Q2 2024 Saratoga Investment Corp Earnings Call

Okay.

Good morning, ladies and gentlemen, thank you for standing by welcome dessert investment.

Investment o'clock 'twenty 'twenty four fiscal second quarter financial results Conference call. Please note that today's call is being recorded during today's presentation. All parties will be in a listen only mode.

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

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

Thank you I would like to welcome everyone to Saratoga investment Corp's 2020 full fiscal second quarter 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 AC 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 second quarter 2024 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. Please refer to our earnings press release for details.

I'd 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.

Saratoga has adjusted net investment income per share increased 86% as compared to last year and remained unchanged as compared to last quarter. This performance outpaced our recent and significant dividend increases and reflected growth in AUM and margin improvement from rising rates on our largely floating rate assets.

In contrast to the largely fixed interest rates paid on financing liabilities.

Higher and rising interest rates at a general contraction of available credit are producing higher margins on our portfolio and importantly, an abundant flow of attractive investment opportunities from high quality sponsors at increasingly improving pricing terms and absolute rates.

We believe Saratoga continues to be well positioned for potential future economic opportunities and challenges Saratoga has credit structure with largely interest only covenant free long duration debt incorporating maturities, primarily two to 10 years out positions us, particularly well for a rising and potentially higher for.

Longer interest rate environment, coupled with market volatility most.

Most importantly at the foundation of our performance is the high quality nature and resilience of our approximately $1 $1 billion portfolio, which has been marked down 1.4% overall versus cost in this challenging environment.

Our core BDC portfolio, excluding our CLO and JV is up 0.2% versus cost, reflecting the strength of our underwriting and our solid growing portfolio of companies and sponsors and well selected industry segments. This quarter's unrealized depreciation of $5 $7 million.

$15 $4 million net unrealized depreciation related to our Pepper Palace investment.

Significantly offset by a broad appreciation across the rest of our core and broadly syndicated portfolios.

Consistent with Q2 and since quarter end, we continue to see improvements in pricing in the broadly syndicated loan market that would increase that portfolio fair value if marked as of today.

Importantly, we raised $34 million of equity since last quarter, and increasing our NAV from $338 million as of May 31, 2023 to approximately $372 million on a pro forma basis as of today using our August 31, 2023, and a b as a basis.

This equity provides additional balance sheet strength and reduces our regulatory leverage and supports our strong originations.

Our portfolio strength. This further manifested in our many key performance indicators this past quarter outlined on slide two including first following sequential quarterly adjusted NII per share increases of 33% in Q3, 27% in Q4 and 10% in Q1.

Just at NII remained unchanged from Q1 at $1 eight per share, including a <unk> <unk> dilution from the increased share count, resulting from our ATM equity issuances. These earnings reflects six.

6% increase from 58% 58 last year.

Second current assets under management grew to approximately $1 1 billion a record level and third our dividend increased to 71 per share our largest dividend yet up 31% from 54 cents per share in Q2 last year up one 4% from 70 cents per share last quarter.

And over earned by 52% as compared to this quarter's dollars eight per share adjusted NII.

We continue our prudence and discernment in terms of new commitments in the current environment. Our originations this quarter demonstrate that despite an overall robust pipeline there are periods like the current one where many of the investments. We review did not meet our high quality credit standards. We originated one new portfolio company investment this fiscal quarter.

Had 17 smaller follow on investments in existing portfolio companies, we know well with strong business models and balance sheets.

Originations this quarter totaled $28 million was $6 million of repayments and amortization.

Our credit quality for this quarter remained high at 98, 2% of credits rated in our highest credit category, adding one additional credit to nonaccrual with two now on non accrual in total.

With 85% of our investments at quarter end and first lien debt and generally supported by strong enterprise values and balance sheets in industries that have historically performed well in stress situations, we believe our portfolio and leverage as well structured for a challenging economic conditions and uncertainty.

Saratoga has annualized second quarter dividend of 71 cents per share and adjusted net investment income of $1 eight per share imply.

7.7% dividend yield and a 17, 8% earnings yield based on its recent stock price of $24 24 on October six 2023.

The over earning of the dividend by 37 cents this quarter or $1 48 annualized per share increases that supports the increasing dividend level and growth and provides a cushion against adverse events.

And volatile economic conditions, such as we are currently experiencing balance sheet strength liquidity and NAV preservation remain Paramount for us our capital structure at quarter end was strong $362 million of Mark to market equity supporting $571 million of long term covenant free non SP I see that one.

<unk> hundred $89 million of long term covenant free Spic's debentures, and $35 million of long term revolving borrowings.

Our total committed undrawn lending in discretionary funding facilities outstanding two existing portfolio companies are $141 million with $58 million committed and $83 million discretionary.

Our debt maturity schedule ranges, primarily from two to 10 years, providing a solid credit structure at a fixed cost and with favorable terms positioning us well for both the current rising rate environment or should overall economic challenges arise and at quarter end, we had a substantial $239 million of investment.

Capacity available support our portfolio companies with $161 million available through our newly approved Spic's three fund $30 million from our expanded revolving credit facility and $48 million in cash.

Saratoga Investment's, Saratoga investment second quarter demonstrated strong performance within our key performance indicators as compared to the quarters ended August 31, 2022, and May 31, 2023, our adjusted NII is $13 $2 million this quarter up 89% from last.

At year end up 2% from last quarter, our adjusted NII per share is $1 eight this quarter up 86% from 58 cents last year and unchanged from $1 eight last quarter.

Latest 12 months return on equity is nine 6% up from four 8% last year and up from seven 2% last quarter and beating the industry average of five 1%.

Our NAV per share is $28.44 up 0.6% from 28, 27 last year and down <unk>, 1% from 28 48 last quarter and.

And substantially ahead of the latest 12 months industry average it is down three 5%.

And our NAV is up to $372 million from $338 million last quarter, including the $10 million raised in equity since quarter end.

Henry will provide more detail later.

As you can see on slide three.

Our assets under management has steadily and consistently risen since we took over the BDC 13 years ago and the quality of our credits remains high with only two credits on non accrual.

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 volatile and 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.

<unk> four highlights our key performance metrics for the fiscal second quarter ended August 31st 2023, most of which Chris already touched on.

Of note the weighted average common shares outstanding of $12 2 million shares for Q2 increased from 12.0 million loss of $11 9 million last quarter.

Adjusted NII increased this quarter up 89.0% from last year and up two 4% from last quarter, primarily from first the impact of higher interest rates, both base rates and spreads with a weighted average current coupon on non CLO BDC investments increasing from nine.

One 9% to 12, 6% year over year, but down from 12, 7% last quarter.

Average non CLO BDC assets increased by 16, 4% year over year and by two 2% since last quarter and third other income included a $1 $6 million dividend received from the Saratoga investment joint venture.

Adjusted NII yield was 15.0% this yield is unchanged from last quarter, but up from eight 2% last year.

Total expenses for this Q2, excluding interest and debt financing expenses base management fees and incentive fees and income and excise taxes decreased from $2 3 million to $2 1 million as compared to last quarter and increased from $1 $6 million from last year. This.

<unk> note, 7% of average total assets on an annualized basis down from <unk>, 8% at both Q2 last year and last quarter.

Also we have again added the Kpis slides 27 through 30 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 including a 66% increase in net interest margin over the past year.

Okay.

Moving onto slide five NAV was $362 1 million as of this quarter and a $24 $6 million increase from last quarter, and a $24 $9 million increase from the same quarter last year. This quarter. The main driver of the growth was the $24 3 million of equity issued.

Under the ATM program with 14.0 million.

Net investment income fully offset by 6.0 million of net realized and unrealized losses and $8 $4 million up dividends declared in addition during Q2.

$75 million of stock dividend distributions were made through the company's drip plan.

No shares were repurchased during this quarter.

This chart also includes our historical NAV per share, which highlights how this important metric has increased 16 of the past 22 quarters with Q2 slightly down by <unk> over the long term our net asset value has steadily increased since 2011 and this growth has been accretive as demonstrated by the consistent increase.

<unk> 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 adjusted NII and NAV per share on a sequential quarterly basis.

Starting at the top adjusted NII per share was unchanged. Despite <unk> <unk> of net dilution from the ATM equity offering with a 14% increase in non CLO net interest income from higher AUM and rates offset by a 12% decrease in other income from lower originations this quarter and a two <unk> increase in base management.

Fees driven by the higher AUM.

On the lower half of the slide <unk> NAV per share decreased by <unk> <unk>, primarily due to the 47 cents in unrealized depreciation and 70 dividend recognized in the quarter offsetting the $1 15 and GAAP NII.

Slide seven outlines the dry powder available to us as of quarter end, which totaled $239 $4 million. This 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 22% without the need for external financing with $48 $4 million of quarter end cash available and thats fully accretive to NII when deployed at $161 million of available SBA debentures with its low cost pricing.

Also very accretive.

We remain pleased with how available liquidity and our leverage position, including 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 data is long term in nature with almost no non spic's maturing within the next two years and.

Importantly that almost all our debt is fixed rate in this rising rate environment also our data structured in such a way that we have no BDC covenants that can be stressed and with available call options in the next two years on the debt with higher coupons.

During such a volatile interest rate times.

Now I would like to move on to slides eight through 12 and review the composition and yield of our investment portfolio.

<unk> eight highlights that we now have $1 1 billion of AUM at fair value and this is invested in 55 portfolio companies, one CLO fund and one joint venture a first lien percentages, 85% of our total investments of which 50% is in first lien last out positions.

On slide nine you can see how the yield on our core BDC assets, excluding our CLO has changed overtime, especially this past year.

This quarter, our core BDC yield was down slightly 10 bips to.

To 12, 6% a slight increase in rates during Q1 was more than offset by paper pallets going on nonaccrual.

The CLO yield decreased slightly from nine 3% to eight 9% last quarter, reflecting the increase in value from improved market performance.

Hello, it's performing and current.

Slide 10 shows how rates have stabilized the past three months with the average three months sofa used in a portfolio of $5 two 4% close to both the average rates for Q2 of 531% and the quarter and rate of 540%, which is also the price of Sofia recently.

Despite sofa not rising recently with 99% of our interest earning assets using variable rates earnings will continue to benefit from these higher rate levels in Q3, and Q4, while all but $35 million about borrowings at fixed rate and will not be impacted by these increases in base rates.

There is uncertainty about the future of rates, but we stand to continue to gain as rates rise or stay elevated.

Slide 11 shows how our investments are diversified throughout the U S and on slide 12, you can see the industry breadth and diversity that our portfolio represents spread over 43 distinct industries. In addition to our investments in the CLO and joint venture, which are included our structured finance securities.

Of our total investment portfolio nine 2% consists currently up equity interest, which remain an important part of our overall investment strategy.

Slide 13 shows that for the past 11 fiscal years, we had a combined $81 $6 million of natrium as 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.

Our healthy long term Roe.

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

Thank you Henry.

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.

The overall deal market has remained relatively unchanged since our last update as it seems to be in a bit of a holding pattern to see what happens in the broader macro environment.

While liquidity among private equity firms remains abundant.

And opaque economic outlook high financing cost and elevated levels of inflation continued to constrain the private equity deal market, which drives much of the demand for new credits.

Lenders, especially banks remain more risk sensitive backing off historically volatile sectors and taking a harder stance on the use of capital, which creates a lending vacuum for borrowers.

Overall lenders are requiring greater equity capitalizations, regardless of the enterprise multiple and in some cases have reduced their pace of deployment.

As well as their hold positions.

All of these factors are positive for us as we have been seeing more attractive opportunities come our way as we fill gaps that have arisen in the market.

Operator: Good morning, ladies and gentlemen. Thank you for sending by. Welcome to Saratoga's Investment Corps 2024 fiscal second quarter financial results conference call. Please note that today's call is being recorded. During today's presentation, all parties will be in a listen only mode. Following management prepared remarks, we will open the line for your questions.

And we have a very actionable deal pipeline.

Leverage levels appear to have come down at the margin, but remained full for strong credits.

Absolute yields continued to grow with absolute sofa, increasing another 11 basis points during our fiscal second quarter and have remained there.

Operator: At this time, I would like to send a call over to Saratoga Investment Corps to your financial and chief compliance officer Mr. Henry Steenkamp. Sir, please go ahead. Thank you.

The widening spread we had been experiencing in recent quarters appears to have stabilized.

With beers of an economic slowdown dampening amongst some market participants we have seen some lenders offer tighter spreads to win mandates.

Henri Steenkamp: I would like to welcome everyone to Saratoga Investment Corps 2024 fiscal second quarter 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 EC for 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 and this required to do so by law.

Saratoga management team has successfully 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 and second being proactive in managing our portfolio.

We're keeping a very watchful eye on how continued inflationary pressures on labor costs rise.

Henri Steenkamp: Today, we will be referencing a presentation during our call. You can find our fiscal second quarter 2024 shareholder presentation in the events and presentation 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. Please refer to our earnings press release for details.

Rising rates and the potential economic slowdown could affect both prospective and existing portfolio companies.

A natural focus currently remains supporting an existing portfolio companies through follow ons.

Our underwriting bar remains high as usual, yes, we continue to find opportunities to deploy capital.

Christian Oberbeck: 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, Henry, and welcome everyone. Saratoga's adjusted net investment income per share increased 86 percent as compared to last year and remained unchanged as compared to last quarter. This performance outpaced our recent and significant dividend increases and reflected growth in AUM and margin improvement from rising rates on our largely floating rate assets in contrast to the largely fixed interest rates paid on financing liabilities.

First nine months of calendar year, 2023 was very strong deployment environment for us already exceeding our origination efforts from last year.

Follow on investments in existing borrowers with strong business models and balance sheets continued to be a healthy Avenue of capital deployment as demonstrated with 54 follow on since the beginning of calendar 2023, including delayed draws.

In addition, we've invested in nine new platform investments so far this calendar year.

Portfolio 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 uncertain market environment.

Christian Oberbeck: Higher and rising interest rates and a general contraction of available credit are producing higher margins on our portfolio and importantly an abundant flow of attractive investment opportunities from high-quality sponsors at increasingly improving pricing terms and absolute rates. We believe Saratoga continues to be well positioned for potential future economic opportunities and challenges. Saratoga's credit structure with largely interest-only, covenant-free, long-duration debt, incorporating maturity's primarily two to ten years out positions us particularly well for rising and potentially higher for longer interest rate environment coupled with market volatility.

All of our loans in our portfolio are paying according to their payment terms, except for our Nolan investment that remains on non accrual.

As we have moved to Pik interest for a period of time and Pepper Palace that we placed on non accrual this quarter after missing its August interest payment.

After recognizing the net unrealized depreciation depreciation on our overall portfolio this quarter Saratoga core BDC portfolio is still 2% above cost.

And its overall assets, including the CLO and JV are now one 4% below cost.

Christian Oberbeck: Most importantly, at the foundation of our performance is the high-quality nature and resilience of our approximately $1.1 billion portfolio which has been marked down 1.4 percent overall versus cost in this challenging environment. Our core BDC portfolio, excluding our CLO and JV, is up 0.2 percent versus cost reflecting the strength of our underwriting in our solid growing portfolio of companies and sponsors in well-selected industry segments. This quarter's unrealized appreciation of $5.7 million reflect 15.4 million net unrealized appreciation related to our pepper palace investment significantly offset by a broad appreciation across the rest of our core and broadly syndicated portfolio.

Despite the significant write down of one asset this quarter, we believe our overall strong performance reflects certain attributes of our portfolio that bolster its overall durability.

85% 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 commodity exposure in.

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 and as you can see on slide 14. 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 our portfolio at cost.

Christian Oberbeck: Consistent with Q2 and since quarter end, we continue to see improvements in pricing in the broadly syndicated loan market that would increase that portfolio fair value if marked as of today. Using our August 31st 2023 NAV as a basis, this equity provides additional balance sheet strength and reduces our regulatory leverage and supports our strong originations. Our portfolio strength is further manifested and our many key performance indicators is past quarter outlined on slide 2, including, first, following sequential quarterly adjusted NII per share increases of 33% in Q3, 27% in Q4 and 10% in Q1, adjusted NII remained unchanged from Q1 at $1.8 per share, including a 3-cent dilution from the increased share count resulting from our ATM equity issuances.

We are only one of 12 bdcs that have a positive number over the past three years currently fourth overall.

Our internal credit quality rating reflects the impact of current market volatility and shows 98, 2% 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.

When we believe in the equity upside potential.

This equity co investment strategy has not only served as yield protection for our portfolio, but also meaningfully augmented our overall portfolio returns as demonstrated on this slide and the previous one and we intend to continue this strategy.

Now looking at leverage on Slide 15, you can see that industry that multiples have come down this year from their historically high levels.

Total leverage for our overall portfolio was four two times, excluding Nolan and Pepper palace, while the industry is now around five times leverage.

Christian Oberbeck: These earnings reflect a 6% increase from 58% to 58 cents last year. Second, current assets under management grew to approximately $1.1 billion, our record level. And third, our dividend increase to 71 cents per share, our largest dividend yet, up 31% from 54 cents per share in Q2 last year, up 1.4% from 70 cents per share last quarter, and over earned by 52% has compared to this quarter's $1.8 per share adjusted NII.

In addition, this slide illustrates the strength of our deal flow and our consistent ability to generate new investments over the long term.

Despite ever changing and increasingly competitive market dynamics.

During the second quarter, we added another new portfolio company and made 15 follow on investments.

Despite the success, we're having investing in highly attractive businesses and growing our portfolio.

Christian Oberbeck: We continue our prudence and discernment in terms of new commitments in the current environment. Our originations this quarter demonstrate that, despite an overall robust pipeline, there are periods like the current one where many of the investments we reviewed do not meet our high quality credit standards. We originated one new portfolio company investment this fiscal quarter and had 17 smaller follow-on investments in existing portfolio companies. We know well with strong business models and balance sheets.

And the increased deal flow, we are seeing it is important to emphasize as always we're not aiming to grow simply for growth's sake, especially in the face of this uncertain macro environment.

Our capital deployment bar is always high and is conditioned upon healthy confidence that each incremental investment is in a durable business and will be accretive to our shareholders.

Slide 16 provides more data on our deal flow previously discussed demonstrating how our team's skill set experience and relationships continue to mature and our significant focus on business development has led to multiple new strategic relationships that have become sources for new deals.

Christian Oberbeck: Urgenations this quarter told a $28 million with $6 million of repayments and amortization. Our credit quality for this quarter remained high at 98.2% of credits rated in our highest credit category, adding one additional credit to non accrual with two now on non accrual in total. With 85% of our investments at quarter end in firstly in debt and generally supported by strong enterprise values and balance sheets in industries that have historically performed well in stressed situations, we believe our portfolio and leverage is well structured for challenging economic conditions and uncertainty.

What is especially pleasing to us is five of the nine new portfolio companies over the past 12 months are from newly formed relationships.

Reflecting notable progress as we expand our business development efforts.

The significant progress we've made in building broader and deeper relationships in the marketplace is noteworthy because it strengthens the dependability of our deal flow and reinforces our ability to remain highly selective as we rigorously screen opportunities to execute on the best investments.

Christian Oberbeck: Sarah Tokas annualized second quarter dividend of 71 cents per share and adjusted net investment income of $1.8 per share, imply an 11.7% dividend yield and a 17.8% earnings yield based on its recent stock price of $24.24 on October 6, 2023. The over earning of the dividend by 37 cents this quarter or $1.48 annualized per share increases NAV, supports the increasing dividend level and growth and provides a cushion against adverse influence. In volatile economic conditions, such as we are currently experiencing, balance sheet strength, liquidity, and NAV preservation remain paramount for us.

As you can see on slide 17.

Our overall portfolio credit quality remains solid.

The gross unleveraged IRR unrealized investments made by the Saratoga investment management team is 15, 6% on $908 million of realizations.

The chart on the right you can see the total gross unlevered IRR on our $1 1 billion of combined weighted <unk> and BDC unrealized investments is 10, 6% since Saratoga took over management.

As of this quarter, we downgraded pepper pallets from yellow to red.

Christian Oberbeck: Our capital structure at quarter-end was strong, $362 million of market-market equity, supporting $571 million of long-term covenant-free, non-SBIC debt, $189 million of long-term covenant-free SBIC debentures, and $35 million of long-term revolving borrowings. Our total committed undrawn lending and discretionary funding facilities outstanding to existing portfolio companies are $141 million, with $58 million committed and $83 million discretionary. Our debt maturity schedule ranges primarily from two to ten years, providing a solid credit structure at a fixed cost and with favorable terms, positioning us well for both the current rising rate environment or should overall economic challenges arise.

Nolan remains yellow and these two investments remain our only non green investments.

Nolan has been yellow for a while now since COVID-19 being more dependent on in person business interaction and on non accrual status since last year.

There was no significant change to the Mark from Q1.

The current unrealized depreciation reflects the current performance of the company, but does not change our view of the fundamental long term prospects for the business.

Pepper Palace continued to suffer from poor performance.

And this quarter's results resulted in a significant write down to the mark of $15 $4 million.

This reduced the overall fair value to $7 $9 million, which is about a quarter of its overall cost, leaving the total depreciation at approximately $26 $4 million since investment on our first lien term loan and equity investments.

Christian Oberbeck: And at quarter-end, we have a substantial $239 million of investment capacity available to support our portfolio companies, with $161 million available to our newly approved SBIC-3 fund, $30 million from our expanded revolving credit facility, and $48 million in cash. Saratoga's investment second quarter demonstrated strong performance within our key performance indicators as compared to the quarters ended August 31st, 2022, and May 31st, 2023. Our adjusted NII is $13.2 million this quarter, up 89% from last year and up 2% from last quarter.

This marked down reflects the current performance and cash flow issues. The company is experiencing.

We are actively engaged with the company and the sponsor to access future options and execute on significant restructuring plans.

The company has brought new resources to the business and is undertaking initiatives aimed at improving performance.

This quarter's $5 $7 million net unrealized depreciation primarily reflects the $15 4 million of unrealized depreciation on the company's Pepper Palace investment.

Christian Oberbeck: Our adjusted NII per share is $1.8 this quarter, up 86% from 58% last year, and unchanged from $1.8 last quarter. Latest 12 months return on equity is 9.6% up from 4.8% last year and up from 7.2% last quarter and beating the industry average of 5.1%. Our NIV per share is $28.44 of 0.6% from 28.27 last year and down 0.1% from 28.48 last quarter. And substantially ahead of the latest 12 months industry average that is down 3.5%. And our NIV is up to $372 million from $338 million last quarter, including the $10 million raised in equity since quarter-end.

Offset by approximately $3 9 million of net unrealized appreciation across the remainder of the portfolio.

Driven relatively evenly by current company performance and market spreads and five $8 million of unrealized depreciation on the company's CLO and JV equity investments.

<unk> the volatility in the broadly syndicated loan market as of quarter end.

Our overall investment approach has yielded exceptional realized returns and recovery of our invested capital.

Moving on to Slide 18, you can see our first and secondly, second spic's licenses are fully funded and deployed.

We are currently ramping up our new Spic's three license with $161 million of lower cost Undrawn debentures available along.

Allowing us to continue to support U S small businesses.

Henri Steenkamp: Henry will provide more detail later. As you can see on slide three, our asset center management is steadily and consistently risen since we took over the BDC 13 years ago. And the quality of our credits remains high with only two credits on non-accrual.

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

Christian Oberbeck: 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 volatile and evolving credit environment.

Thank you Mike.

As outlined on slide 19, our latest dividend of 71 per share for the quarter ended August 31, 2023 was paid on September 28 2023.

This is the largest quarterly dividend in our history and reflects a 37% and 31% increase over the past two years and latest 12 months respectively.

Henri Steenkamp: 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. Thank you, Chris. Slide four highlights our key performance metrics for the fiscal second quarter ended August 25th, 2023, most of which Chris already touched, on. Of note, the weighted average common shares outstanding of 12.2 million shares used to increase from 12.0 million loss here at 11.9 million loss quarter.

The board of directors will continue to evaluate the dividend level at least a quarterly basis, considering both the company and general economic factors, including the near term impact of rising base rates and increased spreads on our earnings recognizing the divergence of opinions on the future direction of interest rate levels and overall economic performance Saratoga.

Q2 over earning of its dividend by 52% or $1 eight versus 71 per share. This quarter provides substantial cushion in any circumstance should economic conditions deteriorate or base rates decline.

Henri Steenkamp: Adjusted NII increased this quarter up 89.0% from last year and up 2.4% from loss quarter, primarily from first the impact of higher interest rates, both base rates and spreads, with a weighted average current coupon on non-CLO BDT investments increasing from 9.9% to 12.6% year over year, but down from 12.7% loss quarter. Second, average non-CLO BDT assets increased by 16.4% year over year and by 2.2% since loss quarter, and third, other income included a 1.6 million dollar dividend received from the Saratoga Invtmt joint venture.

Moving to slide 20, our total return for the last 12 months, which includes both capital appreciation and dividends has generated total returns of 16% outperforming the BDC index of 12% for the same period our longer term performance is outlined on our next slide 21.

Our three and five year returns place us in the top quartile of all Bdcs for both time horizons.

Over the past three years are 102% return exceeded the average index return of 70% while over the past five years or 66% return exceeded the index has averaged 34%.

<unk> took over the management of the BDC in 2010, our total return has been 688% versus the industry's 224%.

Henri Steenkamp: Adjusted NII yield was 15.0%. This yield is unchanged from loss quarter, but up from 8.2% lost year. Total expenses for this Q2, excluding interest and debt financing expenses, base management fees and incentive fees, and income and excise taxes decreased from 2.3 million dollars to 2.1 million as compared to loss quarter and increased from 1.6 million dollars from last year. This represented 0.7% of average total assets on an annualized basis down from 0.8% at both Q2 last year and last quarter.

On Slide 22, you can further see our performance placed in the context of the broader industry and specific to certain key performance metrics. We continue to focus our long term metrics on long term metrics such as return on equity and NAV per.

For sure.

NII yield and dividend growth all of which reflects the growing value our shareholders are receiving.

While our NAV per share decreased <unk>, 1%. This quarter, we were only down 6% year over year, while the BDC industry is down three 5%. We continue to be one of the few bdcs to have grown our NAV over the long term and we have done it accretively and despite the pepper palace at Cielo markdowns this year.

Henri Steenkamp: Also, we have again added the KPI slides 27 through 30 in the appendix at the end of the presentation that shows our income statement and balance sheet metrics for the past 9 quarters and the upward trends we have maintained, including a 66% increase in net interest margin over the past year. Moving on to slide 5, NAV was 362.1 million dollars as of this quarter end, a 24.6 million dollar increase from last quarter and a 24.9 million dollar increase from the same quarter last year.

Our latest 12 months return on equity of nine 6% is almost double the industry is five 1% average.

Moving on to slide 23, all of our initiatives discussed on this call are designed to make Saratoga investment a leading 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 institutions.

Henri Steenkamp: This quarter, the main driver of the growth was the 24.3 million dollars of equity issued under the ATM program with 14.0 million dollars of net investment income fully offset by 6.0 million dollars of net realized and unrelized losses and 8.4 million dollars of dividends declared. In addition, during Q2, 0.75 million dollars of stock dividend distributions were made through the company's grip plan. No shares were repurchased during this quarter. This chart also includes our historical NAV per share which highlights how this important metric has increased 16 of the past 22 quarters with Q2 slightly down by 4 cents.

These differentiating characteristics. Many previously discussed include maintaining one of the highest levels of management ownership in the industry at 13%, ensuring we are aligned with our shareholders.

Looking ahead on slide 24, we remain confident that our reputation experienced management team historically strong underwriting standards and time and market tested investment strategy.

It will serve us well in navigating through the challenges and uncovering opportunities 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.

Henri Steenkamp: Over the long term, our net asset value has steadily increased 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 unrelized gains.

I'd like to now open the call for questions.

Thank you, ladies and gentlemen to ask a question you want me to press Star one on your telephone and wait.

For your name to be announced to withdraw your question Crestar. One again, please standby, while we compile the Q&A roster.

Henri Steenkamp: On slide 6, you will see a simple reconciliation of the major changes in adjusted NII and NAV per share on a sequential quarterly basis, starting at the top. Adjusted NII per share was unchanged despite 3 cents of net dilution from the ATM equity offering with a 14 cent increase in non-CLO net interest income from higher AUM and rates offset by a 12 cent decrease in other income from lower originations this quarter and a 2 cent increase in base management fees driven by the higher AUM.

And our first question coming from the line of Ryan <unk> with B Riley Your line is open.

Hi, Thanks, good morning.

Wanted to.

Maybe ask about the use of the equity ATM.

Since that since the end of last quarter.

Can you speak to maybe the.

Henri Steenkamp: On the lower half of the slide NAV per share decreased by 4 cents primarily due to the 47 cents in unrealized appreciation and 70 cents dividend recognized in the quarter offsetting the dollar 15 in gas NII. Slide 7 outlines the dry powder available to us as of quarter end, which total 239.4 million dollars. This 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 20 per cent without the need for external financing with 48.4 million dollars of quarter end cash available and that's fully accretive to NII when deployed and $161 million of available SBA debentures with its low cost pricing also very accretive.

The decision to go ahead and use that equity ATM, especially with the stock still trading slightly below NAV and then wanted to kind of get a sense for.

I guess the level of level at which the manager will continue to subsidize those.

Those equity raises at Nash thanks.

Sure well thank you for that question.

I think in our view looking at our overall business.

We are.

Really turning away a lot of tremendous opportunities given what we see out there and so.

The key to further growth is one of the keys is more equity in.

So we thought it was a very good investment for.

From the point of view of our shareholders to issue such equity.

Henri Steenkamp: We remain pleased with our available liquidity and our 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 almost no non SBA debenturing within the next two years and importantly that almost all our debt is fixed rate in this rising rate environment. Also, our debt is structured in such a way that we have no BDC governance that can be stressed and with available call options in the next two years on the debt with higher coupons important during such volatile interest rate times.

To help support.

I think what we've described as a very robust new issuance opportunity set for the company.

And so we saw the opportunity.

The opportunity in significant size $34 million in a quarter, it's a very substantial amount and.

With that opportunity we our judgment was that was it was good idea and.

And from the manager standpoint, we were happy to support and subsidize.

What was a slight discount to NAV.

And which we covered from the managers.

Henri Steenkamp: Now I would like to move on to slides 8 through 12 and review the composition and yield of our investment portfolio. Slide 8 highlights that we now have $1.1 billion of AUM at fair value and this is invested in 55 portfolio companies, one CLO fund and one joint venture. Our first lean percentage is 85% of our total investments of which 30% is in first lean lost out positions.

Our pocket if you will.

Whether those opportunities arise and how often they rise in the future is something we can't predict but we we.

We saw some some interesting interest and demand and we decided to to meet it.

That's helpful Chris.

Maybe maybe a follow up there.

It sounds like there is clearly a healthy pipeline.

Henri Steenkamp: On slide 9 you can see how the yield on our core BDC assets excluding our CLO has changed over time, especially this past year. This quarter our core BDC yield was down slightly 10 fits to 12.6%. The slight increase in rates during Q1 was more than offset by pepper parlors going on on a crawl. The CLO yield decreased slightly from 9.3% to 8.9% last quarter reflecting the increase in value from improved market performance. The CLO is performing and current.

And a discerning eye.

At Saratoga.

Seen you saw balance sheet leverage kind of come down here in the quarter.

With the with the ATM usage is there a is there a particular target.

Do you think we'll see.

Leverage kind of creep back up again as you put money to work or do you feel more comfortable operating with.

I guess, a lower level lower level of leverage than we saw maybe less nevertheless couple of quarters.

Henri Steenkamp: Slide 10 shows how rates have stabilized the past three months. With the average three months low for used in our portfolio of 5.24% close to both the average rate for Q2 of 5.31% and the quarter end rate of 5.40%. Which is also the price of SOFA recently. Despite SOFA not rising recently, with 99% of our interest earning assets using variable rates earnings will continue to benefit from these higher rate levels in Q3 and Q4. While all but $35 million of our borrowings is fixed rate and will not be impacted by these increases in base rates.

Well I think that that is kind of a dynamic situation I think as we've said in past quarters, we have to balance a lot of things and.

We have balanced our opportunities and as you correctly pointed out our leverage did increase a fair amount over the past year really and.

To address what we saw some greater opportunities.

Clearly over time, we want to balance the magnitude of our leverage.

With with our opportunity set and when we have opportunities to raise equity.

Henri Steenkamp: There is uncertainty about the future of rates, but we stand to continue to gain as rates rise or stay elevated. Slide 11 shows how our investments are diversified throughout the U.S. And on slide 12 you can see the industry's breadth and diversity that our portfolio represents. Spread over 43 distinct industries, in addition to our investments in the CLO and joint venture which are included as structured finance securities. Of our total investment portfolio, 9.2% consists currently of equity interests which remain an important part of our overall investment strategy.

We do.

We really havent had many opportunities in the last period of time and just recently, we did and so we decided to take advantage of that and.

We obviously remain.

Balanced in terms of how much leverage we're going to absolutely put on versus how much equity, we're able to raise and and again, it's a dynamic situation that.

We can't we can't they are two different markets right. The market for our equity is one thing in the market for our new originations is something else and we're not necessarily able to precisely match them in time, but over time, we want to keep ourselves in a.

Henri Steenkamp: Slide 13 shows that for the past 11 fiscal years we had a combined $81.6 million of naturalized gains from the sale of equity interests or sale early redemption of other investments. This consistent, realized gain performance highlights our portfolio credit quality and helps grow our NAV and is in a healthy long term ROE.

Solid balance sheet position.

Got it I appreciate that appreciate you taking the time.

Thanks, Brad Thank you.

Thank you and our next question coming from the line of Casey Alexander with Compass Point Research. Your line is open.

Yes.

Henri Steenkamp: That concludes my financial and portfolio review.

Your gross leverage is still around two times. Your net leverage is around one five times so to a certain extent what could argue that at least right now without repayments you sort of loan to the limit.

Michael Grisius: I will now turn the call over to Michael Grisius, our Chief Investment Officer for an overview of the investment market. 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.

What is the outlook for repayments for the balance of the year, because we're going into a period that traditionally.

Michael Grisius: The overall deal market has remained relatively unchanged since our last update as it seems to be in a bit of a holding pattern to see what happens in the broader macro environment. While liquidity among private equity firms remains abundant and opaque economic outlook, high financing costs and elevated levels of inflation continue to constrain the private equity deal market which drives much of the demand for new credits. Lenders, especially banks, remain more risk sensitive, backing off historically volatile sectors and taking a harder stance on the use of capital which creates a lending vacuum for borrowers. Overall, lenders are requiring greater equity capitalizations, regardless of the enterprise multiple and in some cases have reduced their pace of deployment as well as their hold positions.

The end of the year is generally a fairly robust period of time for originations. So are you going to be able to participate in that what is the outlook for repayments and also what is the remaining capacity in the JV for you to be able to.

Originate investments had put investments there as well.

Maybe I'll start with that.

Again, I think as I just mentioned to prices question, we don't have 100.

3rd% determine.

Flow of origination opportunities and we have.

A group of sponsors that we've been working with sponsors want to work with.

And the exact flows that come off of those opportunities are things that we want to manage to keep growing and keep supporting.

Michael Grisius: All of these factors are positive for us as we have been seeing more attractive opportunities come our way as we build gaps that have arisen in the market and we have a very actionable deal pipeline. Leverage levels appear to have come down at the margin but remain full for strong credits. Absolute yields continue to grow with absolute sofa increasing in other 11 basis points during our fiscal second quarter and have remained there. The widening spread we had been experiencing in recent quarters appears to have stabilized with beers of an economic slowdown dampening among some market participants we have seen some lenders offer tighter spreads to win mandates.

As we have been.

Our base, so that's not necessarily something we can predict in this fourth quarter.

Precisely.

So in terms of leverage we.

Do have a what we feel is a significant improvement in our leverage position given the equity issuances.

And in terms of repayments.

Mike do you want to yes, Casey, let me try to take that.

The rule of thumb I always supply I think you've heard me say this before us.

Is that the portfolio of our type should generally turned over about a third a year roughly but then it never really turns over at that level. That's kind of just a rule of thumb and in really dynamic.

Michael Grisius: The Saratoga management team has successfully 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 and second being proactive in managing our portfolio. We are keeping a very watchful eye on how continued inflationary pressures and labor costs, rising rates and the potential economic slowdown could affect both prospective and existing portfolios. A natural focus currently remains supporting existing portfolio companies through follow-ons. Our underwriting bar remains high as usual, yet we continue to find opportunities to deploy capital.

Markets, where everybody is feeling super bullish it can turn over a lot faster than that.

In this market our shareholders are getting the benefit of us not experiencing as much turnover and so we've got a really healthy portfolio where.

The owners are continuing to pay us interest and the companies are performing well, but there are deciding now is not the best time to sell because theres a disconnect between.

Generally in the market, where sellers feel there's value.

Where it was historically and where buyers are willing to pay for things and so we are getting the benefit of.

Fewer payoffs now having said that.

Michael Grisius: The first nine months of calendar year 2023 was a very strong deployment environment for us, already exceeding our origination efforts from last year. Follow-on investments in existing borrowers with strong business models and balance sheets continued to be a healthy avenue of capital deployment. As demonstrated with 54 follow-ons since the beginning of calendar 2023, including delayed draws. In addition, we have invested in nine new platform investments so far this calendar year.

We're bound to have pay offs. We certainly are aware of some that are on the horizon that are meaningful.

I think the important thing, though to also recognize and I think Chris mentioned this as well is that we have very significant availability under spic's license and we don't view that as being a constraint for us at all if we see a really good opportunity to invest capital through that vehicle.

And its a business thats really strong we're going to take advantage of that I think when you get outside of the <unk> license.

Michael Grisius: Portfolio 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 uncertain market environment. All of our loans in our portfolio are paying according to their payment terms, except for our Nolan investment that remains on non-accrual, as we have moved to pick interest for a period of time. And Pepper Palace that we have placed on non-accrual this quarter after missing its August interest payment. After recognizing the net unrealized depreciation on our overall portfolio this quarter, Saratoga's core BDC portfolio is still 0.2% above cost. And its overall assets, including the CLO and JV, are now 1.4% below cost.

Balancing as Chris mentioned.

Capital availability leverage how much we like the deal some of those factors and certainly the amount of payoffs that we get will be part of that equation as well in case, you probably noticed we repaid $27 million of our <unk> debentures, and although that doesn't obviously impact the net leverage that did free up capacity there.

Just from a from a gross leverage perspective, as one sort of thinks about the FDIC three deployment.

And you also asked about the joint venture.

We have no need or requirement to put additional capital into the joint venture at this point in time. So there is not going to necessarily going to be a drain of liquidity on the joint venture in the near term, it's sort of operating at a steady state now and obviously its subject to the volatility of the broadly syndicated loan market, but you see the dividend income that it generates.

Michael Grisius: Despite the significant write-down of one asset this quarter, we believe our overall strong performance reflects certain attributes of our portfolio that bolster its overall durability. 85% of our portfolio is in first-line debt and generally supported by strong enterprise values in industries that have historically performed well in stress situations. We have no direct energy or commodity exposure. In addition, the majority of our portfolios comprise the businesses that produce a high degree of recurring revenue and have historically demonstrated strong revenue retention.

At the moment now two quarters in a row and thats, becoming more of a steady state.

And if you will at this point in time then.

Unusual or nonrecurring.

Just picking up a little bit on what Mike said about the absence of <unk>.

Normalized repayments I mean in effect, but what's happening is that the.

Percentage of.

Prior investments or season credits in our portfolio is growing and so these are credits that we know we have a lot of experience with.

And so those are very solid credits.

<unk>.

Michael Grisius: Our approach has always been to stay focused on the quality of our underwriting. And as you can see on slide 14, 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. We are only one of 12 BDCs that have a positive number over the past three years, currently fourth overall. Our internal credit quality rating reflects the impact of current market volatility and shows 98.2% of our portfolio at our highest credit rating as a quarter end.

We're involved with and are producing.

What we feel is pretty tremendous earnings our earnings yield at 17% is very substantial earnings yield across our portfolio and while we do have some quite a way.

With a high level of leverage Chris I mean interact.

It's.

Youre not in the business.

Investors are necessarily going to be comfortable with an unlimited amount of leverage I mean, whether the gross leverage is the same as your regulatory leverage.

That number can't can't go to a number that makes investors uncomfortable or it'll be counterproductive alright, no matter what your earnings are so.

Michael Grisius: Part of our investment strategy is to selectively co-invest in the equity of our portfolio companies when we're given that opportunity and when we believe in the equity upside potential. This equity co-investment strategy is not only served as yield protection for our portfolio but also meaningfully augmented our overall portfolio returns as demonstrated on this slide and a previous one. And we intend to continue this strategy.

We understand that you have to keep that in mind.

Yeah, we absolutely do keep it in mind and I think you've heard us and many of our conference calls in these discussions.

Gross leverage for one BDC is not the same as gross leverage for another and our gross leverage given the term structure of our leverage the duration of our leverage the absence of covenants the absence of <unk>.

Amortization rates and things like that.

Michael Grisius: Now looking at leverage on slide 15, you can see that industry debt multiples have come down this year from their historically high levels. Total leverage for our overall portfolio was 4.2 times, excluding Nolan and Pepper Palace, while the industry is now around five times leverage. In addition, this slide illustrates the strength of our deal flow and our consistent ability to generate new investments over the long term. Despite ever-changing and increasingly competitive market dynamics.

We believe makes our leverage.

White manageable in the context of our portfolio.

Yes, okay.

Secondly for Mike.

You said that.

Youre looking forward to some type of broad restructuring of Pepper Palace.

Do you think you guys are going to end up with the keys here or are you just going to be continued to be in a in a supportive role.

And should we expect.

Michael Grisius: During the second quarter, we added another new portfolio company and made 15 follow-on investments. Despite the success we're having investing in highly attractive businesses and growing our portfolio and the increased deal flow we are seeing, it is important to emphasize, as always, we're not aiming to grow simply for growth sake, especially in the face of this uncertain macro environment. Our capital deployment bar is always high and is conditioned upon healthy confidence that each incremental investment is in a durable business and will be a creative to our shareholders.

Where your mark is that to likely turn into some form of equity here.

Casey obviously, it's a private company so I can't get into all the details but.

Certainly we are working with the sponsor right now trying to improve performance.

Recently brought some additional resources to bear to.

That ends.

Is it possible that we could end up with the key it's uncertain because it's it's a.

It's a challenging situation.

Certainly Ben we've been in this business for a long time, there are a lot of lenders who are.

Michael Grisius: Slide 16 provides more data on our deal flow previously discussed. Demonstrating how our team's skill set, experience and relationships continue to mature and our significant focus on business development has led to multiple new strategic relationships that have become sources for new deals. What is especially pleasing to us is five of the nine new portfolio companies over the past 12 months are from newly formed relationships, reflecting notable progress as we expand our business development efforts.

Perhaps overly fearful of taking ownership position when maybe that's the best thing to do and so that's certainly something that we would consider under the right circumstances for now we're working with the sponsor and we're working to improve the performance I think the thing that's.

Really important to note is that its challenges are unique to yet and are not connected to anything that we're seeing in the broader portfolio.

That I.

I would add additionally that the vast majority of our portfolio.

Michael Grisius: The significant progress we've made in building broader and deeper relationships in the marketplace is noteworthy because it strengthens the dependability of our deal flow and reinforces our ability to remain highly selective as we rigorously screen opportunities to execute on the best investments.

Is.

Experienced performance that's up.

At her up prior quarters. So we're feeling very very good about our portfolio. This is a unique circumstance that we're working on hard.

Michael Grisius: As you can see on slide 17, our overall portfolio credit quality remains solid. The gross unleveraged IRR on realized investments made by the Saratoga investment management team is 15.6% on $908 million of realizations. On the chart on the right, you can see the total gross unlevered IRR on our $1.1 billion of combined weighted SBIC and BDC unrealized investments is 10.6% since Saratoga took over management.

Yeah, Okay. Thank you for that and then lastly.

Are you guys afraid that investors will misunderstand.

The ATM equity sales.

Seeing is that we're in.

You're actually executing them is below NAV.

Adding back the difference and are these.

Investors auto wanted to know whether or not these are being let out into the market or these are single point institutional.

Trades.

Are not impacting the day to day trading of the stock.

Michael Grisius: As of this quarter, we downgraded Pepper Palace from yellow to red. Nolan remains yellow and these two investments remain our only non-green investments. Nolan has been yellow for a while now since COVID, being more dependent on in-person business interaction and on not a cruel status since last year. There was no significant change to the mark from Q1.

Well I think that's a.

Obviously a very.

Astute question, an interesting it's not precisely something I think we can comment on I think.

There will be more evidence.

What exactly happened when the <unk> are filed.

Shortly.

But it's something that we don't have 100% of visit visibility on and.

Michael Grisius: The current unrealized appreciation reflects the current performance of the company but does not change our view of the fundamental long-term prospects for the business. Pepper Palace continued to suffer from poor performance and this quarter's results resulted in a significant right down to the mark of $15.4 million. Disroduce the overall fair value to $7.9 million, which is about a quarter of its overall cost, leaving the total depreciation at approximately $26.4 million since investment on our first lean term loan and equity investments.

And we will be reporting and have been reporting on according to the SEC standards on whats happened, but we have different periods of time, we haven't as of quarter end and what's happened since.

And then some of the confidentiality of who is doing it so it's difficult for us to give you a precise read on exactly what happened.

In terms of the.

Trading volumes, but I mean, I think as you can see there's quite a few big blocks and then despite some of the volume responses after trades were quite good.

After the after the main trades were done I think that the stock price rally.

Michael Grisius: This markdown reflects the current performance in cash flow issues the company is experiencing. We are actively engaged with the company in the sponsor to assess future options and execute on significant restructuring plans. The company has brought new resources to the business and is undertaking initiatives aimed at improving performance. This quarter's $5.7 million net unrealized depreciation primarily reflects the $15.4 million of unrealized depreciation on the company's pepper palace investment. Offset by approximately $3.9 million of net unrealized depreciation across the remainder of the portfolio, driven relatively evenly by current company performance and market spreads, and $5.8 million of unrealized depreciation on the company's CLO and JV equity investments, reflecting the volatility in the broadly syndicated loan market as a quarter end.

Rallied pretty well.

Perhaps you can tell us why people arent right.

Rallying our stock at a higher rate than they are right now.

Gives you a better perspective on it but given all all things improving leverage seven.

70% earnings yield dividend yield portfolio stability and all those type of things.

We would think that.

There would be maybe more interest in the stock and there has been apparently.

Well I'll reserve my answer to that question for my report not here to educate the other analysts on the call, but thank you for taking my question.

Thanks, Craig.

Thank you and our next question coming from the line of Mickey <unk> with Ladenburg Thalmann. Your line is now open.

Yes, good morning, everyone.

Michael Grisius: Our overall investment approach is yielding exceptional realized returns and recovery of our invested capital.

Mike I appreciate your comments on Pepper Palace.

I just wanted to understand the issues that are that that portfolio company is confronting in terms of its exposure to the consumer is also being manifest it anywhere else in your portfolio with respect to companies that are retail oriented.

Michael Grisius: Moving on to slide 18, you can see our first and second SBIC licenses are fully funded and deployed. We are currently ramping up our new SBIC three license with $161 million of lower cost, undrawn debentures available, allowing us to continue to support US small businesses.

That's a good question Mickey as I said, the vast majority of our portfolio is performing exceptionally well and is up.

Christian Oberbeck: 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 that lined on slide 19, our latest dividend of 71 cents per share for the quarter-ended August 31st, 2023 was paid on September 28th, 2023.

Certainly at or up.

Prior periods.

Don't really have that many.

Companies in our portfolio that are direct to consumers.

I'm scratching my head to even think of one almost all of our portfolio is b to B generally.

Christian Oberbeck: This is the largest quarterly dividend in our history and reflects a 37% and 31% increase over the past two years and latest 12 months, respectively. The board of directors will continue to evaluate the dividend level on at least a quarterly basis, considering both the company and general economic factors, including the near-term impact of rising base rates and increased spreads on our earnings. Recognizing the divergence of opinions on the future direction of interest rate levels and overall economic performance, Saratoga's Q2 over-earning of its dividend by 52 percent or $1.8 versus 71 cents per share of this quarter, provides substantial cushion in any circumstance should become economic conditions deteriorate or base rates decline.

So.

To answer your question directly no we're not we're not seeing any evidence of that.

Okay. That's helpful how about.

In the healthcare sector, Mike are there.

Further issues developing there at all or is that are your investments relatively insulated from the wage inflation and reimbursement risks that we've been seeing developing over the last.

Several quarters.

We have not experienced that I think I think the areas that we focused on in and one of the reasons that we've been attracted to the health care market is that it's been our experience that.

Christian Oberbeck: Moving to slide 20, our total return for the last 12 months, which includes both capital appreciation and dividends, has generated total returns of 16 percent outperforming the BDC index of 12 percent for the period. Our longer-term performance is outlined on our next slide 21. Our three and five-year returns place us in the top quartile of all BDCs for both time horizons. Over the past three years, our 102 percent return exceeded the average index return of 70 percent, while over the past five years, our 66 percent return exceeded the index's average of 34 percent.

The persistency of demand for those services is quite strong.

So not as affected by any.

Larger macro trends. If you will we also tend to steer clear of generally healthcare deals where theyre directly.

Dependent on reimbursement rates those are generally not the businesses that we focus on if you look at some of the areas that we're investing in health care. So that's not an experience that we've had as well.

I would say.

Christian Oberbeck: Since Saratoga over the management of the BDC in 2010, our total return has been 688% versus the industry's 224%. On fly-22, you can further see our performance place in the context of the broader industry and specific to certain key performance metrics. We continue to focus our long-term metrics metrics, such as return on equity, NAV per share, NIH yield and dividend growth, all of which reflects the growing value our shareholders are receiving.

It is a broad challenge that almost any middle market really any business is experiencing now which is that the labor markets are difficult and so labor rates are high and that certainly is constraining margins to some degree for our portfolio companies Thankfully. These are high value add business.

<unk>, it's one of the things that we look at very hard in underwriting.

They tend to have a lot of pricing power and they usually can manage through that in a way where they can preserve their margins and that's certainly what we've seen in the performance of our portfolio.

Christian Oberbeck: While NAV per share decreased 0.1% this quarter, we are only down 0.6% year over year, while the BDC industry is down 3.5%. We continue to be one of the few BDCs to have grown NAV over the long term, and we have done it creatively. And despite the pepper palace and COO markdowns this year, our latest 12 months return on equity of 9.6% is almost double the industry's 5.1% average.

That's helpful. It actually is sort of a segue into my next question, which is.

Interest coverage can you give us a sense of where the portfolios average interest coverage ratio is and do you have a meaningful amount of portfolio companies with an interest coverage ratio below one.

No no.

We look at that in underwriting I can't give you the.

Total portfolio number.

Christian Oberbeck: Moving on to slide 23, all of our initiatives discussed on this call are designed to make Saratoga investment a leading 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 institutions. These differentiated characteristics, many previously discussed, include maintaining one of the highest levels of management ownership in the industry at 13% ensuring we are aligned with our shareholders.

That's certainly something that we can look at but we feel very comfortable that the interest coverage across the portfolio is quite strong, yes, Mickey and just sort of looking at some.

Just very high level I mean, the impact of the interest rate change has probably resulted in like a half a turn of interest rate coverage change, it's not as significant I think as one.

Some people, perhaps think it might be because of the change in rates over the last year.

Or in our portfolio.

Okay.

Christian Oberbeck: Looking ahead on 5.24, we remain confident that a reputation, experienced management team, historically strong underwriting standards, and time and market-tested investment strategy will service well and navigating through the challenges and uncovering opportunities in the current and future environment. And that our balance sheet, capital structure, and liquidity will benefit Saratoga shareholders in the near and long term.

That's interesting.

Just lastly, sort of a housekeeping question.

There was a modest decline in portfolio away on average and I suspect it's due to propel this but I just wanted to confirm that that's the case, yes.

That's right, yes, that's why I highlighted in my comments as well Mickey you had you had a slight decrease from the rate change, but obviously a lot of the change happened really.

Christian Oberbeck: In closing, I would again like to thank all of our shareholders for their ongoing support, and I would like to now open a call for questions. Thank you.

Q1 ish.

But then that was offset by a pickup.

The impact of putting that on zero percent, obviously, what's driving the overall yield down like.

Operator: Please, gentlemen, to ask a question, you will need to press star 1-1 on your telephone, and wait for your name to be announced. To withdraw your question, press star 1-1 again. Please send by while we compile the Q&A roster.

20 bps or so.

Those are all my questions. This morning, Thank you for your time.

Thank you Mickey.

Thank you and our next question coming from the line of Sean Paul Adams with Raymond James Your line is now open.

Bryce Rowe: And our first question coming from the line of rights row would be Riley. Yelena's open. Hi, thanks. Good morning. I wanted to maybe ask about the use of the equity ATM since the end of the last quarter. Can you speak to maybe the decision to go ahead and use that equity ATM, especially with the stock still trading slightly below nav, and then wanted to get a sense for, I guess, the level at which the manager will continue to subsidize those equity raises at nav. Thanks. Sure. Well, thank you for that question.

Hi, guys. Good morning, one quick question back to Pepper Palace.

It looks like it's been a troubled asset for a while but was the major markdown.

Christian Oberbeck: I think in our view, looking at our overall business, we are really turning away a lot of tremendous opportunities given what we see out there and so the key for the growth is one of the keys is more equity and so we thought it was a very good investment from the point of view of our shareholders to issue such equity to help support I think we've described as a very robust new issuance opportunity set for the company. And so, you know, we saw the opportunity, we saw the opportunity in significant size, you know, $34 million in a quarter is a very substantial amount and with that opportunity, you know, our judgment was, it was good idea and from the manager standpoint, we were happy to support and subsidize, you know, what was a slight discount to NAV and which we covered, you know, from the manager's pocket, if you will. You know, whether those opportunities arise and how often they arise in the future is something we can't predict but, you know, we saw some interesting, interesting demand and we decided to meet it. That's helpful, Chris.

At all the result of any sponsor support relationship.

Deteriorating or was it just.

Continued.

Company specific problem.

Theres been no change in the relationship with the sponsor we're working together.

To try to improve the performance what what did happen, though is that the performance declined significantly enough that the sponsor stopped paying our interest in August and so it needed to go on non accrual as a result, but the write down in valuation was reflective of the continued challenges that the.

Business is having.

Okay. Thank you and regarding the spillover do you guys have any idea of a special dividend declaration sometime in 2024, because it is going to be quite high by the end of this year.

Yes, I mean, I think the spillover is increasing I think as we've mentioned in prior calls we've been.

Conservative and our spillover management and so we don't have any spillover owed.

November .

And the next time to reconcile spillover will be by November of 2024, and we havent fully determined our plans relative to managing that.

Clearly there is.

BDC and Ric rules determining what one does with ones.

Earnings spillover.

Thank you I appreciate it.

Okay.

Thank you and our next question coming from the line of Alex.

<unk> of the group your line is open.

Good morning wanted to just start with the commentary that the origination volume in <unk>.

Kind of slower than it had been in prior quarters, primarily due to a number of the opportunities you've reviewed not meeting credit standards. So maybe kind of two questions. There one were there any commonalities between kind of the shortcomings versus your criteria and what you're viewing or was it kind of diverse across the company.

Bryce Rowe: And maybe a follow-up there, you know, that sounds like there's clearly a healthy pipeline, you know, and a discerning eye at Saratoga, you've seen, you know, you saw balance sheet leverage kind of come down here in the quarter with the ATM usage. Is there a particular target? Do you think we'll see leverage kind of creep back up again as you put money to work? Or do you feel more comfortable, you know, operating with, you know, I guess a lower level of leverage than we saw, you know, maybe the last couple quarters.

Has that improved so far this quarter are you seeing more opportunities that would potentially.

Sure.

Your criteria to add to the portfolio.

I would say that.

That was the experience with one new platform company was more reflective of just.

The nature of the business that we're in where.

It's not something where you can look at trends in one quarter and assign too much to that I think we overall feel very good about the quality of the pipeline that we have and expect that will continue to deploy capital in new portfolio companies kind of at a consistent.

Bryce Rowe: Well, I think that that is kind of a dynamic situation. I think as we said in past quarters, you know, we have to balance a lot of things and we have balanced, you know, our opportunities. And as you correctly pointed out, you know, our leverage did increase a fair amount over the past year really in, you know, to address what we saw as some greater opportunities. Clearly, you know, over time we want to balance the magnitude of our leverage, you know, with our opportunity set.

Faced with what we've done in the past.

While deal flow in general is down in the market for all the reasons that we've outlined.

We're certainly benefiting from the fact that banks have retreated in in a pretty significant way and so we have people, even reaching out to us.

Bryce Rowe: And when we have opportunities to raise equity, you know, we do. And, you know, we really haven't had many opportunities, you know, in the last, you know, period of time. And just recently we did. And so we decided to take advantage of that. And, you know, we obviously remain, you know, balanced in terms of how much leverage we're going to absolutely put on versus, you know, how much equity we're able to raise.

Unsolicited.

Trying to form a relationship with us and that's certainly increased our pipeline in a in a meaningful way.

So.

That plus all of the efforts that we've made on the business development side have kept our pipeline pretty full so there's not really anything that that I could point to that would say oh thematically we are seeing.

Acts in the marketplace and we're not comfortable with that.

Bryce Rowe: And again, it's a dynamic situation that, you know, we can't, we can't, you know, there are two different markets, right. The market for our equity is one thing and the market for our new, new originations is something else. And we're not necessarily able to precisely match them in time. But over time we want to keep ourselves in a, you know, in a very solid, balance sheet position. I appreciate that. Appreciate you taking it time. Thanks, Bryce. Thank you.

We're.

Taking the same approach to underwriting that we have historically.

Okay. That's helpful and then.

The other question I had a little bit kind of going back to the debt service coverage ratio discussion from a couple of questions ago curious kind of looking at it from the other perspective.

Or kind of other side of the coin curious if you could just give any.

Color or characteristics in terms of recent EBITDA growth for your portfolio companies, our average or other kind of kpis that you look at that of help these companies, maybe offset higher interest burden as well as inflationary pressures.

Casey Alexander: And our next question coming from the line of Casey Alexander with Compass Point Research, you're on his open. Yeah, I mean, you're gross leverage is still around two times, your net leverage is around one and a half times. So to a certain extent, we could argue that at least right now, without repayments, you're sort of loaned to the limit. What is the outlook for repayments for the balance of the year, because we're going into a period that traditionally, you know, the end of the year is generally a fairly robust period of time for originations.

If there's one theme I would I would say that is common across our portfolio is that.

We look for businesses that have.

Differentiated business models, and often benefit from secular growth trends I E. They have a better mouse trap and they're performing well and therefore.

Even if the macro environment is a bit challenged now this isn't 100% the case across every portfolio company, but the mattikalli in general.

Casey Alexander: So are you going to be able to participate in that? What is the outlook for repayments? And also, what is the remaining capacity in the JV for you to be able to, you know, originate investments and put investments there as well?

Those businesses that we gravitate toward are ones that are going to perform pretty well even in a challenging environment and that's what we're seeing in our portfolio.

Okay. So it's safe to assume then.

You are seeing kind of growth across the portfolio in terms of EBITDA and other metrics.

Christian Oberbeck: I'll start with that. Again, I think, as I just mentioned, to Bryce's question, we don't 100% determine the flow of origination opportunities. And we have a group of sponsors that we've been working with, sponsors that we want to work with. And the exact flows that come off of those opportunities are things that we want to manage to keep growing and keep supporting as we have been, you know, our base. So that's not necessarily something we can predict in this fourth quarter, you know, precisely, you know, in terms of leverage, we do have a, you know, what we feel is a significant improvement in our leverage position given that the equity issuances.

Yes, I think as I've said, the vast majority of our portfolio is up at or above where they were in prior periods.

Okay, great. Thanks for taking my questions today.

Thank you.

Thank you.

And I'm showing no further questions in the queue at this time I would now like to turn the call back over to Mr. Oberbeck for any closing remarks.

Well, we want to thank everyone for joining us today, and we look forward to speaking with you next quarter. Thank.

Thank you.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

Christian Oberbeck: And in terms of repayments, you know, Mike, do you want to? Yeah, in case you let me try to take that, the rule of thumb, I always apply, I think you've heard me say this before, is you know, that the portfolio of our type should generally turn over, you know, about a third a year, roughly, but then it never really turns over at that level. That's kind of just a rule of thumb.

Christian Oberbeck: And in really dynamic markets where everybody's feeling super bullish, it can turn over a lot faster than that. In this market, our shareholders are getting the benefit of us not experiencing as much turnover. And so we've got a really healthy portfolio where the owners are continuing to pay us interest and the companies are performing well, but they're deciding now it's not the best time to sell because there's a disconnect between, you know, generally in the market where, you know, sellers feel there's value and where it was historically and where buyers are willing to pay for things.

Okay.

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Christian Oberbeck: And so we are getting the benefit of, you know, fewer payoffs. Now having said that, we're bound to have payoffs. We certainly are aware of some that are on the horizon that are meaningful. I think the important thing though to also recognize, and I think Chris mentioned this as well, is that we have very significant availability under SBIC license. And we don't feel that as being your constraint for us at all.

Christian Oberbeck: If we see a really good opportunity to invest capital through that vehicle, and it's a business that's really strong, we're going to take advantage of that. I think when you get outside of the SBIC license, you know, we're sort of balancing, as Chris mentioned, capital availability, leverage, how much we like to deal, some of those factors, and certainly the amount of payoffs that we get will, you know, be part of that equation as well.

Christian Oberbeck: In case you probably noticed, we repaid $27 million of our SBIC wonder benches, and although that doesn't obviously impact the net leverage that did free up capacity there, you know, just from a gross leverage perspective as one sort of thinks about the SBIC three deployment. And you also asked about the joint venture, you know, we have no need or requirement to put additional capital into the joint venture at this point in time.

Christian Oberbeck: So, you know, there's not going to necessarily going to be a drain of liquidity on the joint venture in the near term. It's sort of operating at a steady state now, and obviously it's subject to the volatility of the broadly syndicated loan market, but you see the dividend income that it's generating at the moment. Now two quarters in a row, and that's becoming more of a steady state return, if you will, at this point in time, than, you know, unusual or non-recuring.

Christian Oberbeck: Just picking up a little bit on what Mike said about the absence of sort of normalized repayments, I mean, in effect, what's happening is that, you know, the percentage of.., with prior investments or season credits in our portfolio is growing. And so these are credits that we know, we have a lot of experience with. And so those are very solid credits that we're involved with, and are producing what we feel is pretty tremendous earnings.

Christian Oberbeck: Our earnings yield at 17% is a very substantial earnings yield across our portfolio. And while we do have some... But which is a company with a high level of leverage, Chris? I mean, you're not in a business that investors are necessarily going to be comfortable with an unlimited amount of leverage. I mean, whether the gross leverage is the same as your regulatory leverage, that number can't go to a number that makes investors uncomfortable, or it'll be counterproductive, no matter what your earnings are.

Christian Oberbeck: So we understand that you have to keep that in mind. Yeah, we absolutely do keep it in mind. And I think you've heard us in many of our conference calls in these discussions. Gross leverage for one BDC is not the same as gross leverage for another. And our gross leverage, given the term structure of our leverage, the duration of our leverage, the absence of covenant, the absence of amortization rates and things like that, we believe makes our leverage quite manageable. And the context of our portfolio. Yeah, okay.

Casey Alexander: Secondly, for Mike, you said that you're looking forward to some type of broad restructuring of Pepper Palace. Do you think you guys are going to end up with the keys here? Or are you just going to be a continued to be in a supportive role? And should we expect where your mark is at to likely turn into some form of equity here? Casey, obviously it's a private company, so I can get into all the details, but certainly we are working with the sponsor right now trying to improve performance.

Casey Alexander: Recently brought some additional resources to bear to that end. Is it possible that we could end up with the keys? I mean, it's uncertain because it's, it's a, it's a challenging situation. Certainly Ben, we've been in this business for a long time. There are a lot of lenders who are perhaps overly fearful of taking ownership position when maybe that's the best thing to do. And so that's certainly something that we would consider under the right circumstances.

Casey Alexander: For now, we're working with the sponsor and we're working to improve the performance. I think the thing that's really important to note is that its challenges are unique to it and are not connected to anything that we're seeing in the broader portfolio. And that I'd add additionally that the vast majority of our portfolio is experience performance that's up at or up prior quarters. So we're feeling very, very good about our portfolio. This is a unique circumstance that we're working on hard. Yeah, okay, thank you for that.

Casey Alexander: And then lastly, you know, are you guys afraid that investors will misunderstand the ATM equity sales seeing is that where you're actually executing them is below NAV, you're adding back the difference and are these, you know, investors ought to want to know whether or not these are being bled out into the market or these are single point institutional trades that are not impacting the day-to-day trading of the stock. Well, I think that's obviously a very astute question and interesting.

Casey Alexander: It's not precisely something I think we can comment on. I think there will be more evidence of what exactly happened when the 13Fs are filed shortly, but it's something that, you know, we don't have 100% of visibility on and, you know, we will be reporting and have been reporting on, you know, according to the SEC standards on what's happened. But we have, you know, different periods of time, we have, you know, as a quarter-end and what's happened since and then some of the confidentialities of who's doing it.

Casey Alexander: So it's difficult for us to give you a precise read on exactly what happened in terms of, you know, the trading volumes, but I think as you can see, there's quite a few big blocks and then just put, you know, some of the volume responses after trades were quite good, you know, after the main trades were done, I think the stock price, you know, rallied pretty well. You know, perhaps you can tell us why people aren't rallying our stock at a higher rate than they are right now because you have a better perspective on it, but, you know, given all things, you know, improving leverage, you know, 70% earnings yield, dividend yield, portfolio stability and all those type of things, we would think that, you know, that there would be maybe more interest in the stock than there has been apparently. Well, I'll reserve my answer to that question for my report. I'm not here to educate the other panelists on the call, but thank you for taking my questions. Thank you.

Mickey Schleien: And our next question coming from the line of, Nicky Slanoid, Lettenberg-Talman, Yelena Smalopen.

Mickey Schleien: Well, yes, good morning, everyone. Mike, appreciate your comments on Pepper Palace. I just want to understand if the issues that are, that that portfolio company is confronting in terms of its exposure to the consumer is also being manifested anywhere else in your portfolio with respect to companies that are, you know, retail oriented. It's a good question, Nicky. As I said, the vast majority of our portfolio is performing exceptionally well and is up.

Mickey Schleien: It certainly adder up, you know, prior periods. We don't really have that many companies in our portfolio that are direct to consumers. I'm scratching my head to even think of one, almost all of our portfolio is B2B generally. So, and the answer to your question directly, no, we're not seeing any evidence of that.

Mickey Schleien: Okay, that's helpful. How about, you know, in the healthcare sector, Mike, are there further issues developing there at all, or are your investments relatively insulated from the wage inflation and, you know, reimbursement risk that we've been seeing developing over the last, you know, several quarters? We have not experienced that. I think, I think the areas that we focus on, and one of the reasons that we've been attracted to the healthcare market is that it's been our experience that the persistency of demand for those services is quite strong.

Mickey Schleien: So not as affected by any larger macro trends, if you will, we also tend to steer clear of generally healthcare deals where they're directly dependent on reimbursement rates. Those are generally not the businesses that we focus on if you look at some of the areas that we're investing in healthcare, so that's not an experience that we've had as well, either. I would say it is a broad challenge that almost any middle market, really any businesses experiencing now, which is that the labor markets are difficult, and so labor rates are high, and that certainly is constraining margins to some degree.

Mickey Schleien: For our portfolio companies, thankfully these are high value-add businesses. It's one of the things that we look at very hard in underwriting, so they tend to have a lot of pricing power, and they usually can manage through that in a way where they can preserve their margins, and that's certainly what we've seen in the performance of our portfolio.

Mickey Schleien: That's helpful, and actually is sort of a segue into my next question, which is interest coverage. Can you give us a sense of where the portfolio's average interest coverage ratio is, and do you have a meaningful amount of portfolio companies with an interest coverage ratio below one? No, no. We look at that in underwriting. I can't give you the total portfolio number. That's certainly something that we can look at, but we feel very comfortable that the interest coverage across the portfolio is quite strong.

Mickey Schleien: Mickey, you know, in just sort of looking at some, you know, just very high level, I mean, the impact of the interest rate change is probably resulting like a half a turn of interest rate coverage change. It's not as significant, I think, as some people perhaps think it might be because of the change in rates over the last year, or in our portfolio.

Mickey Schleien: Okay. That's interesting.

Mickey Schleien: And just lastly, sort of a housekeeping question, there was a modest decline in portfolio away on average, and I suspect it's due to pepper palace, but I just want to confirm that that's the case. Yeah, that's right. Yeah, that's why I highlighted in my comments as well, Mickey. You know, you had a slight increase from the rate change, but obviously a lot of change happened really, you know, Q, Q1-ish, but that was also by pepper palace. In fact, after putting that on zero per cent, obviously we strived the overall yield down like 20 per cent. So, sir.

Mickey Schleien: Okay, those are all my questions this morning. Thank you for your time. Thank you, Mickey. Thank you.

Sean Paul Adams: And our next question coming from Delayna. Sean Paul Adams with Raymond James. He won a conference.

Michael Grisius: Hi guys. Good morning. One quick question back to Pepper Palace. It looks like it's been a trouble for a while, but was the major markdown at all the result of any sponsor support relationship deteriorating or was it just the you know a continued you know company specific problem? There's been no change in the relationship with the sponsor. We're working together to try to improve the performance. What what did happen, though, is that the performance declined significantly enough that the sponsor, you know, stop paying our interest in August. And so it you know it needed to go on on a cruel as a result, but the right down evaluation was reflective of the continued challenges that the business is having.

Sean Paul Adams: Okay, thank you.

Sean Paul Adams: And regarding these spillover, do you guys have any idea, you know, a special dividend or declaration, you know, sometime in 24 because it is going to be quite high by the end of this year. Yeah, I mean, I think the spillover is is increasing. I think as we've mentioned in prior calls, you know, we've been conservative in our spillover management. And so we don't have any spillover owed this November. And the next time to reconcile spillover will be you know by November of 2024.

Sean Paul Adams: And we haven't you know fully determined our plans relative to managing that. But you know clearly there's you know BDC and Rick rules determining what what one does with one's earnings and spillover. Thank you. I appreciate it.

Sean Paul Adams: Thank you.

Exit: And our next question coming from the line of exit with Hoptic group. You want us open.

Exit: Good morning. I wanted to just start with the commentary that the originations volume in 2Q was, you know, kind of slower than it had been in prior quarters, primarily due to, you know, number of opportunities reviewed, not meeting credit standards. So maybe kind of two questions there. One, you know, were there any commonalities between kind of the shortcomings versus your criteria and what you're reviewing, or was it, you know, kind of diverse across the company.

Exit: And two, you know, has that improved so far this quarter, you're seeing more opportunities that would potentially meet your criteria to add to the portfolio. I would say that that was the experience with one new platform company was more reflective of just the nature of the business that we're in where, you know, it's not something where you can look at trends in one quarter and assign too much to that. I think we overall feel very good about the quality of the pipeline that we have and expect that will, you know, continue to deploy capital in new portfolio companies kind of at a consistent pace with what we've done in the past.

Exit: While deal flow in general is down in the market for all the reasons that we've outlined, you know, we're certainly benefiting from the fact that banks have retreated in a pretty significant way. And so we have people even reaching out to us unsolicited trying to form a relationship with us and that certainly increased our pipeline in a meaningful way. And so, you know, if that plus all of the efforts that we've made on the business development side have kept our pipeline pretty full.

Exit: So there's not really anything that I could point to that would say, oh, thematically we're seeing, you know, X in the marketplace and we're not comfortable with that. So, taking the same approach to underwriting that we have historically. Thanks, that's helpful. And then the other question I had, a little bit kind of going back to the debt service coverage ratio discussion from a couple questions to go curious kind of looking at it from from the other perspective, or kind of other side of the coin curious if you could just give any color or characteristics in terms of recent EBITDA growth for your portfolio companies or average or other kind of KPIs that you look at that have helped these companies maybe offset higher interest burden as well as inflationary pressures.

Exit: If there's one theme I would say that is common across our portfolio is that we look for businesses that have differentiated business models and often benefit from secular growth trends. They have a better mass trap and they're performing well. And therefore even if the macro environment is a bit challenged, now this is in a hundred percent the case across every portfolio company but thematically in general, those businesses that we gravitate toward are ones that are going to perform pretty well even in a challenging environment and that's what we're seeing in our portfolio.

Exit: So say to assume that you are seeing kind of growth across the portfolio in terms of EBITDA and in other metrics. Yeah, I think as I've said, the vast majority of our portfolio is up at or above where they were, you know, the prior periods. Great. Thanks for taking my questions today. Thank you.

Operator: And I'm showing off for the questions in the queue at this time.

Christian Oberbeck: I would now like to send a call back over to Mr. Oberbeck for any closing remarks. Well, we want to thank everyone for joining us today and we look forward to speaking with you next quarter. Thank you. Thank you for your participation.

Operator: You may now disconnect.

Operator: Thank you.