Q1 2023 Saratoga Investment Corp Earnings Call

Speaker 1: You F.

Speaker 2: The conference will begin shortly. To raise your hand during QA, you can dial stal an.

Speaker 3: Good morning and, Ladies and gentlemen, Thank you for stand and by welcome to Saratoga investments Corp. fiscal first quarter 2023 financial results conference call. Please note that today's call is being recorded during today's presenting.

Speaker 3: And will be in a listen-only mode. Following management's prepared remarks, we will open the line for questions.

Speaker 3: At this time. I'd like to turn the call over to Saratoga's investment corp's Chief Financial and compliance Officer, MR Henry steincamp. Sir, Please go ahead.

Speaker 4: Thank you. I would like to welcome everyone to Saratoga investment corp's fiscal first quarter 2023 earnings conference calltoday's conference call includes forward-looking statements and projections. We ask you to refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projectionswe do not undertake to update our forwardlooking statements unless required to do so by law.

Speaker 4: Today we will be referencing a presentation during our call. You can find our fiscal first quarter 2023 shareholder presentation in the events and presentation section of our Investor Relations website. A linked to our IR page is in the earnings press release distributed last night.

Speaker 4: A replay of this conference call will also be available. 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 overbec, who will be making a few introductory remarks.

Speaker 5: Thank you Henry, and welcome everyone.

Speaker 5: As this fiscal quarter coincided with the onset of significant broader market volatility, we continue to focus on balance sheet and liquidity strength, while identifying further opportunities and growing our asset base in high-quality credits.

Speaker 5: We believe saratota continues to be well positioned for potential future economic opportunities and challenges.

Speaker 5: Our existing portfolio companies are generally performing well, with our overall fair value 1% above its cost and our current business development pipeline robust, with positive metrics and term sheets issued and deals executed.

Speaker 5: Our AUM grew significantly this quarter to $895 million, as we originated 97 million in new platforms or follow on investment.

Speaker 5: Offset by one million of repayments.

Speaker 5: We continue to bring new platform investments into the portfolio, with two added this fiscal quarter, and all of our originations were made while maintaining the extremely high credit bar we set for all investments.

Speaker 5: Are NAB per share this quarter.

Speaker 5: While flat year-over-year decreased by 2% from Q4 to $28 in 69 cents which, net of core portfolio valuation changes, primarily reflects the volatility being experienced in the broadly syndicated CLO loan market.

Speaker 5: We believe the CLO and jadv mark-to-market changes are mostly supply and demand driven, including a lack of trading liquidity, though early signs of credit deterioration from input cost increases, labor shortages, supply chain constraints and, in certain cases, increases in inventory levels are emerging.

Speaker 5: To briefly recap the past quarter on Slide two.

Speaker 5: First we continue to strengthen our financial foundation in Q1 by maintaining the high level of investment credit quality, with over 95% of our loan investments retaining our highest credit rating at quarter end.

Speaker 5: Generating aat 7% on a trailing 12 -month basis, despite recognizing an $8.6 million unrealized depreciation reflecting broad's syndicated loan market volatility in the clol and JV and registering the gross unlevered IRR of 12% on our total unrealized portfolio, with our current fair value 1% on above the total cost of our portfolio and a gross unlevered IRR of 16% on total realizations of seven hundred Sixty nine million.

Speaker 5: Second our assets under management increased significantly to $895 million this quarter, a 9% increase from $818 million as of last quarter and a 32% increase from 678 million as of the same time last year.

Speaker 5: Our new originations included two new portfolio companies.

Speaker 5: And 13 follow-on investments.

Speaker 5: ong investments and our current pipeline remains robust.

Speaker 5: Third in volatile economic conditions such as we are currently experiencing, balance sheet strength, liquidity and NAV preservation remain paramount for us.

Speaker 5: Our capital structure at quarter end was strong: $345 million of bark-to-market equity supported $436 million of long-term covennant-free non-SBIC debt, $217 million of long-term covennant-free SBIC debentures and $25 million of long-term revolving borrowings.

Speaker 5: Our total committed undrawn lending commitments outstanding to existing portfolio companies are $32 million.

Speaker 5: Our quarter-end regulatory leverage of hundred hundred 90- 79% substantially exceed our 150% requirement and does not yet include the pending repayment next week of our $43 million SAK baby bond. That has been pulled and will reduce our non-bic debt to $393 million while also reducecing our cost of capital.

Speaker 5: By redeeming ayk with funds- our recent $97.5 million baby bond due in 2027- we are effectively extending the maturity from the three to five years remaining to the five years of our new bond issuance.

Speaker 5: We had $171 million of liquidity at quarter end available to support our portfolio companies.

Speaker 5: With $44 million of the total dedicated to new and follow-on opportunities in our bic two fund and $58 million cash- never the upcoming SAK notes repayment that would be fully accretive to earnings when deployed.

Speaker 5: And we demonstrated our ability to be opportunistic and access the capital markets when needed with the issuance of our new $97.5 million 6% 2027 baby bond in April .

Speaker 5: Finally based on our overall performance and liquidity, the Board of Directors declared our quarterly dividend of 53 cents per share for the quarter ended may thirty-first 2022, which was paid on June twenty-ninth 2022.

Speaker 5: This quarter saw solid performance with our key performance indicators as compared to the quarter ended may thirty-first twent thousand and 21 and February twenty-eighth twent thousand and twenty-two.

Speaker 5: Our adjusted NI is $6.4 million this quarter, up 2% versus last year and up 1% versus last quarter.

Speaker 5: Our adjusted NI per share is 53 cents this quarter, down from 56 cents last year and unchanged from last quarter.

Speaker 5: lateest 12 months. Return on equity is 7% to down from 19% last year and 14% last quarter.

Speaker 5: And our na per share is 28 and 69, to have one cent from 28- 70 last year and down 2% from 29- 33 last quarter.

Speaker 5: Henry will provide more detail later.

Speaker 5: As you can see on Slide 3, our assets under management have steadily and consistently risen as we took over the BDC almost 12 years ago and the quality of our credits remain hot, remains high, with only one credit currently on nonaccrual.

Speaker 5: 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.

Speaker 5: With that. I would like to now turn the call back over to Henry to review our financial results, as well as the composition and performance of our portfolio.

Speaker 4: Thank you, Chris.

Speaker 4: Slide four highlights our key performance metrics for the fiscal first quarter ended may. thirty-first, twent y and twenty-two.

Speaker 4: When adjusting for the incentive FE. crualel related to net capital gains in the second incentive fee calculation and the interest expense on our SAK baby bond during the period that SA was issued and also outstanding adjusted NI of $6.4 million was up 1% from last quarter and up 2% from $6.3 million. As compared to last year's Q1. Adjusted NI per share was 53 cents, down three cents from 56 cents per share last year and unchanged from 53 cents per share last quarter.

Speaker 4: Across the three quarters, weighted average common shares outstanding were 12.1 million for this Q1, 12 million for last quarter at 11.2 million for last year's Q1. There were zero accretion or dilution from the share repurchases, DRIP and ATM offering plan this quarter.

Speaker 4: The increase in adjusted NI from last year primarily reflect the higher level of investments and resultant higher interest and other income, with AUM up 32% since last year, offset by first, lower interest rates, with a weighted average current coupon on nonclolo BDC investments decreasing from 10% to 8% year-over-year and second, increased interest expense as additional notes and debenches were issued this past year to fund this AUM growth.

Speaker 4: Sequential quarter changes reflected the same factors as year-over-year, but the increase was further offset by decreased structuring, advisory and other income, as the fees earned on both originations and prepayments were lower this quarter as compared to last quarter. In addition, this quarter benefited from the first incentive fee not being earned this quarter.

Speaker 4: Adjusted NI yield was 7%. This yield is unchanged from last quarter and compared to 8% last year.

Speaker 4: For this first quarter, we also experienced a net loss on investments of $9.5 million, or 78 cent per weighted average share, resulting in a total decrease in net assets from operations of $1.45 million for 12 cents per share. The nine point five million llars net loss was comprised of nine point million dollars in net unrealized depreciation and $4 thousand of the third tax expense on unrealized depreciation on investments held in blockers, offset by $2 thousand in net realized gains and $1 thousand income tax benefit from realized gains.

Speaker 4: The $2 thousand net realized gain on investments comprises multiple escrow payments received during the quarter. The $9.3 million net unrealized depreciation primarily reflects first the three $2 thousand and $5.4 million unrealized depreciation on the company's clolo and JV equity investments respectively resulting from the volatility in the broadly syndicated loan market as of quarter endand second the $5 million unrealized depreciation on the company's pepper palace. Investments primarily due to company performance offset by first.

Speaker 4: $3.1 million unrellized depreciation on the company's PDs investment, which is a SaaS company in the dental industry, and second, $1.1 million net unreized depreciation across the remainder of the portfolio, spread amongst numerous investments.

Speaker 4: Return on equity, as always, remains an important performance indicator for us, which includes both realized and unrealized gains. Our return on equity was 7% for the last 12 months.

Speaker 4: Total expenses, excluding interest in debt, financing expenses, base management and incentive fees and income and excise taxes, was $2 million for this quarter, as compared to $1.9 million last year and $1.8 million loss quarterthis represented 1% of average total assets on an annualized basis, down from 1% last year and unchanged from last quarter.

Speaker 4: 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 downance sheet metrics for the past nine quarters and the upward trends we have maintained.

Speaker 4: Of particular note is Slide 29, highlighting how our net interest margin run rate has continued to increase and has almost quadrupples since Saratoga took gover management of the BDC, and also increase by 2% the past 12 months, while still not yet receiving the benefit of putting to work our significant amount of Q1 undeployed cash. All the effects of the currently rising rate environment.

Speaker 2: Moving on to Slide 5, NAV was $345.2 million as of this quarter end, a $10.6 million decrease from last quarter and a $24.9 million increase from the same quarter last yearthis quarter $8.6 million of the decrease is unrealized depreciation on our equity positions in the CLO and JV.

Speaker 4: During Q1, the company repurchased one hundred and forty-two thousand one hundred and seventy-seven shares at an average price of $26 and 27 cents, and issued no shares during the quarter.

Speaker 4: inavv per share was $,20: 69 cents as of quarter end, down slightly from $28, 70 cents 12 months ago and $29, 33 cents last quarter.

Speaker 4: This chart now also includes our historical nov per share, which highlights our nov per share has increased 17 of the past 20 quarters.

Speaker 4: Our net asset value has steadily increase since 2011 and this 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.

Speaker 4: On Slide six you will see a simple reconciliation of the major changes in NAI and NAV per share on a sequential quarterly basis.

Speaker 4: Starting at the top adjusted NI per share remained the same at 53 cents per share. A 17% increase in non-clolo net interest income from the partial impact of higher AUM was offset by 11 cent decrease in other income due to lower structuring and prepayment fees as compared to last quarter and a six -cent increase in base management fees.

Speaker 4: Moving on to the lower half of the Slide. This reconciles the 64 cent NAV per shaa decrease for the quarter.

Speaker 4: 66 cents of GAAP NI was more than offset by 75 cents of net realized gains and unrealized depreciation on investments and the 53 cent dividend paid in Q1.

Speaker 4: Slide seven outlines the dry powder available to us as of quarter-end, which totaled $170.5 million. This was spread between our available cash, undrawn SBA bentches and undrawn secured credit facility.

Speaker 4: This quarter in level of available liquidity when adjusted for the repayment of our SAK baby bond that has already been called, allows us to grow our assets by an additional 14% without the need for external financing, with $58 million of pro forma quarter-end cash available, and thus fully accretive to niwhen deployed, and $44 million of available BA ventches, with its low-cost pricing, also very accretive.

Speaker 4: On April twenty-seventh 2022, we successfully closed a $97.5 million 6% baby bond UE 2027, including the exercise green shoe, and on June fourteenth, we called our $43.15 million SAK 7% baby bond to be repaid on July fourteenth, which will reduce our nonbc debt to $393 million and extend our maturity on that amount of capital from three to five years.

Speaker 4: We remain pleased with our available liquidity and leverage position, including our access to diverse sources of both public and private liquidity and especially taking into account the overall conservative nature of our balance sheet, the fact that almost all our debt is long-term in nature, with no nonbic debt maturing within the next three years and importantly, that almost all our debt is fixed rate in this rising rate environment.

Speaker 4: Our debt is also structured in such a way that we have no BDC covenants. That can be stressed important during volatile times.

Speaker 4: Now I'd like to move on to Slide eight through 11 and review the composition and yield of our investment portfolio.

Speaker 4: Slide eight highlights that we now have eight hundred and ninety-five million dollars of auum at fair value, or eight hundred and eighty-three million dollars at cost, invested in 45 portfolio companies. one CLO fund and one joint venture are mostly percentagees- 80% of our total investments, of which 10% of that is in first leen- lost our positions.

Speaker 4: On Slide 9, you can see how the yield on our core BC assets, excluding our CLO, as well as our total asset yield, has dropped over the past year. This is primarily due to continued tightening of spreads in our market during this period.

Speaker 4: In this quarter, the increase from rising rates was offset by the addition of nolland to nonaccrual, with five months reserved in Q1.

Speaker 4: Nonaccruals are now 1% and 2% of fair value and cost respectively.

Speaker 4: Looking ahead, rates have continued to rise significantly from May through today and, with 98% of our interest earning portfolio being variable rate, 75% of our investments with a LIBOR flow of 100 basis points are less and the three -month LIBOR breaking through 200 basis points recently. We expect to benefit in Q2 and beyond from the earnings impact of rising rates to our NI. Our 10 -q outlines the pro forma impact of rate increases to our current portfolio.

Speaker 4: The CLO yield also decreased from 10% to 8% quarter-on-quarter, reflecting current market performance. The CLO is currently performing and current.

Speaker 4: Slide 10 shows how investments are diversified throughout the us.

Speaker 4: And on Slide 11 you can see the industry breadth and diversity that our portfolio represents. Our investments are spread over 38 distinct industries, with a large focus on healthcare software, it services and real estate education, consumer and healthcare services, in addition to our investments in the CLO and JV, which are included as structured finance securities in this graph.

Speaker 4: Of our total investment portfolio, 10% consists of equity interest, which remain an important part of our overall investment strategy.

Speaker 4: For the past 10 fiscal years we had a combined $73.2 million of net realized gains from the sale of equity interests or sale or early redemption of other investments, and over two-thirds of these historical total gains was fully accretive to NAV due to the unused capital loss carryforwards that were carried over from when Saratoga took gover management of the BDC.

Speaker 4: This consistent realized gaain performance highlights our portfolio. Credit quality has helped grow our NAV and is reflected in our healthy, long-term ROE.

Speaker 4: That concludes my financial and portfolio review. I will now turn the call over to Michael grresius, our Chief Investment Officer, for an overview of the investment market.

Speaker 6: Thank you, Henry. I'll take a few minutes to describe our perspective on the current state of the market and then comment on our current portfolio performance and investment strategy.

Speaker 6: Since our last update in May, we saw market conditions continuing to be very aggressiveexceeding where they were precovid 19 and still very much a borrower's market.

Speaker 6: Liquidity remains abundant, but lenders are being more risk-sensitive, backing off historically volatile sectors and taking a harder stance on the use of capital.

Speaker 6: Leverage remains elevated. In the first half of calendar year 2022, we saw high transaction volumes and MNA activity, albeit slightly lower than 2021 but continuing to be quite healthy.

Speaker 6: We currently have an actionable deal pipeline.

Speaker 6: Credit yields continue to be tight, with high multiples and tight spreads.

Speaker 6: Broadly syndicated loan markets are experiencing much lower volume year-over-year and rising spreads.

Speaker 6: But we are only seeing slight movements so far in the lower middle market versus this broader market.

Speaker 6: High demand for quality deals and the large-scale fund raising from last year are keeping spreads tight, although absolute yields are growing with LIBOR and silofver increases.

Speaker 6: Pricing and leverage remain metrics, remain aggressive for quality assets.

Speaker 6: Investors continue to differentiate themselves in other ways, such as accelerated timing to close and looser covenant restrictions.

Speaker 6: 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.

Speaker 6: The seratoga management team has successively managed through a number of credit cycles, and that experience has made us particularly aware of the importance of first being disciplined when making investment decisions.

Speaker 6: And second, being proactive in managing our portfolio.

Speaker 6: We're keeping a very watchful eye on how continued inflationary pressures and labor cost supply chain issues, rising rates and slowing growth- could affect both perspective and existing portfolio companies.

Speaker 6: And we have confidence in our strong position entering a possibly different credit and rate environment.

Speaker 6: Our underwriting bar remains high as usual. Yet we continue to find opportunities to deploy capital, as we will discuss shortly.

Speaker 6: Calendar year 2022 has so far been a very strong deployment environment for us, with a strong pace of originations.

Speaker 6: Follow-on investments in existing borrowers with strong business models and balance sheets continued to be an important avenue of capital deployment.

Speaker 6: As demonstrated with 43 follow-ons in the last 12 months ending in June .

Speaker 6: 11 in the last calendar quarter alone, including delayed draws.

Speaker 6: In addition, we have invested in two new platform investments in this past quarter and we have multiple new platform companies expected to close in the next month or soportfolio management continues to be critically important and we remain actively engaged with our portfolio companies and in close contact with our management teams, especially in this volatile market environment.

Speaker 6: All of our loans in our portfolio are paying according to their payment terms, except for our NOL, an investment that we put on nonaccrual this quarter, as we work with the company on an agreement that will likely have us pick our interest for a period of time.

Speaker 6: noland is our only nonaccrual investment across our portfolio.

Speaker 6: After recognizing the unrealized depreciation on our CLO and JB equity this quarter. Vehicles that primarily invest in broadly syndicated loans.

Speaker 6: The fair value of serog's overall assets now exceeds its cost BIS by 1% and.

Speaker 6: We believe this strong performance reflects certain attributes of our portfolio that bolster its overall durability.

Speaker 6: 80% of our portfolio up from 77% last quarteris in first lian debt and generally supported by strong.

Speaker 6: Enterprise values and industries that have historically performed well in stress situations.

Speaker 6: We have no direct energy or commodities exposure.

Speaker 6: In addition, the majority of our portfolios comprvise the businesses that produce a high degree of recurring revenue and have historically demonstrated strong revenue retention.

Speaker 6: Our approach has always been to stay focused on the quality of our underwriting and, as you can see on Slide 13, this approach has resulted in our portfolio performance being at the top of the BDC space with respect to net realized gains as a percentage of portfolio at cost.

Speaker 6: We are at the top of the list of only 14 BDCs that had a positive number over the past three yearsa. Strong underwriting culture remains paramount at Saratoga.

Speaker 6: We approach each investment working directly with management and ownership to thoroughly assess the long-term strength of the company and its business model.

Speaker 6: We endeavred to appear as deeply as possible into a business in order to understand accurately its underlying strengths and characteristics.

Speaker 6: We always have sought durable businesses and invest capital with the objective of producing the best risk-adjusted accretive returns to our shareholders over the long term.

Speaker 6: Our internal credit quality rating reflects the impact of current market volatility and shows 95% of our portfolio at our highest credit rating as of quarter-end, and part of our investment strategy is to selectively coinvest in the equity of our portfolio companies when we're given that opportunity.

Speaker 6: Our internal credit quality rating reflects the impact of current market volatility and shows 95% of our portfolio at our highest credit rating as a quarter-end and part of our investment strategy is to selectively coinvest in the equity of our portfolio companies when we're given that opportunity and when we believe in the equity upside potential.

Speaker 6: This equity co-investment strategy is not only served as a yield protection for our portfolio, but also meaningfully augmented our overall portfolio returns, as demonstrated on this slide and the previous 1, and we intend to continue this strategy.

Speaker 6: Now looking at leverage on Slide 14, you can see that industry debt multiples were relatively unchanged from calendar four to Q1, yet remain at historically high levels.

Speaker 6: Total leverage for our portfolio was four point two nine X, a decrease from last quarter, reflecting primarily recent repayments of some higher leverage investments.

Speaker 6: Through past volatility, we have been able to maintain a relatively modest risk profile throughout.

Speaker 6: 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.

Speaker 6: In addition, this slide illustrates our consistent ability to generate new investments over the long term despite ever-changing and increasingly competitive market dynamics.

Speaker 6: During the second calendar quarter, we added two new portfolio companies and made 13 follow-on investments, Now moving on to Slide 15. our team 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.

Speaker 6: Our top line number of deal source remains robust, but is dropped in 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.

Speaker 6: Most notably, the number of deals executed during the last 12 months is markedly up from last year's pace.

Speaker 6: Demonstrating that this more focused sourcing strategy is yielding results.

Speaker 6: What is especially pleasing to us is that six of our 10 new portfolio companies over the past 12 months are from newly formed relationships, reflecting notable progress as we expand our business development efforts.

Speaker 6: As you can see on Slide 16, our overall portfolio credit quality remains solid.

Speaker 6: The gross leveraged IRR on realized investments made by the So investment management team is 16% on $769 million of realizations.

Speaker 6: On the chart of the right you can see the total growross unlebered IRR on our 839 million of combined weighted SBIC and BDC unrealized investments is 12% since teratoga took over management.

Speaker 6: As of this quarter, we have two yellow-rated investments being our nolin group and pepper palace investments.

Speaker 6: No one has been on yellow for a while now, sinces COVID-19, being more dependent on in-person human interaction.

Speaker 6: And was also added to nonaccrual status this quarter.

Speaker 6: The remaining unrealized depreciation reflects the current performance of the company but does not change our view of the fundamental long-term prospects for this business.

Speaker 6: A new yellow investment this quarter as pepper palace, which has been moved to yellow, with the recognition this quarter of unrealized appreciation of $5 million on our first lien term loan and preferred equity investmentsthis markdown reflects the current performance of the company, but they continue to pay interest.

Speaker 6: We are working closely with the company and the sponsor as they work to improve performance.

Speaker 6: Now excluding the pepper palace markdown, the remaining core non-CLO BDC portfolio had total unrealized a appreciation of $4.3 million this quarter and total portfolio fair value is still 1% above total cost.

Speaker 6: Our overall investment approach has yielded exceptional realized returns.

Speaker 6: Moving on to Slide 17, you can see our first SBIC license, fully funded.

Speaker 6: Our second SBIC license has already been fully funded with 87.5 million of equity, of which 264 million of equity and SBA debentures have been deployed.

Speaker 6: There are still $3 million of cash and $44 million of debentures currently available. Get against that equity.

Speaker 6: To summarize the quarter, the way the portlio has proven itself to be both durable and resilient against the impact of COVID-19 and this subsequent market adjustment and volatility really underscores the strength of our team platform and portfolio.

Speaker 6: And our overall underwriting and due diligence procedurescredit quality remains our primary focus, especially at times with such high activity levels, as we are seeing now, and while the world is in continuous flux.

Speaker 6: We remain intensely focused on preserving asset value and we remain confident in our team and the future for Saratoga.

Speaker 6: This concludes my review of the market, and I'd like to turn the call back over to our CEO , Chris.

Speaker 5: Thank you, Mike. As outlined on slate Slide 18, our latest dividend for the quarter and have may thirty-first- 2022 was paid on June 20. ninth twent thousand and 22. the Board of Directors will continue to evaluate the dividend level on at least a quarterly basis, considering both company and general economic factors.

Speaker 5: Moving to Slide 19. our total return last 12 months, which includes both capital appreciation and dividends, has generated total returns of negative 3%, beating the BDC index of negative nine percentand.

Speaker 5: This performance reflects the current market volatility, impacting both us and the industry.

Speaker 5: Our longum-reterm performance is outlined on our next slide. Our three and five -year returns placesus in the top half of all BDC is for both time horizons.

Speaker 5: Over the last three years, our 20% return exceed the 16% return of the index, while over the past five years our 61% return greatly exceed the index is 25% return.

Speaker 5: For the one -year period. We are also on one of the top three performers through the recent volatility.

Speaker 5: I' 21. you can furto see our performance placed in the context of the blutter industry and specific to certain key performance metrics.

Speaker 5: We continue to focus on our long-term metrics, such as return on equity, NAV per share performance and I yield and dividend growth, which reflects the growing value our shareholders are receiving. Despite this quarter's results being impacted by the market volatility in the broadly syndicated loan market, we continue to be one of the few BDCs to have grown NAV long term and we have done it accretively by also growing NAV per share 17 of the last 20 quarters.

Speaker 5: Moving on to Slide 22, all of our initiatives discussed on this call are designed to make sarato investment a highly competitive BDC that is attractive to the capital markets community.

Speaker 5: We believe that our differentiated performance characteristics, outline on this slide, will help drive the size and quality of our investor base, including adding more institutions.

Speaker 5: Our differentiating characteristics include maintaining one of the highest levels of management ownership in the industry, at 14%, and.

Speaker 5: Access to low-cost and long-term liquidity with which to support our portfolio and make accretive investments.

Speaker 5: Recently increased with our new baby bond issued this quarter.

Speaker 5: A triple B plus investment-grade rating and active public and private bond issuances.

Speaker 5: Solid historic earnings per share and NI yield.

Speaker 5: Strong and industry-leading historic and long-term ROE, accompanied by growing na and na per share, putting at the top of the industry for both long-term high-quality expansion of AUM and an attractive risk profile.

Speaker 5: In addition, our historically high credit quality portfolio contains minimal exposure to conventionally cyclical industries, including the oil and gas industry.

Speaker 5: We remain confident that our experienced management team, historically strong underwriting standards in time and market tested investment strategy.

Speaker 5: Will serve us well in battling through the challenges in the current and future environment, and that our balance sheet capital structure and liquidity will benefit saratota's shareholders in the near and long term.

Speaker 5: In closing, I would again like to thank all of our shareholders for their ongoing support. I would like to now open the call for questions.

Speaker 3: Thank you, sir. As a reminder, to ask a question you need to press star one on your telephone.

Speaker 3: Please stand by while we compeiled a cimile rostner.

Speaker 3: I share. Our first question comes from the line of Robert DoD, from Raymond James. Please go ahead.

Speaker 7: Hi guys, I apologize for further background noise of it that. But So first a housekeeping one on NOL P. I mean Henry, I think you said that you reserved five months of.

Speaker 7: Of income from that this quarter when you put on nonaccall. So is that correct? Did you reverse out income from previous quarters this quarter and if So, how much was that?

Speaker 8: Yes there was A. there was a two months interest receivable on the books that as we then assisted it and put it on to nonaccrual, we had to reverse out. So there's a bit of an outsized impact to interest income this quarter because instead of just three months reserve it's five months, one a one or oked five months for this quarter. The total reserve for the five months with 733 thousand as you can see on the balance sheet. But, as I said, that represents five months and not just three months.

Speaker 9: Got I gottato appreciate that, Thank you. And then the other one kind of the environment. I mean the lunch I 10 days ago I think the open remarks were something in the- that it was kind of hard to find opportunities to be on on on the front foot. Right now that it, it seems.

Speaker 10: You seem much more optimistic today that you know you, you multiples are seem to be holding in leverage spreads. You know activity and obviously had pretty good deployments in in, in in your quarters just reported. So could you give us any any more? comonly, is the market, you know, still holding in and, and did I miss here 10 days ago or something changed over over that time, peri.

Speaker 5: Well maybe I'll start. Let me go ahead. Are with it, you know, and then then then hand it off to the team. Several things I think you know. What we're all facing today is we have sort of broad market.

Speaker 5: So let me go ahead, are with you know, and then then hand off the team. Several things I think you know. What we're all facing today is we have sort of broad market. You know averages.

Speaker 5: And then we have individual sectors and know clearly, you know, you know NASDAQ, for example, and a lot of the tech you know have have had incredible downturns.

Speaker 5: Certain in terms of market cap and performance and things like that, while other sectors have held up pretty, pretty well, and so it's really a tale of sectors and the se of different companies.

Speaker 5: And so on, a broad outlook and, and in our portfolio we have the broadly syndicated loans which kind of our maybe more representativ, E if like a the broader large world, and then we have our individual portfolio of companyiesyou know in the B D, C proper and and so what. What we have is we have a number of our companyies and a number of the companyies we're looking at are doing quite well and we would anticipate that they would continue to do quite well. You know, in the current environment now we can't- you don't know what's going to happen- ly, but what trends are positive for a lot of companyies and a lot of type of company that we, you know, are addressed directly in the smaller middle market.

Speaker 5: And close. So, as I said, it's really a tale of individual companies, individual investments, inside a context of kind of a broader macro which is, just as we know, kind of alarming and stocking and all these other types of things. But there are still a lot of companies are doing quite well and that's what we're trying to focus on. But I think you want to add to that.

Speaker 6: Yeah let me add a little bit to thatie. So So as you think about our market- and I'm sure everybody seees the larger end of the market because it's in a very volatile and it reacts in real time with some of the signs that people see- the macroecon OM, macroeconomic signs that people see in the economy- And so that's kind of reflective of what you see in the valuation, our cloos, for instance. It happens in real time while there's correlation between what's going on in the broader middle market and upper end of thele market and our market, which is the lower end, the mdle market. It doesn't happen in perfect sn.

Speaker 5: There's typically a lag, and so what we're facing is that a lot of capital was raised to deploy in our end of the market and people are being, I think, smart about where they deploy capital- as we are, of course- but there is a lot of capital available to support those businesses and, as a result, despite what you're seeing, in the larger end of the market, it's still very competitive. I think people are being disciplined on credit and being thoughtful about which credits to deploy capital in, But when they decide that there's a really nice asset to lend to or invest in or buy. If you're a buyer.

Speaker 5: It's still quite competitive. So I wouldn't expect, based on our history of being in the business through a lot of credit cycles, that that will last for a real long time and we're probably starting to see some early signs of improvement in that respect. But right now the marketplace at the lower end of the middle market is still pretty healthy in terms of transaction volumes. People are being selective on credits, but the ones that are good- it's a bit of a fight to make sure that you're you going to win them-'re going to do it with fairly tight spreads.

Speaker 9: Got a Gun. I appreciate that call color. I all drink through. Touches are on. But then the next, last question. I mean to that point, exactly right, there's ually a slight timing match mismatch between thelow end of the middle market and the upper, and say three to six months, you know, and you just mentioned you starting to see some, some gaps. So do you expect the to buy a seller B ask between the sponsor and the selling, or between two sponsors of the sponsor and company, and do you expect that to widen? And maybe you know things to get more?

Speaker 7: Even more difficult in the lower end of the middle market over the next three to six months, or is it too hard to go?

Speaker 5: Well it's really hard to call with ress. Yeah, I mean again, I think it', S you know, traditionally right, in times of uncertainty, just what you said: itoccurs right, these that a bit <expletive> spreads: widen. You know the sellers are kind of thinking about the way things used to be in, the buyers are kind of thinking about what they might be, and you get a widening and then you get a slowing down of activity. You know sort of a traditional response to you know changed. You know change paradigmms, like right we're in right now, and I think you are seeing that in a lot of places- I think M and a were bably speaking- is down sort of in the large areas. Now what we do have going on in our marketplace and there's a lot of deals have been worked.

Speaker 11: People working on for a year or longer there, like what's happening today is. Is was begun before this current market environment and some of those deals are closing with slight adjustments. We're seeing one we're looking at right now. There was there was an adjustment to the purchase price going on for macro reasons, not for any discernible specific reason at the company, but again, these are all the things that creep this into the system.

Speaker 9: I appreciate that. Thank you, Thank you.

Speaker 3: As a reminder: to ask a question you would need to press star one on your telephone.

Speaker 12: On the moment while we compileed the ky Ross there.

Speaker 12: Ladies and gentlemen, if you have a question at this time, Please brush Star and one.

Speaker 12: I'm sure no further questions in the quey at this time.

Speaker 11: Okay well, we want to thank everyone for joining us today and we look forward to speaking with you next quarter.

Speaker 3: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker 13: The conference will begin shortly. To raise your hand during QA, you can dial Star one.