting current market performance. The CLO is currently performing and current.

Turning to slide 10 during the third fiscal quarter, we made investments of $58 $6 million in two new portfolio companies and six follow on investments offset by $66 4 million and three repayments plus amortization, resulting in a net decrease in investments of $7 8 million for the quarter.

On slide 11, you can see the industry breadth and diversity that our portfolio represents our investments are spread over 54 distinct industries with a large focus on health care software.

Services and education and health care services. In addition to our investment in a CLO, which has included a structured finance securities.

Of our total investment portfolio 10, 3% consists of equity interests, which remain an important part of our overall investment strategy.

For the past 10 fiscal years, including year to date Q3, we had a combined $72 9 million of net realized gains from the sale of equity interest or sale or early redemption of other investments.

This consistent realized gain performance highlights our portfolio credit quality has helped grow our NAV and is reflected in our healthy long term Roe.

That concludes my financial and portfolio review I will now turn the call over to Michael <unk>, Chief investment officer for an overview of the investment market.

Thank you Henry.

A couple of minutes to describe our perspective on the current state of the market and then comment on our current portfolio performance and investment strategy.

Since our last update we see market conditions, continuing to be increasingly aggressive exceeding where they were pre COVID-19, and very much a borrower's market.

Liquidity conditions remain exceptionally robust we.

We have seen significant transaction volumes and usually an unusually high M&A activity.

Tightening credit yields and greater leverage multiples and an aggressive capital deployment posture overall.

Especially going into year end.

High demand for quality deals is pushing down spreads.

Pricing and leverage metrics are among the most competitive levels we've ever seen.

As a result, there is increasing pressure for investors to compete in other ways, such as accelerated timing to close and looser covenant restrictions.

That said the lenders in our market are still wary of thinly capitalized deals and for the most part are staying disciplined in terms of minimum aggregate base levels of equity and requiring reasonable covenants.

Our underwriting bar remains high as usual, yes, we continue to find many strong opportunities to deploy capital as we will discuss shortly.

Calendar year 2021 has been a strong deployment environment for us with our record origination pace.

Follow on investments with existing borrowers with strong business models and balance sheets continue to be an important avenue of capital deployment as.

As demonstrated with six follow ons to this past fiscal quarter.

And the previous and nine in the quarter before.

We have seen this pace continue subsequent to fiscal quarter end with further investments in two new portfolio companies and nine follow ons.

Most notably we have invested in 23, new platform investments since the onset of the pandemic.

Portfolio management continues to be critically important and we remain actively engaged with our portfolio of companies and in close contact with our management teams.

We have found that they are generally position themselves to benefit from the uptick in general economic activity as the economy has recovered.

We believe this strong performance reflects certain attributes of our portfolio that bolster its overall durability.

76% of our portfolio is in first lien debt and generally supported by strong enterprise values in industries that have historically performed well in stress situations.

We have no direct energy or commodities exposure.

In addition, the majority of our portfolio is comprised of businesses that produce a high degree of recurring revenue and have historically demonstrated strong revenue retention.

Our approach has always been to stay focused on the quality of our underwriting.

You can see on slide 13. This approach has resulted in our portfolio performance being at the top of the BDC space with a rich with respect to net realized gains as a percentage of portfolio at cost.

We are at the top of the list of only eight bdcs that had a positive number over the past three years.

We endeavor to peer deeply as deeply as possible into a business in order to understand accurately its underlying strengths and characteristics.

We always have sought durable businesses and invested capital with the objective of producing the best risk adjusted accretive returns for our shareholders over the long term.

Our internal credit quality rating reflects the impact of Covid and shows 95% of our portfolio at our highest credit rating as.

As of quarter end.

Part of our investment strategy is to selectively co invest in the equity of our portfolio companies when were given that opportunity.

And when we believe the equity ups in the equity upside potential.

This equity co investment strategy has not only served as yield protection protection for our portfolio, but also meaningfully augmented our overall portfolio returns as demonstrated again this quarter with our Texas teachers and Grey Heller realizations.

We intend to continue this strategy.

Now looking at leverage on Slide 14, you can see that industry that multiples were relatively unchanged from.

Calendar Q2 to Q3, yet remained at historical high levels.

Total leverage for our portfolio was $4 one three times, a slight increase from last quarter, reflecting primarily the additional capital we have provided our existing portfolio companies and not increase leverage levels from our new platforms.

Through past volatility, we have been able to maintain a relatively modest risk profile throughout.

In addition, this slide illustrates our consistent ability to generate new investments over the long term.

Despite ever changing and increasingly competitive market dynamics.

During the first four calendar quarters, we added 12, new portfolio companies and maybe 35 follow on investments.

Our topline number of deal source remains robust, but has dropped the past two years initially due to COVID-19, but more recently, reflecting our efforts to focus on attracting a higher percentage of quality opportunities.

Most notably the 67 term sheets issued during the last 12 months is markedly up from last year's pace showing that we are generating more shots on goal.

What is especially pleasing to us is that almost half of our term sheets issued over the past 12 months and seven of our 12, new portfolio company investments are from newly formed relationships.

Collecting notable progress as we expand our business development efforts.

So there are a number of factors that give us measured confidence that we can continue to grow our AUM steadily in this environment as well as over the long term.

First we continue to grow our reach into the marketplace as is evidenced by several investments we have recently made with newly formed relationships.

Second we have developed numerous deep long term relationships with active and established firms that look to us as their preferred source of financing.

81% of the term sheets issued or for transactions involving a private equity firm.

Third.

We continue to see plenty of investment opportunities and industry segments that are experiencing long term secular growth trends and within which we are intentionally developed expertise.

$20 million.

As you can see on slide 16, our overall portfolio credit quality remains solid.

The gross unleveraged IRR unrealized investments made by the Saratoga investment management team is 16, 4% on $753 million of realizations.

In this quarter, we realized a $7 3 million realized gain on the sale of our grey Heller investment and a $2 6 million realized gain on our Texas teachers' investment for a combined Q3 IRR of 22, 2%.

On the chart on the right you can see the total gross unlevered IRR on our $619 million of combined weighted <unk> and BDC unrealized investments is 11, 9% since Saratoga took over management.

Long term performance.

Even with those current markdowns, our overall portfolio value is now almost 3% above its total cost.

Our investment approach has yielded exceptional realized returns.

Moving on to Slide 17, you can see our first Spic's license is fully funded.

Our second Spic's licenses already been fully funded with $87 5 million of equity of which $207 million of equity in SBA debentures have been deployed.

There is still $3 million of cash and $76 million of debentures currently available against that equity.

When comparing this quarter to much of last year. The way the portfolio has proven itself to be both durable and resilient against the impact of COVID-19, and the subsequent market adjustment really underscores the strength of our team platform and portfolio and our overall underwriting and due diligence procedures.

Yours.

Credit quality remains our primary focus, especially at times with such high activity levels as we are seeing now.

And while the world isn't continuous blocks, we remain intensely focused on preserving asset value and remain confident in our team and the future for Saratoga.

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

Alright, Thank you Mike.

As outlined on slide 18, the board of directors declared a <unk> 53 per share dividend for the quarter ended November 32021 payable on January 19th 2022.

Selected a <unk> or 2% increase from last quarter. The board of directors will continue to evaluate the dividend level on at least a quarterly basis, considering both company and general economic factors.

Over three and five year returns, our three and five year returns place us in the top 2014 and top seven respectively of all Bdcs for both time horizons over the past three years, our 71% return exceeded the 50% return of the index all over the past five years, our 122%.

Return greatly exceeded the index was 58% return.

On Slide 21, you can further see our outperformance placed in the context of the broader industry and specific to certain key performance metrics. We continue to focus on our long term return on equity NAV per share performance and yield and dividend growth, which are both consistent and at the top of the industry and reflects the.

A growing value our shareholders are receiving.

Not only are we one of the few bdcs to grow NAV we.

We've done it Accretively buy also growing NAV per share 16 of the past 18 quarters.

Moving on to slide 22, all of our initiatives discussed on this call are designed to make Saratoga investment and highly competitive BDC that is attractive to the capital markets community. We believe that our differentiated performance characteristics outlined on this slide will help drive the size and quality of our investor base, including adding more.

Solutions.

Our differentiating characteristics include maintaining one of the highest levels of management ownership in the industry at 15% access to low cost and long term liquidity with which to support our portfolio and make accretive investments receipt of our second spic's license, providing a sub 2% cost liquidity.

A triple B, plus investment grade rating and active public and private bond issuances solid historic earnings per share and NII yield strong and industry, leading historic and long term return on equity accompanied by growing NAV and NAV per share putting us at the top of the industry for both a high.

Quality expansion of AUM, and an attractive risk profile.

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

Term.

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

Thank you.

Like to ask a question at this time. Please press the Star then the number one key on your Touchtone telephone.

To withdraw your question press the pound key.

Our first question comes from Casey Alexander with Compass point.

Hi, good morning, and.

Thank you guys are doing a great job, but I do have a few questions for you. My first one is for Henri Henri you re did the credit facility this quarter.

But there are bdcs that are smaller than Saratoga that have credit facilities from traditional banks that are still significantly lower cost than the <unk> line that you guys did what is this lender finance credit facility program give you then a traditional bank at a lower rate would not.

Yes sure.

Okay. So yes, it's a good question and it's a very important one that we obviously have very intentionally considered and constructed a balance sheet in this way. So the traditional credit facility that you see from banks and that most if not all bdcs have done.

Generally have covenants that.

Have BDC level covenants in them, so things like tangible net with EBITDA.

Multiple quarters of negative.

Bottom lines et cetera, and the facility can be triggered and repayment can get triggered through these BDC level covenant. So we've constructed a balance sheet from the stock from from the time when Saratoga took over as a balance sheet that was going to not have covenants that could put.

Franchise as a whole at risk.

You potentially had an event that was just specific to this one.

This HPV this this credit facility entity.

Yes, we are paying up for it but it provides us flexibility so that we have cash available if we need but.

But doesn't put any of the franchise the business as a whole at risk because of something very specific to the market that could happen in the SPV itself. So it's really choosing structure of off price for us and especially because we have the FDIC capacity in our <unk>.

Unsecured lending rates have come down so much it's still enables us even with this higher rate in this facility to achieve our cost of capital goals that we want to.

Yes, if I could just weigh in a little here on that.

As well just to add to Henry's.

No.

Very thorough explanation.

Okay. So you remember back to the dark days of.

March of 'twenty in April of 'twenty, there were a number of bdcs that and proppant, but very successful ones.

Up getting out of formula with their low cost lines of credit and some of them had to make some very substantial capital contributions to avoid default or modify their facilities and a really extreme moment.

At that time.

Madison facility and we didn't have any of those concerns obviously, we've got a lot of other concerns, but concerns about our capital structure and having.

Faults and those type of thing we're not.

Were not something we had to worry about at that at that moment and that's always been very important to us.

Your point is well taken that there are lower cost approaches to financing, but those come with lots of formulaic requirements.

I think Henry outlined some of the covenant ones Theres also diversity, there's also like.

Mix of what you have in your portfolio and things like that and.

And at some point in time.

Facilities like that May make more sense to US then they do right now, but we've been working very hard forever from the very beginning and having a capital structure that allows us.

Fortunately for whatever.

For whatever reason is we live in an era.

Lots of Com and then some massive down spikes and we just want to make sure that we.

We are insured against the massive down spike and really not only defensively, but also offensive.

We were able to keep investing right through that very dark period in that in that second quarter of.

And again to your point is well taken about optimization of cost.

Cost of financing, but we're also trying to optimize.

Safety and concern and again not to.

Not to go too far into it but but.

What we were able to do in that quarter because of our financial structure.

Paid enormous dividends to Saratoga in terms of investments, we were able to make at that point in time.

We think way more than offset whatever excess costs, we had in that facility.

Alright, thank you for that answer.

My next question again kind of back to Henry.

Henry Mike sort of everybody, but.

In this quarter.

In the fiscal third quarter, you made fairly aggressive use of the ATM, but $15 million is it fair amount for an ATM in one quarter.

I can assume that you knew you had in the pipeline a lot of deals that we're going to be closing in December.

Because that clearly is is what happened.

But would you characterize your usage of the ATM in this quarter as a normal rate and above normal rate would you add.

As as you see originations moderating.

Over the rest of the year, there would be less aggressive use of the ATM just like to get some sort of nuance around the usage of the ATM in that particular quarter.

Sure Casey.

A very good question and a very important one I think on a very high level. If you look at the overall BDC industry and I know you are an expert in it.

We're developing a lot of relationships and a lot of deal flow I think that the level of recent months.

Shows not only are our relationships to generate the deal flow, but also our ability to execute and so we believe in the long run.

Stronger and more robust equity base is important for us to achieve our growth objectives.

Objectives.

Our natural growth inside the markets that we're in and so so.

So part of it is real.

Taking advantage of the market's receptivity to.

<unk> equity raises.

When it's available so that's one thing so we're not we werent really tying it specifically to.

This next quarter and this next set of originations. It was really much more of a broad broad gauged, what kind of equity levels are appropriate over our next.

1234 years as we as we look out into the future.

In terms of what we intend to do going forward.

Part of it is going to be driven by market receptivity and part of it is going to be driven by how we see the environment in terms of originations and our capital structure.

Okay, well I would just.

Kind of interject into that that Atms are sort of the spigot for available near term liquidity, but you don't want the ATM to become.

So much supply did it retards the potential appreciation of the stock.

That's something that.

Shareholders have to be aware of as well.

Mike My next question is for you.

Which is I am going to ask you to put on your your telescopic goggles and try to give us a feel for how far this yield compression go and at what point in time.

Is it potentially bottom out or does it bottom out are we moving to a new paradigm of yields that are going to embed themselves in the lower middle market.

Oh Boy, Oh Boy Casey that's correct.

If I had a crystal ball.

Josh.

Look I think it's a fair question and certainly we've seen yield compression and over the years.

I have often tried to look forward and think about that from a macro level and one of the things that I've learned over the years thankfully is that.

For us.

The way we look at it is we want to make sure that we are seeing plenty of deal opportunities, where we can deploy capital in a way that's accretive for our shareholders and if you look at.

The yields that debt.

We booked new deals.

This past quarter, which is averages north of 8% lets say somewhere eight to eight 5%, we can deploy capital at that level very accretively for our shareholders, especially as our cost of capital has come down I think our cost of capital and the <unk> is less than 2%.

Where the Covid scare, where there hasnt really been a massive disruption in the markets and the economy. In general there are people that are doing deals right now that never saw a downturn. We are competing with people that were probably in high school when when the last recession happened. Unfortunately, but this management team has been through a number of cycles.

<unk>.

And so we're we're really careful about making sure that we're preserving our capital base and we believe firmly that you make money in credit by not losing money.

We've been successful at doing that so far so that's kind of a bit of a long winded way of saying that we are.

Not going to put ourselves in a position, where we're going to stretch for yield in hot markets. You've got a you've got to make sure that you continue to focus on credit quality and getting the best assets in your portfolio certainly at a spread that is accretive for your shareholders, but not making the mistake of saying.

Oh, we need to have a yield thats X, because thats, where bdc's typically get a yield and if in so doing you end up expanding your risk profile quite considerably which would be the case in this market.

That wouldn't be a wise move so that's the approach that we've taken I think.

Fortunately the way we've constructed our balance sheet.

There could still be more compression in yields.

Turns on realized investments of over $750 million.

That's also happening not just by spread but by much of what we've done in terms of.

Investing in equity in a way that's been very beneficial to our shareholders. So.

Hopefully that gives you a perspective of how we think about it hard for us to.

Try to time.

Or or predict too much where spreads are going to go.

Okay. Thank you for that Mike and I have one more question and I apologize if I'm if I'm co opting the call just a little bit but a couple of years ago. When Covid hit. This is really a Christian a couple years ago. When Covid hit the company had kind of a dramatic response and of course, there were shutdowns at the time.

Two years, we roll forward here.

Book.

And and these variance and inconveniences are just that an inconvenience and you guys put the playbook to work and you know what youre going to do.

Well Casey.

I wish where that where exactly the case.

But I guess I'd say, a couple of things I think when when when when the when the.

When the whole Covid thing hit.

There was this massive shock to the system a massive decline in the stock market.

Massive dry up of liquidity and all sorts of things reminiscent of 2018.

Going on in the marketplace and plus a tremendous amount of mystery around what Covid would do I mean was it the black death were going to have 30% fatalities.

A whole bunch of things that were completely unknown I think as we fast forward to today.

There's a lot more experience, there's a lot more there.

The vaccines.

Treatments, there's the herd immunity, there's a lot of things going on that have made this.

Less of a mystery and more of something that's kind of a quantifiable manageable risk if you will on the crime.

I think everybody is still learning about that.

Sort of coming on is real fast and furious so to say that we have a playbook for omicron is maybe.

We're.

We're just not in a position to say we do have one.

The early data I mean, I'm, not saying anything that we are certainly not an expert on this field, but I mean, it looks as if.

But in terms of the response in terms of our playing offense I think.

Again back to going back to that time.

<unk> 'twenty.

Responding to.

A lot of what the market is presenting to us.

Obviously using all the credit.

Skills, we have to try and structure things that we think.

Take advantage of the moment, but also protect us if there is a reversal in the future and I think if you look at our credit metrics. If you look at.

Our attachment points and all those types of things and the types of companies where financing.

We feel pretty good about our portfolio as we did back then.

But.

Yeah, I would just say that also I think financially I think we're in a.

In a stronger position than we Werent back then.

Our knowledge base is better and the world is better I think theres more tools to apply against something thats better understood.

In a moment.

Hey, Chris Let me just add a little bit too.

To help augment that.

One thing to think about Casey less of a reaction to the COVID-19 environment and having a pain plan around it.

<unk> groups that we.

Invest capital live.

And support their portfolio companies. So much of what we've done really well is getting that repeat business from existing relationships and you can see that especially in our follow on activity.

And that also excites us because we think the upside is quite substantial is that.

In this environment vis vis going back a few years ago, we've really been successful in growing our relationship set and that takes quite a while we do a lot of that any of these relationships.

Many of them, we've been quoting for years.

And so.

I think just to reiterate I think we had 12 new portfolio companies. This past calendar year and seven of them are with new relationships and so if you were to go back a few years separate and apart from anything related to Covid et cetera, we wouldn't have had.

Seven new portfolio companies with new relationships and that's just a reflection of the investments that we've been making in building the franchise and are continuing to do.

Okay. So thanks Casey Thanks Keith.

Our next question comes from Sarkis, <unk> with B Riley Securities.

Hi, Good morning, and thank you for taking my question here.

Just wanted to kind of get an understanding and maybe a balance between your comments on this being especially a borrower's market tighter spreads the aggressive leverage multiples.

Being pretty competitive out there relative to.

If we kind of look at the comments the $130 million in new originations of after quarter end just wanted to kind of get a sense for how are you underwriting in this environment given that you mentioned that your bar remains high.

One thing that with the comments.

And just kind of the environment in general.

Well, it's the it's the challenge that we face all the time in our business.

Sort of.

Some of those deals it doesn't mean that we always make the right decision.

But.

Some relationships that we didn't have before and so that it now has enabled us to kind of cast a wider net if you will or a higher quality net.

And as a result.

It's enabled us to deploy more capital while keeping our underwriting bar are the same as it has been now if you look at just to put a finer point on.

The post quarter end production most of that was with follow ons with existing portfolio companies and that really has been a recipe for success for us.

Do you want to make a point there we will do a number of deals that are sub $10 million or $15 million initial investments many of our competitors won't bother with deals that size, but we will do the extra work.

To get there.

That capital deployed in really good businesses and Thats been an avenue for us to deploy more capital over time many of our larger deals were once it started off quite a bit smaller.

So that that's a little lot of even post quarter end production was a little less reflective of a super active M&A market, which there certainly is one a more reflective of us deploy.

Deploying capital in existing portfolio companies.

Yes, if I could just add a little to that.

I think I think.

And our guiding principle from the very beginning and our credit process has been as Mike said underwriting first price second and I recognize there's a correlation.

Don't have quite as many.

They're not auctioning the whole process, there's a lot of value add to our partnership with them in terms of helping them execute on their deals thats not pure price.

It's a relationship that service, it's confidence it's a lot of things like that so we're able to.

Have sort of a.

You added pricing, if you will and what we do with quieter.

Most of what we do.

For that matter. So yes, we have to reflect their larger market. We also reflect the quality and nature of what we're providing within the.

Stances and the deals that we're looking at but again I think the thought to leave you with is that our.

Even in.

Sort of quote a borrower's market there is a lot of selection going on in our shop.

Towards the the credit quality side.

That's very helpful. Thank you and one.

Final one from from my perspective, I think if I look at slide 11 in the industry snapshot. Thank you mentioned 34 industries in that table.

If we look at the industries and sectors today that you're looking at <unk> underwriting.

Has anything shifted and where you are willing to invest or go or maybe take on more size in certain industries.

<unk>, where you've historically been any comments around that.

Well I think.

Youll notice in in that slide that there is one a lot of diversity, but.

And it's across a number of industries.

And the common.

Credit characteristics across them.

Still the same we're looking for businesses that really offer a compelling value proposition to their customers.

Customers in a way that we think is sticky they are leaders in their field. The end markets that they are operating in have good positive dynamics. They are led by really strong management teams.

And so they can be in a lot of different industries, but they have those common characteristics. We have always I shouldn't say always but over sort of the last five years, let's say we made a.

Distinct effort to develop expertise.

In three particular areas, we still are generalists, and we want to see businesses that have all the elements that I just described but in addition to that we've.

We have developed expertise in health care.

Education, and then more broadly investing in SaaS business models and those are areas that we.

We feel that we have very very strong underwriting capabilities and youll see us continue to deploy capital in those areas because one.

Those industries generally in SaaS is more of a business model and an industry, but nonetheless.

They are less they.

They are less cyclical for one.

And if you have a business that can bring a greater level of productivity or a greater outcome to those end markets.

You're generally going to take share in those end markets because they are notoriously.

<unk>.

That business model is offering you.

Youre going to do well regard generally regardless of.

The direction of the economy takes so hopefully that gives you a sense of how we think about it.

<unk>.

As well.

Yes. It does thank you much.

Thanks Sarkis.

Our next question comes from Bryce Rowe with Ft Group.

Thanks, Good morning.

Wanted to kind of follow up.

Maybe ask the question around.

Post quarter end activity.

A bit differently.

And wanted to get a feel for if you think about that that activity, having already been been closed or booked here in the.

In the period post quarter end.

Mike maybe you could speak to kind of what the what the pipeline building process might be.

From this point forward and then how to think about more broadly you mentioned.

A more broad broad based growth trends given the business development you will have done over the last several years, how does that kind of translate into what you think from a P.

Portfolio activity or origination activity.

Going forward, maybe on an annual type basis as opposed to thinking about quarterly.

Yes, no I'm glad you go ahead.

Let me just jump going before.

At a high level and then I'll pass it onto the team here.

I think that.

Obviously.

In such a short period of time, so I think I think.

That's something that we're very proud of having gotten to the level of being able to generate that and execute that so I think that's a very important.

Sort of.

Proof of capability, if you will of our franchise. So so I think that shows what we're capable of doing now.

The things, we're not able to do is to predict what's coming our way in.

So.

Looking on any given quarter or any given month or any given week.

One of our weeks was $50 million a week are we going to do 52 of those we'd love to do 52 of those but but but that's probably not in the cards right now.

<unk>.

So what we need to do from a market standpoint is we need to be ready willing and able to.

React and address and proactively go after.

What fits our criteria when its available and so.

So it happens to be a very robust time why is it so robust right now.

There's a lot of.

There's a lot of theories out there and youre in the investment business, you've heard tons of them bright part of it is pent up demand from 'twenty, because there was very much that happened and so there is some pent up demand there as the threat of tax changes in Washington, There is there is a robust economy.

Antitrust so let's get our deals done now before the I mean, there's just so many things going on that have sort of lift the fire under sort of M&A fever. If you will and there is tremendous records being set in M&A from the smallest of the companies all the way to the most senior theres demographic trends with baby boomers.

Okay. This is a good time.

65 years old I want it.

Take some money off the table.

So many factors contributing to why people might be wanting to sell right now and then in a changed environment.

Next year that that kind of can dissipate.

Something that we're in a position to predict.

But what we what we try and do is be in a position to.

To handle what comes at Us and if it and if it does continue we're going to be there to be able to execute on that and if it doesn't we're going to be prepared for that as well and so that's kind of our R. R.

A broad look and Mike Im sorry for cutting you off I think you have something to say as well.

No no no.

Terrific.

Way to describe the macro perspective, and so all else equal if the macro environment stays where it is.

We feel good about our pipeline we feel good about the investments that we've made in our infrastructure and relationships. So.

We are we feel that our capacity to invest capital.

Barring any changes in the macro trends is very solid and probably greater than what it has been historically.

We as you know don't put up.

And then that's kind of what you want from an investor right somebody who just says if I'm not seeing a good deal opportunity I'm not going to do it just because.

That's what we do for a living so.

We feel good about our ability to deploy capital and probably given the investments that we've made out of a.

A bit greater pace than we have historically.

But we're always going to be watchful of market trends.

Certainly not going to make any decisions that would.

Be related to where we lower our underwriting bar or we're going to be just as disciplined in that respect.

Okay.

That's helpful and certainly appreciate it.

Eight the approach and the perspective.

Maybe a question here for for Henry on on the revenue side of things on the income statement.

Henry It looks like you guys booked some more dividend income here in.

In the quarter.

I'm, assuming that's related to the.

The CLO the CLO yield given your comment about market volatility and seeing that youll kind of move around as much as it has over the last year year and a half.

Yes sure Brian.

Your first question, Yes, we had three investments that had preferred equity that was paying a dividend income and two of them have been.

Repaid during during the I think one this quarter one the previous quarter. So so we're down to one investment Artemis wax investment.

That has still preferred equity that pays dividends, so youre going to see that dividend income line come down.

But there is still one investment that you will see dividend income from.

For the rest of for the most part either dividend income comes in at occasions from some other investments, but not that material or significant that you had on the preferred equity side.

So that will simplify that line because I know, that's a little bit more complicated.

And then secondly.

Second question was on.

Sorry, Brian question wasn't CLO, sorry, yes, so as you know the CLO valuation is a lot of different variables that go into it.

And one of the variables that impact the valuation and then also impact the weighted average effective interest rate that drives our interest income on the CLO equity is market performance.

The time period that our assets reset at the LIBOR resets for the assets, which.

Which is more on a quarterly basis versus where on a liability side resets on a monthly basis. So that created a reduction in our cash flows.

Because of the LIBOR curve change and then secondly, we also saw a.

A couple of more investments that were deemed in default because we deem investments that are trading below I think it's 80.

As being in default just for valuation purposes doesn't mean, they are in default just for valuation purposes and.

So obviously, depending on what the market does over the next two months through the end of February.

You know that.

Debt.

It could drive a change in the interest rate again, and obviously as you know the test is as of quarter end. So it's sort of not really relevant to what the market's doing now it's really where the market is at the point in time at the end of February.

Got it great Thats good color. Thanks, that's all for me.

Our next question comes from Mickey <unk> with Ladenburg.

Yes, good morning, everyone.

Perhaps a question for Mike one of your new investments. This quarter was an LFR, which is in the restaurant sector and as we all know that can be very difficult.

To underwrite so could you describe what attracted you to LFR in and in particular, how much leverages there in this deal.

Good morning, Mickey and thanks for the questions. Obviously these are private companies. So we don't get into too much of the details on.

The great details in particular with the business, but but.

Can say that.

This case, we obviously have good experience in the restaurant space.

The underwriting bar was quite high this is a business that.

Is.

It drives the majority of its cash flow as a franchise or.

It's a business that's been around successfully since the sixties its unit economics for its underlying franchisees are stronger than most of its competitors in the space.

And we did an awful lot of diligence to get very comfortable that we're in a good spot very good spot in the balance sheet.

Relative to our debt so and its generally in the.

In the scheme of looking at the deal relative to franchise or leverage multiples. It's very much on the low side of where you typically see a franchise or get leveraged.

Right.

Mike.

Henry just curious I suspect it may be due to timing, but but why did you fund some of your investments this quarter with SBA debentures. When you have so much cash on the balance sheet.

Okay. That's a good question Mickey it's always a balance.

We tend to try to sort of.

Balance funding in the FDIC versus outside the <unk> when we have.

Excess cash like we had this quarter, but at the same time once you fund the outside the.

You cant lay to put the investment into the <unk> and so we try to never make decisions on funding.

Just a short term view or short term lanes, we try to focus on sort of where are we going to get the highest return over the long term.

And so so in this quarter, where we had excess cash we sort of balance that whereas normally if youre cat. If you don't have so much efficient cash it will just automatically always go into the FDIC because that's the highest return.

Alright, I understand thank you Henry.

And Henry if im not mistaken there was a reversal for professional fee accruals can you just clarify that and what's the outlook for that line item.

Sure Yes.

In a way where some of our accruals were.

We're higher than they would need it to and so we had a release of some of the expenses, reflecting the activity sort of over the first nine months or so of the year.

I think sort of going forward.

Definitely this quarters is not a run rate can be used going forward, it's probably more appropriate to use sort of the run rate from a quarterly perspective that we had in prior quarters, but.

Our our sort of optimization has allowed us to release some of the some of the accruals, we had and it was really across accounting legal and valuation.

Alright, I appreciate that Henry and my last question a lot of moving parts.

So difficult for us to triangulate what.

Where do you stand on undistributed taxable income can you give us a sense of where that number is and how you intend to manage that.

Yes, I think on the I haven't run the latest Rick Calk.

As of right now, but I think we went into the into the year if you recall.

With with about a quarter and a half spillover, that's obviously being covered completely.

We most likely based on our current dividend rate and our earnings rate. We will have a spillover I think going into the end of February and I guess into March into next year, but.

We'll sort of assess that the big assessment of that is during our year end period, but you can expect it to be a spillover at the end of February.

I understand those are all my questions.

Today I appreciate your time thank you.

Thank you. Thank you. Thank you.

Our next question comes from Robert Dodd with Raymond James.

Hi, guys.

<unk> about.

Origination makes them more interested in the future.

Done a lot of follow on questions.

I mean, that's great because you know the company as well.

The underwriting comfort is probably higher but can you give us any.

Given you've done so many.

I think something.

Something approaching two thirds or three quarters of your portfolio companies have been follow on.

12 months something like that.

Should we expect there to be less follow ons.

In 'twenty, two or do you expect that pace to stay elevated in those.

Portfolio companies, maybe to be yes.

Serial acquirer.

And.

If there is a change in mix would that change the dynamics of.

Spread compression or yield compression.

Are you getting the same spreads on a follow on is the existing loan to that business and lower spreads on new investments. So is there any dynamic play that.

Maybe I'll take that on a high level.

To begin with I think what you're touching on is in a really important part of our investment strategy I think a lot of our investments I think as Mike was mentioning in his.

As portion we would do a lot of small small deals we start out with.

Sometimes as low as five or $10 million of initial investment, but we're often investing and growing companies companies that grow through acquisition and so that's a very important part of what we do and we think it's very helpful for us on pricing as a matter of fact, because we get in and we established pricing when the when the companies are smaller and then as they grow.

Better able to maintain perhaps some of our pricing then we would have.

If they if they were kind of going out to the market de novo. So we think it's a helpful.

Strategy.

But it's also really what we do right.

That's part of what our appeal is that we'll get involved with a company that Scott.

Growth plans.

That are coming into fruition, sometimes growth by acquisition, sometimes its internal funding, sometimes it's more aggressive internal funding and so.

We are the type of partner, where we're kind of in an active dialogue with our with our our growth investments on what they need and when they need it and then from their standpoint, they don't want to take down more money on the front end and they need to they don't want to pay more interest and fees et cetera. So there's kind of a sort of.

Partnership exercise going on between investing in the us as.

As to when to find what they need when and so they want some just in time funding and and so there's kind of a combination of things, but it's much more of a reflection of our investment strategy and the types of companies, we're investing and then some.

And sort of a market phenomenon if you will.

Now in terms of.

What proportions will have I think are.

<unk> of our growth objective is to have more new platforms, because new platforms that lead to more follow on investments.

In those platforms and so and then.

Investment opportunities with the sponsors up those new platform. So so we're very interested in the new platforms and we're also very interested in supporting our existing portfolio.

Mike do you have something to add to that.

No I think you've covered it by and large but but it's a very good question.

There is a sequence that.

You may.

A bit of a pattern that you may see in our portfolio over time, along those lines, where will we will make an initial investment in many of our initial platform investments are on the smaller side and we intentionally are looking for opportunities to invest in some of these smaller companies, where we know we're going to do the hard work at the front end.

And then we will have there is nothing better than getting a call from.

The owner of a company, that's doing really well and they're looking for more capital to execute on an acquisition that makes sense or to fuel their further growth.

And so there's a pattern there now.

Right.

At some point, especially for the private equity owned platforms, they're going to look to exit and you've seen that pattern as well, where we get to a certain size and.

And oftentimes at some point.

The exit deal. It's one of the reasons why we are anxious to try to co invest in the equity when we get that chance, but re reloading our balance sheet with new platform opportunities as.

As a key to making that game plan work and we've been successful so far and expect that we're going to continue to do that.

Got it got it.

Alright, Thanks, a lot I got to ask I mean, you increased the dividend this quarter to <unk> 50.

And that dividend this quarter, even in a quarter where.

<unk> activity was quite low.

Clearly that dividend.

Is that it looks pretty solid to me looking into December obviously significant AUM drove much more activities that we should see income I mean I would expect.

Yes.

And public is still going to be.

A question the question is so.

What's the framework Christian as a member of the board.

You said the board evaluates.

The dividend at least quarterly can you give us any color on what need.

Expectations might be the low.

But what.

What the framework is for another dividend increase given what appears to be.

Continuing to continue expansion in earnings power platform.

Yes, yes.

I know Thats an excellent question, that's something that we are constantly.

Evaluating ourselves I think probably the.

The base level principle here is as a BDC Reg.

Registered investment company, we have requirements for dividends.

Right.

They don't always have to be cash dividends, but theres a dividend requirement.

I think Henry touched on it we have our year end.

In February and then we've got a tax filing in November and so we need to be in compliance there are some.

Flexibility around spillover amounts. So you can have in effect push forward some of your tax obligation.

But there's a limit to how far you can push it push it forward so.

So our first principle here is what our underlying requirements for payout.

And so we look at that and then the second is.

As liquidity and then.

As you may recall.

Back in.

In March of 'twenty when the.

The impact of Covid, so heavily felt both.

In the markets in the country in the world.

We had zero spillover at that moment, and so that was a store of liquidity if you will.

We could have gone to sort of four quarters worth.

Liquidity from that source had we needed it.

Did we did avail ourselves of some of that liquidity, which created some of the spillover. So we look at spillover we look at.

Our cost spillover is like a 4% cost of capital.

You've got an excise tax of 4% on anything you haven't spillover. So theres a cost to spillover and then we have a cost to all of our other financing. So we looked at it in that context, and we also look at it as what.

What are our sources of liquidity.

Things go against Us or.

It will go against the marketplace in General and then and then we also want to have a dividend rate that is sustainable in the future and barring crazy events and so what we're trying to do is establish a trajectory.

A level of our dividends that that our investors can have confidence that our sustainable. So those are kind of the main factors that go into it and.

As you can.

Well imagine every quarter is a slightly different picture when it comes time to make that declaration.

And so that's.

That's what goes into it and we do do a fresh re look at everything.

Certainly every quarter and actually more often than that.

Got it I appreciate that thank you.

That concludes today's question and answer session I would like to turn the call back to Mr. Oberbeck for closing remarks.

Well, we appreciate everyone's time and attention to Saratoga and we want to thank everyone for joining us today and we look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2022 Saratoga Investment Corp Earnings Call

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