Q2 2027 Saratoga Investment Corp Earnings Call

October 7, 2026

Speaker #2: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's fiscal second quarter 2027 financial results conference call. Please note that today's call is being recorded.

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's Fiscal Q2 2027 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's prepared remarks, we will open the line for questions. At this time, I would like to turn the call over to Saratoga Investment Corp's Chief Financial and Chief Compliance Officer, Mr. Henri Steenkamp. Sir, please go ahead.

Speaker #2: During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, we will open the line for questions. At this time, I would like to turn the call over to Saratoga Investment Corp's Chief Financial and Chief Compliance Officer, Mr. Henri Steenkamp.

Speaker #2: Sir, please go ahead.

Speaker #3: Thank you. I would like to welcome everyone to Saratoga Investment Corp's fiscal second quarter 2027 earnings conference call. Today's conference call includes forward-looking statements and projections.

Henri Steenkamp: Thank you. I would like to welcome everyone to Saratoga Investment Corp's Fiscal Q2 2027 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 SEC 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 unless required to do so by law. Today, we will be referencing a presentation during our call. You can find our Fiscal Q2 2027 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. For everyone new to our story, please note that our fiscal year-end is 28 February, so any reference to Q2 results reflects our 31 August quarter-end period.

Speaker #3: We ask you to refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections.

Speaker #3: We do not undertake or update our forward-looking statements unless required to do so by law. Today, we will be referencing a presentation during our call.

Speaker #3: You can find our fiscal second quarter 2027 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.

Speaker #3: For everyone new to our story, please note that our fiscal year-end is February 28th. Any reference to Q2 results reflects our August 31st quarter-end period.

Speaker #3: A replay of this conference call will also be available. Please refer to our earnings press release for details. I would now like to turn the call over to our Chairman and Chief Executive Officer, Christian Oberbeck, who will be making a few introductory remarks.

Henri Steenkamp: A replay of this conference call will also be available. Please refer to our earnings press release for details. I would now like to turn the call over to our Chairman and Chief Executive Officer, Christian Oberbeck, who will be making a few introductory remarks.

Speaker #4: Thank you, Henri. And welcome, everyone. Before discussing our results, I would like to take a moment to recognize Henri's transition that was recently announced.

Christian Oberbeck: Thank you, Henri, and welcome everyone. Before discussing our results, I would like to take a moment to recognize Henri's transition that was recently announced. Henri will be stepping down from his executive roles on 31 October for health reasons. Henri's been an invaluable member of our team, has made significant contributions to Saratoga over his almost 13 years with us. While we are sad to see him step away from his day-to-day roles, we fully support his decision to prioritize his health. We are grateful that he will remain a member of our board and the CFO of the SBICs, and continue to support the company in a consulting capacity. On behalf of the board and the entire Saratoga team, I want to thank Henri for his leadership, judgment, and dedication to the company and our shareholders.

Speaker #4: Henri will be stepping down from his executive roles on October 31st for health reasons. Henri has been an invaluable member of our team and has made significant contributions to Saratoga over his almost 13 years with us.

Speaker #4: While we are sad to see him step away from his day-to-day roles, we fully support his decision to prioritize his health. We are grateful that he will remain a member of our Board and the CFO of the SBICs, and continue to support the company in a consulting capacity.

Speaker #4: On behalf of the board and the entire Saratoga team, I want to thank Henri for his leadership, judgment, and dedication to the company and our shareholders.

Speaker #4: This quarter had numerous highlights, and subsequent to the quarter, including net positive originations of $37.1 million, including two new non-software portfolio companies originated in the quarter, and sustained high-quality AUM growth, with AUM growing 2.1% during the quarter and reaching a record level of $1.15 billion.

Christian Oberbeck: This quarter had numerous highlights subsequent to the quarter, including net positive originations of $37.1 million, including two new non-software portfolio companies originated in the quarter, and sustained high-quality AUM growth, with AUM growing 2.1% during the quarter and reaching a record level of $1.15 billion. Issuance of the $85 million SAX baby bond, which subsequent to quarter end increased to $120.8 million through the exercise of the green shoe and reopening of the issuance. This allowed for the refinancing of the $105.5 million SAT baby bond due early 2027 last month, reducing refinancing risk for next year. This baby bond was opportunistically issued prior to Labor Day and subsequent increases in interest rates and competitive offerings. Stable adjusted NII of $0.46 per share, inclusive of the cost of our recently refinanced capital structure.

Speaker #4: Issuance of the $85 million SAX baby bond, which subsequent to quarter-end increased to $120.8 million with the exercise of the green shoe and reopening of the issuance. This allowed for the refinancing of the $105.5 million SAT baby bond due early 2027 last month, reducing refinancing risk for next year.

Speaker #4: This baby bond was opportunistically issued prior to Labor Day, and subsequent increases in interest rates and competitive offerings. Stable adjusted NII of $0.0446 per share, inclusive of the cost of our recently refinanced capital structure.

Speaker #4: Repurchasing approximately 444,000 shares at a discount to NAV, which was accretive to NAV by $0.09 per share. Taking advantage of the robust refinancing environment to reset our legacy CLO at $350 million at lower rates, resulting in a new three-year reinvestment period and ensuring future BDC management fees and significant interest income.

Christian Oberbeck: Repurchasing approximately 444,000 shares at a discount to NAV, which was accretive to NAV by $0.09 per share. Taking advantage of robust refinancing environment to reset our legacy CLO at $350 million at lower rates, resulting in new three-year reinvestment period and ensuring future BDC management fees and significant interest income. Continuation of significant Zollege investment appreciation and the sale of both our Pepper Palace and CLO's F note investment subsequent to quarter end, resulting in the resolution of our remaining non-accrual investments. Our core BDC portfolio fair value remains within 1.6% of cost, demonstrating solid overall credit quality in a challenging and volatile macroeconomic environment. Our non-accruals are now zero following the above resolutions, significantly lower than the industry's 3.5% of cost average.

Speaker #4: Continuation of significant knowledge investment appreciation and the sale of both our Pepper Palace and CLO F-note investments subsequent to quarter-end, resulting in the resolution of our remaining non-accrual investments.

Speaker #4: Our core BDC portfolio fair value remains within 1.6% of cost, demonstrating solid overall credit quality in a challenging and volatile macroeconomic environment. Our non-accruals are now zero following the above resolutions, significantly lower than the industry's 3.5% of cost average.

Speaker #4: Some of the headwinds experienced this quarter included the balance sheet refinancing, resulting in additional interest expense from higher-cost debt, while spreads on assets have not yet widened.

Christian Oberbeck: Some of the headwinds experienced this quarter included the balance sheet refinancing, resulting in additional interest expense from higher cost debt while spreads on assets have not yet widened. See the base rate increases, which will benefit interest income with every 25 basis points increasing interest income by $0.30 per quarter. Our NAV per share decline, including $0.82 per share, specifically related to company performance in three distinct credits, and $0.30 per share related to dividend distributions exceeding net investment income, offset by $0.09 per share appreciation from share repurchases. $13.3 million of $25.9 million NAV decline from accretive share repurchases being 32% of the change, and excess dividend distribution of previously undistributed earnings being 19% of the change, which reduces the company's spillover obligation. We continue our track record of strong dividend distributions.

Speaker #4: Please note the base rate increases, which will benefit interest income, with every 25 basis points increasing interest income by 3.3 cents per quarter. Our NAV per share decline includes $0.82 per share specifically related to company performance in three distinct credits, and $0.30 per share related to dividend distributions exceeding net investment income, offset by $0.09 per share appreciation from share repurchases. Of the $25.9 million NAV decline, $13.3 million is from accretive share repurchases, representing 32% of the change, and excess dividend distribution of previously undistributed earnings represents 19% of the change, which reduces the company's spillover obligation.

Speaker #4: We continue our track record of strong dividend distributions. We recently announced a monthly base dividend of $0.25 per share, or $0.75 per share in aggregate for the third quarter of fiscal 2027, which, when annualized, represents an 18.1% yield based on the stock price of $16.61 as of October 5, 2026, offering strong current income.

Christian Oberbeck: We recently announced a monthly base dividend of $0.25 per share or $0.75 per share in aggregate for Q3 of fiscal 2027, which when annualized, represents an 18.1% yield based on the stock price of $16.61 as of 5 October 2026, offering strong current income. Originations and AUM growth during the quarter contributed to adjusted NII of $0.46 per share compared to $0.47 per share last quarter. The modest sequential decline reflected higher interest income from portfolio growth, including new originations in BB and BBB CLO debt investments, offset by the full period impact of our recent refinancing activity. Investment activity remained healthy during the quarter, supported by the continued expansion of our business development capabilities and sponsor relationships. Market dynamics continue to be very competitive during the quarter.

Speaker #4: Originations and AUM growth during the quarter contributed to adjust NII to adjusted NII of 46 cents per share compared to 47 cents per share last quarter.

Speaker #4: The modest sequential decline reflected higher interest income from portfolio growth, including new originations and BB and BBB CLO debt investments, offset by the full-period impact of our recent refinancing activity.

Speaker #4: Investment activity remained healthy during the quarter, supported by the continued expansion of our business development capabilities and sponsor relationships. Market dynamics continued to be very competitive during the quarter.

Speaker #4: Despite this, we originated $76.1 million of investments, including investments in two new software, two new non-software portfolio companies, and nine follow-on investments, compared with $39 million of repayments, resulting in $37.1 million of net originations.

Christian Oberbeck: Despite this, we originated $76.1 million of investments, including investments in two new non-software portfolio companies and nine follow-on investments, compared with $39 million of repayments, resulting in $37.1 million of net originations. Approximately $9.2 million of the quarter's originations consisted of BB and BBB CLO debt investments. Our strong reputation, differentiated market positioning, and the ongoing development of sponsor relationships continue to create attractive investment opportunities from high-quality sponsors. Investment activity continues post quarter end with $35 million of originations, including one new portfolio company, offset by $2 million of repayments. While the competition remains significant and sentiment across private credit continues to be cautious, we remain highly selective and disciplined in evaluating opportunities given the uncertain operating environment.

Speaker #4: Approximately $9.2 million of the quarter's originations consisted of BB and BBB CLO debt investments. Our strong reputation, differentiated market positioning, and the ongoing development of sponsor relationships continued to create attractive investment opportunities from high-quality sponsors.

Speaker #4: Investment activity continues post-quarter-end with 35 million dollars of originations including one new portfolio company offset by 2 million dollars of repayments. While the competition remains significant and sentiment across the private credit cross-private credit continues to be cautious, we remain highly selective and disciplined in evaluating opportunities given the uncertain operating environment.

Speaker #4: Our total $1.15 billion portfolio was marked down $14.4 million during the quarter, including net depreciation of $15.4 million in the non-CLO core portfolio, driven primarily by $13.1 million of markdowns in Madison Logic, ExaGo, and Kronos.

Christian Oberbeck: Our total $1.15 billion portfolio was marked down $14.4 million during the quarter, including net depreciation of $15.4 million in the non-CLO core portfolio, driven primarily by $13.1 million of markdowns in Madison Logic, Exigo, and Chronus, reflecting company performance adjustments. The equity conversions of Gen4 and Modis that resulted in a $1.5 million reversal of previously recognized unrealized appreciation. Other marks reflected a combination of lower equity market multiples and changes in market spreads, partially offset by $4.5 million of unrealized appreciation in Zollege. The CLO One's F-note remained at zero fair value. The JV was written down $1.1 million after paying a $0.8 million dividend to the BDC, and the double B and triple B portfolio was relatively flat. We also recognized $2.1 million of realized gains, primarily from the Gen4 and dental equity conversions.

Speaker #4: Reflecting company performance adjustments, and the equity conversions of Gen IV and Motus that resulted in a $1.5 million reversal of previously recognized unrealized appreciation.

Speaker #4: Other marks reflected a combination of lower equity market multiples and changes in market spreads, partially offset by $4.5 million of unrealized appreciation in knowledge.

Speaker #4: The CLO I's F-note remained at zero fair value. The JV was written down $1.1 million after paying a $0.8 million dividend to the BDC, and the BB and BBB portfolio was relatively flat.

Speaker #4: We also recognized $2.1 million of realized gains, primarily from the Gen IV and incidental equity conversions. As of quarter-end, our core non-CLO portfolio was 1.6% below cost, with our total portfolio valuation 4.9% below cost.

Christian Oberbeck: As of quarter end, our core non-CLO portfolio was 1.6% below cost, with our total portfolio valuation 4.9% below cost. During the second quarter, our core BDC net interest margin increased to $13.6 million from $13.4 million last quarter. This was driven primarily by a 1.2% increase in average core assets and the average SOFR rate used in the portfolio increasing by five basis points from last quarter. This was partially offset by spreads on originations this quarter being 220 basis points lower than the repayments they replaced and increased interest expense on the changes in our capital structure. As always, and particularly in the current uncertain environment, balance sheet strength, liquidity, and NAV preservation remain paramount for us.

Speaker #4: During the second quarter, our core BDC net interest margin increased to $13.6 million from $13.4 million last quarter. This was driven primarily by a 1.2% increase in average core assets and the average SOFR rate used in the portfolio increasing by 5 basis points from last quarter.

Speaker #4: This was partially offset by spreads on originations this quarter being 220 basis points lower than the repayments they replaced, and increased interest expense on the changes in our capital structure.

Speaker #4: As always, and particularly in the current uncertain environment, balance sheet strength, liquidity, and NAV preservation remain paramount for us. At quarter end, we maintained a substantial $211 million of investment capacity to support our portfolio companies, with $121 million available through our existing SBI C3 license, including the recent SBA approval of a $75 million upsize, and $90 million from our two revolving credit facilities.

Christian Oberbeck: At quarter end, we maintained a substantial $211 million of investment capacity to support our portfolio companies with $121 million available through our existing SBIC 3 license, including the recent SBA approval of a $75 million upsize and $90 million from our two revolving credit facilities. All quarter-end cash was used to repay the SAT baby bond in September. As we enter the back half of the fiscal year 2027, the operating environment remains uneven as geopolitical uncertainty, persistent inflation, interest rate volatility, and concerns regarding AI-related disruption within the software sector continue to affect borrowers and valuations. These conditions have contributed to higher default activity, declining NAVs across the industry, and dividend reductions by several BDCs.

Speaker #4: All quarter-end cash was used to repay the SAT baby bond in September. As we enter the back half of fiscal year 2027, the operating environment remains uneven, as geopolitical uncertainty, persistent inflation, interest rate volatility, and concerns regarding AI-related disruption within the software sector continue to affect borrowers and valuations.

Speaker #4: These conditions have contributed to higher default activity, declining NAVs across the industry, and dividend reductions by several BDCs. At Saratoga, however, the NAV decline this quarter—in addition to it being due to the significant share repurchases that were accretive to NAV per share—was concentrated in a limited number of portfolio-specific situations and does not appear to reflect broad-based deterioration across the portfolio.

Christian Oberbeck: At Saratoga, however, the NAV decline this quarter, in addition to it being due to the significant share repurchases that were accretive to NAV per share, was concentrated in a limited number of portfolio-specific situations and does not appear to reflect broad-based deterioration across the portfolio. At the same time, strong BDC debt issuance, firmer values for higher-quality loans, and slightly improving M&A activity point to a market that appears to be stabilizing and increasingly differentiated among managers. We remain confident that our disciplined senior secured first lien focused underwriting and well-structured balance sheet position Saratoga to navigate this environment. Moving on to Saratoga Investment Corp's fiscal 2027 second quarter key performance indicators as compared to the quarters ended 31 May 2026 and 31 August 2025.

Speaker #4: At the same time, strong BDC debt issuance, firmer values for higher quality loans, and slightly improving M&A activity point to a market that appears to be stabilizing and increasingly differentiated among managers.

Speaker #4: We remain confident that our disciplined senior secured first-lean focused underwriting and well-structured balance sheet position and well-structured balance sheet position Saratoga to navigate this environment.

Speaker #4: Moving on to Saratoga Investment's fiscal 2027 second quarter key performance indicators, as compared to the quarters that ended May 31, 2026, and August 31, 2025, our quarter-end NAV was $372.5 million, down 6.8% from $378.5 million last quarter and 14.1% from $410.5 million last year, with $8.4 million of the charge being due to share repurchases.

Christian Oberbeck: Our quarter end NAV was $306 million, down 6.8% from $378.5 million last quarter and 14.1% from $410.5 million last year, with $8.4 million of the charge being due to share repurchases. Our NAV per share was $22.15, down from $23.23 last quarter and $25.61 last year. Of the $1.08 sequential quarter reduction, $0.30 or 28% was due to the under-earning of the dividend. This excess distribution represents previously undistributed NII profits from prior years. Our adjusted NII was $7.4 million this quarter, down 2.6% from last quarter and down 18.7% from last year. Our adjusted NII per share was $0.46 this quarter, down 2.1% from last quarter and 20.7% from last year. Adjusted NII yield was 8.1% this quarter, up from 7.8% last quarter and down from 9% last year.

Speaker #4: Our NAV per share was 22 dollars and 15 cents down from 23 dollars and 23 cents last quarter and 25 dollars and 61 cents last year.

Speaker #4: Of the $1 dollar and eight sequential quarter reduction, $0.30, or 28%, was due to the under-earning of the dividend. This excess distribution represents previously undistributed NAI profits from prior years.

Speaker #4: Our adjusted NAI was $7.4 million this quarter, down 2.6% from last quarter and down 18.7% from last year. Our adjusted NAI per share was $0.46 this quarter, down 2.1% from last quarter and 20.7% from last year.

Speaker #4: Adjusted NAI yield was 8.1% this quarter, up from 7.8% last quarter, and down from 9% last year. The latest 12-month return on equity was negative 1.1%, down from 4% last quarter and down from 9.1% last year.

Christian Oberbeck: Latest 12 months return on equity was -1.1%, down from 4% last quarter and down from 9.1% last year. This is currently below the industry average of 2.2%. Slide 3 illustrates how our combined portfolio and financial results have delivered an ROE of -1.1% for the last 12 months, below the industry average of 2.2%. However, our long-term average return on equity over the past 12 years of 9.2% is almost 1.5 times above the BDC industry average of 6.4%. Our long-term return on equity has remained strong over the past decade plus, beating the industry nine of the past 12 years while remaining positive every year. As you can see on slide 4, our assets under management have steadily and consistently risen since we took over the BDC 16 years ago, despite a slight pullback in fiscal 2025 reflecting significant repayments.

Speaker #4: This is currently below the industry average of 2.2%. Slide 3 illustrates how our combined portfolio and financial results have delivered an ROE of negative 1.1% for the last 12 months, below the industry average of 2.2%.

Speaker #4: However, our long-term average return on equity over the past 12 years of 9.2% is almost 1.5 times above the BDC industry average of 6.4%.

Speaker #4: Our long-term return on equity has remained strong over the past decade, plus being the industry leader in 9 of the past 12 years while remaining positive every year.

Speaker #4: As you can see on slide 4, our assets under management have steadily and consistently risen since we took over the BDC sixteen years ago.

Speaker #4: Despite a slight pullback in fiscal 2025 reflecting significant repayments, as of the end of the quarter, our assets under management reached a record level of $1.15 billion, in part due to this quarter's originations again outpacing repayments, resulting in a meaningful increase in AUM as compared to the previous quarter.

Christian Oberbeck: As of the end of the quarter, our assets under management reached a record level of $1.15 billion, in part due to this quarter's originations again outpacing repayments, resulting in a meaningful increase in AUM as compared to the previous quarter. Our overall credit quality for this quarter decreased slightly to 96% of credits rated in our highest category, reflecting the addition of Chronus and Madison Logic to our yellow category. We remain proud of the overall portfolio given the current headwinds in the industry, while recognizing the credit markdowns as discussed. Both non-accrual investments have now been sold, with 81.5% of our investments at quarter end in first lien debt, generally supported by strong enterprise values and resilient balance sheets in industries that have historically performed well in stressed situations.

Speaker #4: Our overall credit quality for this quarter decreased slightly to 96% of credits rated in our highest category, reflecting the addition of Cronus and Madison Logic to our yellow category.

Speaker #4: We remain proud of the overall portfolio given the current headwinds in the industry, while recognizing the credit markdowns as discussed. Both non-accrual investments have now been sold.

Speaker #4: With 81.5% of our investments at quarter-end, and first-lien debt generally supported by strong enterprise values and resilient balance sheets in industries that have historically performed well in stressed situations, we believe our portfolio composition and leverage profile are well-structured to handle a wide range of economic conditions and uncertainty.

Christian Oberbeck: We believe our portfolio composition and leverage profile are well-structured to handle a wide range of economic conditions and uncertainty. Our management team is working diligently to continue this positive AUM long-term growth trend as we deploy our available capital into our pipeline, while remaining appropriately cautious in this evolving and volatile credit and economic environment. With that, I would like to turn the call over to Henri to review our financial results, as well as the composition and performance of our portfolio.

Speaker #4: Our management team is working diligently to continue this positive AUM long-term growth trend as we deploy our available capital into our pipeline, while remaining appropriately cautious in this evolving and volatile credit and economic environment.

Speaker #4: With that, I would like to turn the call over to Henri to review our financial results, as well as the composition and performance of our portfolio.

Speaker #2: Thank you, Chris. Slide 5 highlights our key performance metrics for the fiscal second quarter, most of which Chris already highlighted. Of note, the weighted average common shares outstanding in Q2 was 16.2 million, decreasing from 16.3 million last quarter and 15.8 million shares for last year's second quarter, respectively.

Henri Steenkamp: Thank you, Chris. Slide 5 highlights our key performance metrics for the fiscal Q2, most of which Chris already highlighted. Of note, the weighted average common shares outstanding in Q2 was 16.2 million, decreasing from 16.3 million and 15.8 million shares for last quarter and last year's Q2 respectively. Adjusted NII was $7.4 million this quarter, down 18.7% from last year and 2.6% from last quarter. The modest decrease from last quarter primarily reflected the impact of the recent changes to the capital structure, increasing our interest expense, as well as slight decreases in other income from lower structuring, advisory, and prepayment fees, and higher base management fees from higher AUM. The weighted average interest rate on the core BDC portfolio was 10.6% this quarter, compared to 11.3% as of last year, and up from 10.5% as of last quarter.

Speaker #2: Adjusted NAI was $7.4 million this quarter, down 18.7% from last year and 2.6% from last quarter. The modest decrease from last quarter primarily reflected the impact of the recent changes to the capital structure, increasing our interest expense, as well as slight decreases in other income from lower structuring, advisory, and prepayment fees, and higher base management fees from higher AUM.

Speaker #2: The weighted average interest rate on the core BDC portfolio was 10.6% this quarter, compared to 11.3% as of last year, and up from 10.5% as of last quarter.

Speaker #2: The yield reduction from last year primarily reflects the SOFR base rate decreases over the past year, but is also indicative of the recent tighter spreads experienced on new originations versus historically higher spreads on repaid assets.

Henri Steenkamp: The yield reduction from last year primarily reflects the SOFR-base rate decreases over the past year, but is also indicative of recent tighter spreads experienced on new originations versus historically higher spreads on repaid assets. Total expenses for the quarter, excluding interest and debt financing expenses, base management fees and incentive fees, and income and excise taxes, were $2.9 million as compared to $2.5 million last year and $2.7 million last quarter. This represented 0.9% of average total assets on an annualized basis, unchanged from last quarter and up from 0.8% last year. Also, for investors interested in digging deeper into the income statement and balance sheet metrics for the past two years, we have again added KPI slides 26 through 29 in the appendix at the end of the presentation. Slide 30 compares our non-accruals to the BDC industry.

Speaker #2: Total expenses for the quarter, excluding interest and debt financing expenses, base management fees and incentive fees, and income and excise taxes, were $2.9 million as compared to $2.5 million last year and $2.7 million last quarter.

Speaker #2: This represented 0.9% of average total assets on an annualized basis, unchanged from last quarter and up from 0.8% last year. Also, for investors interested in digging deeper into the income statement and balance sheet metrics for the past two years, we have again added KPI slides 26 through 29 in the appendix at the end of the presentation.

Speaker #2: And Slide 30 compares our non-accruals to the BDC industry. You will see that our non-accrual rate of 1.3% of cost, representing two investments, is 2.5 times lower than the industry average of 3.4%.

Henri Steenkamp: You will see that our non-accrual rate of 1.3% of cost, representing two investments, is 2.5 times lower than the industry average of 3.4%. This highlights the current strength of our core BDC portfolio's overall credit quality. Moving on to Slide 6, NAV has declined from last year and last quarter. The sequential decline represent both the Q2 markdowns discussed earlier and the current underearning of the dividend, as well as the $8.4 million share repurchases this quarter. This chart also includes our historical NAV per share, which we will cover on the next slide. On Slide 7, 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 down $0.01 in Q2, with multiple small changes, as you can see on the slide.

Speaker #2: This highlights the current strength of our core BDC portfolios' overall credit quality. Moving on to slide 6, NAV has declined from last year and last quarter.

Speaker #2: A sequential decline represents both the Q2 markdowns discussed earlier and the current under-earning of the dividend, as well as the $8.4 million share repurchases this quarter.

Speaker #2: This chart also includes our historical NAV per share, which we'll cover on the next slide. On slide 7, you will see a simple reconciliation of the major changes in adjusted NAI and NAV per share on a sequential quarterly basis.

Speaker #2: Starting at the top, adjusted NAI per share was down $0.01 in Q2, with multiple small changes, as you can see on the slide.

Speaker #2: On the lower half of the slide, NAV per share decreased by $1.08, primarily due to the $0.75 aggregate quarterly dividend exceeding the $0.45 gap NAI, plus the $0.90 of net realized gains and unrealized depreciation recognized in Q2, with $0.82 of that in three discrete credits.

Henri Steenkamp: On the lower half of the slide, NAV per share decreased by $1.08, primarily due to the $0.75 aggregate quarterly dividend exceeding the $0.45 GAAP NII, plus the $0.90 of net realized gains and unrealized appreciation recognized in Q2, with $0.82 of that in three discrete credits, partially offset by a $0.09 accretion from share repurchases. Slide 8 outlines the dry powder available to us as of quarter end, which totaled $211 million. This was spread between our available cash, undrawn SBA debentures, and undrawn secured credit facilities. This quarter-end level of available liquidity allows us to grow our assets by an additional 18% without the need for external financing. Of note, in May, legislation amending the Small Business Investment Act of 1958 increased the individual SBIC leverage limit and family of funds limit, in each case subject to SBA approvals.

Speaker #2: Partially offset by a 9 cent accretion from share repurchases. Slide 8 outlines the dry powder available to us as of quarter-end, which totaled $211 million.

Speaker #2: This was spread between our available cash, undrawn SBA debentures, and undrawn secured credit facilities. This quarter-end level of available liquidity allows us to grow our assets by an additional 18% without the need for external financing.

Speaker #2: Of note, in May, legislation amending the Small Business Investment Act of 1958 increased the individual SBIC leverage limit and the family of funds limit, in each case subject to SBA approvals.

Speaker #2: On September 4th this year, the company received notification from the SBA that SBIC 3's individual leverage limit was increased to $250 million, providing an additional $75 million of long-term capital in the form of SBA debt-guaranteed debentures, which we have included in available leverage liquidity on this slide.

Henri Steenkamp: On 4 September this year, the company received notification from the SBA that SBIC 3's individual leverage limit was increased to $250 million, providing an additional $75 million of long-term capital in the form of SBA-guaranteed debentures, which we have included in available leverage liquidity on this slide. We did not include any cash here, as on 18 September, we redeemed in full $105.5 million aggregate principal amount of the issued and outstanding 6.00% 2027 notes, using all this cash as well as the subsequent proceeds received from the green shoe on the SAX baby bond we closed in August. This refinancing helped us reduce our near-term refinancing risk. Subsequent to quarter end, we issued a further $23.1 million SAX baby bonds through a reopening, bringing the total principal amount issued to approximately $120.8 million.

Speaker #2: We did not include any cash here, as on September 18th we redeemed in full $105.5 million aggregate principal amount of the issued and outstanding 6.00% 2027 notes, using all this cash as well as subsequent proceeds received from the green shoe on the SAX baby bond we closed in August.

Speaker #2: This refinancing helped us reduce our near-term refinancing risk. Subsequent to quarter-end, we issued a further $23.1 million SAX baby bonds through a reopening.

Speaker #2: Bringing the total principal amount issued to approximately $120.8 million. We remain pleased with our available liquidity and leverage position, including our access to diverse sources of both public and private liquidity, especially taking into account the overall conservative nature of our balance sheet and the long-term nature of most of our debt.

Henri Steenkamp: We remain pleased with our available liquidity and leverage position, including our access to diverse sources of both public and private liquidity, and especially taking into account the overall conservative nature of our balance sheet and the long-term nature of most of our debt. Also, our debt is structured in such a way that we have no material BDC covenants that can be stressed during volatile times, which is especially important in the current economic environment. Now I would like to move on to slides 9 through 12 and review the composition and yield of our investment portfolio. Slide 9 highlights that we have $1.15 billion of AUM at fair value, and this is invested in 50 portfolio companies, one CLO fund, one joint venture, and 32 distinct BB and BBB CLO debt investments. Our first lien percentage is 81.5% of our total investments.

Speaker #2: Also, our debt is structured in such a way that we have no material BDC covenants that can be stressed during volatile times, which is especially important in the current economic environment.

Speaker #2: Now, I would like to move on to slides 9 through 12 and review the composition and yield of our investment portfolio. Slide 9 highlights that we have $1.15 billion of AUM at fair value, and this is invested in 50 portfolio companies, one CLO fund, one joint venture, and 32 distinct BB and BBB CLO debt investments.

Speaker #2: Our first lien percentage is 81.5% of our total investments, of which 21.2% is in first lien, last out positions. On slide 10, you can see how the yield on our core BDC assets, excluding our CLO investments, has changed over time, including this past year reflecting the recent decreases to base interest rates and tightening spreads.

Henri Steenkamp: Of which 21.2% is in first lien, last out positions. On slide 10, you can see how the yield on our core BDC assets, excluding our CLO investments, has changed over time, including this past year, reflecting the recent decreases to base interest rates and tightening spreads. This quarter, our core BDC yield increased slightly to 10.6%, consistent with base rate increases starting again this quarter. The CLO yield decreased to 10.9% from 11.0% last quarter. Subsequent to quarter end, on 17 September, we completed the sixth refinancing of the Saratoga CLO. This transaction extended the reinvestment period through October 2029, extended the legal maturity to October 2037, and established a non-call period through April 2028. The refinance CLO has approximately $350 million of assets, and benefits from lower financing rates.

Speaker #2: This quarter, our core BDC yield increased slightly to 10.6%, consistent with base rate increases starting again this quarter. The CLO yield decreased to 10.9% from 11.0% last quarter.

Speaker #2: Subsequent to quarter-end, on September 17th, we completed the sixth refinancing of the Saratoga CLO. This transaction extended the reinvestment period through October 2029, extended the legal maturity to October 2037, and established a non-call period through April 2028.

Speaker #2: The refinanced CLO has approximately $350 million of assets and benefits from a lower financing rate. As part of the transaction, we invested an additional $16.2 million in newly issued subordinated notes and purchased $2.6 million of Class E2R5 notes at par.

Henri Steenkamp: As part of the transaction, we invested an additional $16.2 million in newly issued subordinated notes and purchased $2.6 million of Class E-2-R5 notes at par. The extended reinvestment period is expected to support future BDC management fees and interest income. Slide 11 shows how our investments are diversified primarily across the US. On slide 12, you can see the industry breadth and diversity that our portfolio represents, spread over 44 distinct industries, in addition to our investments in the CLO, JV, and BB and BBB CLO debt securities, which are all included as structured finance securities. Moving on to slide 13, 7.1% of our investment portfolio consists of equity interests, which remain an important part of our overall investment strategy.

Speaker #2: The extended reinvestment period is expected to support future BDC management fees and interest income. Slide 11 shows how our investments are diversified, primarily across the U.S.

Speaker #2: And on slide 12, you can see the industry breadth and diversity of our portfolio, which represents spread over 44 distinct industries, in addition to our investments in the CLO, JV, and BB and BBB CLO debt securities, which are all included as structured finance securities.

Speaker #2: Moving on to slide 13, 7.1% of our investment portfolio consists of equity interest which remain an important part of our overall investment strategy. This slide shows that for the past 14 fiscal years, we had a combined 47.6 million dollars of net realized gains from the sale of equity interests or sale of early redemption of other investments.

Henri Steenkamp: This slide shows that for the past 14 fiscal years, we had a combined $47.6 million of net realized gains from the sale of equity interests or sale of early redemption of other investments. During the Q2, we generated $2.1 million in net realized gains. This long-term realized gain performance highlights our portfolio credit quality, has helped grow our NAV over time, and is reflected in our healthy long-term ROE. Now, before I turn the call over to David, I would like to say a few words personally. It has been a privilege to serve Saratoga, our board, our shareholders, and the entire team over the past 13 years. I am proud of the progress we have made and what we have built together.

Speaker #2: During the second quarter, we generated 2.1 million dollars in net realized gains. This long-term realized gain performance highlights our portfolio credit quality has helped grow our NAV over time and is reflected in our healthy long-term ROE.

Speaker #2: Now, before I turn the call over to David, I would like to say a few words personally. It has been a privilege to serve Saratoga our board, our shareholders, and the entire team over the past 13 years.

Speaker #2: I'm proud of the progress we have made and what we have built together. While I'm stepping away from my executive responsibilities, I remain fully committed to Saratoga's long-term success and look forward to continuing to support the company as a director and in a limited consulting capacity.

Henri Steenkamp: While I am stepping away from my executive responsibilities, I remain fully committed to Saratoga's long-term success and look forward to continuing to support the company as a director and in a limited consulting capacity. I would also like to recognize Christine Ramdihal, who has been promoted to Chief Accounting Officer and Treasurer. Christine has served as controller of the BDC and brings significant accounting, financial reporting, and audit experience to her expanded role. I have worked closely with Christine for almost 10 years and have great confidence in her knowledge of our business, her commitment, and her ability to help provide continuity through this transition. I know she looks forward to working with everyone on this call in the shareholder and analyst community. That concludes my financial and portfolio review. Our Chief Operating Officer, David DeSantis, will now provide an overview of the investment market.

Speaker #2: I would also like to recognize Christine Ramdahal who has been promoted to chief accounting officer and treasurer. Christina served as controller of the BDC and brings significant accounting, financial reporting, and audit experience to her expanded role.

Speaker #2: I've worked closely with Christine for almost 10 years and have great confidence in her knowledge of our business, her commitment, and her ability to help provide continuity through this transition.

Speaker #2: I know she looks forward to working with everyone on this call in the shareholder and analyst community. That concludes my financial and portfolio review.

Speaker #2: Our chief operating officer, David Santis, David DeSantis, will now provide an overview of the investment market.

Speaker #1: Thank you, Henry. Today I will give an update on the market since we last spoke in July. And then comment on our current portfolio performance and investment strategy.

David DeSantis: Thank you, Henri. Today, I will give an update on the market since we last spoke in July, and then comment on our current portfolio performance and investment strategy. Our deal flow has primarily increased due to the success we are having with our business development efforts, as seen by the fact that five of the 13 new platform companies that we have closed in the past 12 months are with new relationships. However, the combination of historically low M&A volume in the lower middle market for an extended period of time and an abundant supply of capital has kept spreads tight and leverage full as lenders compete to win deals, especially the higher quality credits. Market dynamics generally remain at their most competitive level since the pandemic, although we are seeing some signs of spread widening.

Speaker #1: Our deal flow has primarily increased due to the success we are having with our business development efforts. Excuse me. As seen by the fact that five of the 13 new platform companies that we have closed in the past 12 months are with new relationships.

Speaker #1: However, the combination of historically low M&A volume and the lower middle market for an extended period of time and an abundant supply of capital has kept spreads tight and leverage full as lenders compete to win deals.

Speaker #1: Especially the higher quality credits. Market dynamics generally remain at their most competitive level since the pandemic although we are seeing some signs of spread widening.

Speaker #1: We've also experienced repayment activity from some of our lower leverage loans which have been refinanced on more favorable terms. Historically, as a management team, we have successfully navigated through numerous credit cycles and have learned to stay laser focused on the things we can control.

David DeSantis: We have also experienced repayment activity from some of our lower leverage loans, which have been refinanced on more favorable terms. Historically, as a management team, we have successfully navigated through numerous credit cycles and have learned to stay laser-focused on the things we can control. In summary, those are, first, to be highly disciplined on credit selection. Second, to expand our business development efforts in a market that is still largely under-penetrated by us. Third, to support our existing healthy portfolio companies as they pursue growth. The relationships and overall presence we have built in the marketplace, combined with our ramped-up business development initiatives, gives us confidence in our ability to achieve healthy and steady portfolio growth in a manner that we expect to be accretive to our shareholders in the long run.

Speaker #1: In summary, those are first, to be highly disciplined on credit selection. Second, to expand our business development efforts in a market that is still largely underpenetrated by us.

Speaker #1: And third, to support our existing healthy portfolio companies as they pursue growth. The relationships and overall presence we've built in the marketplace combined with our ramped-up business development initiatives gives us confidence in our ability to achieve healthy and steady portfolio growth in a manner that we expect to be accretive to our shareholders in the long run.

Speaker #1: Software does continue to get a lot of attention in the market and for us, the hurdle is a very high to do new software deals.

David DeSantis: Software does continue to get a lot of attention in the market, and for us, the hurdle is very high to do new software deals. We expect to see a substantial shift away from the software in our deal flow and ultimately within our portfolio. By way of example, we closed 2 new platforms in Q2, neither of which were software-related businesses. Our existing software portfolio continues to have strong credit metrics with loan to value, or LTV, of 43%, and 85% of those positions are first lien with an additional 6% in equity securities. Now I would like to shift to highlight the key elements of the lower middle market where we operate. We continue to believe that the lower middle market is the best place to be in terms of capital deployment.

Speaker #1: We expect to see a substantial shift away from the software in our deal flow and ultimately within our portfolio. By way of example, we closed two new platforms in Q2.

Speaker #1: Neither of which were software related businesses. Our existing software portfolio continues to have strong credit metrics with loan-to-value or LTV of 43% and 85% of those positions are first lien.

Speaker #1: With an additional 6% in equity securities. Now, I'd like to shift to highlight the key elements of the lower middle market where we operate.

Speaker #1: We continue to believe that the lower middle market is the best place to be in terms of capital deployment. As compared to the larger end of the middle market, the due diligence we are able to perform when evaluating investment is much more robust and the capital structure generally more conservative with less leverage and more equity.

David DeSantis: As compared to the larger end of the middle market, the due diligence we are able to perform when evaluating an investment is much more robust, and the capital structure generally more conservative with less leverage and more equity. The legal protections and covenant features in our documentation are considerably stronger, and our ability to actively manage our portfolio through ongoing interaction with management and ownership is greater. As a result, we continue to believe that the lower middle market offers the best risk-adjusted returns, and our track record of realized returns reflect this. Our underwriting bar remains very high as usual in a very difficult market, yet we continue to find opportunities to thoughtfully deploy capital.

Speaker #1: The legal protections and covenant features in our documents documentation are considerably stronger and our ability to actively manage our portfolio through ongoing interaction with management and ownership is greater.

Speaker #1: As a result, we continue to believe that the lower middle market offers the best risk-adjusted returns and our track record of realized returns reflect this.

Speaker #1: Our underwriting bar remains very high as usual and a very difficult market yet we continue to find opportunities to thoughtfully deploy capital. As seen on slide 14, though providing additional capital to existing portfolio companies continues to be an asset deployment means for us with 35 follow-ons in the first three quarters of 2026.

David DeSantis: As seen on slide 14, though providing additional capital to existing portfolio companies continues to be an asset deployment means for us with 35 follow-ons in the first 3 quarters of 2026, we have also invested in 9 new platform investments in this period, already surpassing last year's full-year origination effort. Overall, our deal flow is increasing as our business development efforts show continued success. Our consistent ability to generate new investments over the long term, despite ever-changing and increasingly competitive market dynamics, is a strength of ours. Portfolio management is critically important, and we remain actively engaged with our portfolio companies and in close contact with our management teams. We ended the quarter with still just one core BDC investment on non-accrual status in Pepper Palace. In addition to our CLO's F-note, which was placed on non-accrual 2 quarters ago.

Speaker #1: We have also invested in nine new platform investments in this period. Already surpassing last year's full year origination effort. Overall, our deal flow is increasing as our business development efforts show continued success.

Speaker #1: Excuse me. Our consistent ability to generate new investments over the long term despite ever-changing and increasingly competitive market dynamics is a strength of ours.

Speaker #1: Portfolio management is critically important, and we remain actively engaged with our portfolio companies and in close contact with our management teams. We ended the quarter with still just one core BDC investment on non-accrual status in Pepper Palace, in addition to our CLO's F note, which was placed on non-accrual two quarters ago.

Speaker #1: This F note realized at zero value as part of the CLO reset in September, and additionally, Pepper Palace was sold for a non-all amount post-quarter end.

David DeSantis: This F-note realized at zero value is part of the CLO reset in September. Additionally, Pepper Palace was sold for a nominal amount post quarter end. We therefore have no non-accruals today within our portfolio. Together at quarter end, these two investments represented 0.0% of the portfolio at fair value and 1.3% at cost. In general, our portfolio companies are very healthy, and the fair value of our core BDC portfolio is only 1.6% below its cost. Given the recent sale of Pepper Palace, although fully written off already, excuse me, most of the unrealized depreciation will now be realized in Q3. Three core BDC investments had notable write-downs this quarter due to performance. They were Exigo, Chronus, and Madison Logic.

Speaker #1: We therefore have no non-accruals today within our portfolio. Together, as of quarter end, these two investments represented 0.0% of the portfolio at fair value and 1.3% at cost.

Speaker #1: In general, our portfolio companies are very healthy, and the fair value of our core BDC portfolio is only 1.6% below its cost. Given the recent sale of Pepper Palace—although fully written off already, excuse me—most of the unrealized depreciation will now be realized in Q3.

Speaker #1: Three core BDC investments had notable write-downs this quarter due to performance. They were Exigo, Kronos, and Madison Logic. We recognized unrealized depreciation of $8.7 million on our debt investment in Exigo in Q2, as it has experienced continued weakness due to a challenging end market.

David DeSantis: We recognized unrealized depreciation of $8.7 million on our debt investment in Exigo in Q2, as it is experiencing continued weakness due to a challenging end market. Despite having a dominant position in its industry, the company's customers are facing significant competitive pressures from alternative sales channels, which is causing the end market to shrink, as well as producing customer churn. As a result of this, our investment in Exigo remained red at the end of the quarter, though it kept its accrual status as interest continued to be paid. Subsequent to quarter end, we fully exited the Exigo investment close to our quarter end mark, resulting in a -6.1% IRR over the life of the investment. Our Chronus debt and preferred equity investment was written down by $2.5 million, reflecting declining customer retention and slower new customer acquisition due to broader softness in the company's end market.

Speaker #1: Despite having a dominant position in its industry, the company's customers are facing significant competitive pressures from alternative sales channels, which is causing the end market to shrink as well as producing customer churn.

Speaker #1: As a result of this, our investment in Exigo remained red at the end of the quarter, though it kept its accrual status as interest continued to be paid.

Speaker #1: Subsequent to quarter end, we fully exited the Exigo investment close to our quarter-end mark, resulting in a negative 6.1% IRR over the life of the investment.

Speaker #1: Our Kronos debt and preferred equity investment was written down by $2.5 million, reflecting declining customer retention and slower new customer acquisition, due to broader softness in the company’s end market.

Speaker #1: The deal team is actively engaged with the sponsor on the deal and recently completed an amendment, which included sponsor credit support and an extension.

David DeSantis: The deal team is actively engaged with the sponsor on the deal and recently completed an amendment which included sponsor credit support and an extension. Our Madison Logic first lien debt investment was written down by $1.9 million, reflecting declining sales and market softness in the company's end market. The deal team is also actively engaged with management on that credit. Chronus and Madison Logic remain on accrual with sufficient cash balances. The rest of the portfolio markdowns this quarter reflect a combination of company performance and market conditions. The key recurring themes driving market markdowns are: one, comparable market multiples have driven reductions; and two, the impact of recent general market spreads on our valuations. In addition, our JV and BB and BBB CLO debt portfolio were marked down by $1.1 million, showing slight portfolio performance decreases from last quarter.

Speaker #1: Our Madison Logic first-lien debt investment was written down by $1.9 million, reflecting declining sales and market softness in the company's end market. The deal team has also actively engaged with management on that credit.

Speaker #1: Kronos and Madison Logic remain on accrual with sufficient cash balances. The rest of the portfolio markdowns this quarter reflect a combination of company performance and market conditions.

Speaker #1: The key recurring themes driving market markdowns are, one, comparable market multiples have driven reductions; and, two, the impact of recent general market spreads in our valuations.

Speaker #1: In addition, our JV, BB, and BBB CLO debt portfolio are marked down by $1.1 million, showing slight portfolio performance decreases from last quarter.

Speaker #1: 81.5% of our portfolio is in first lien debt and is generally supported by strong enterprise values and industries that have historically performed well in stress situations.

David DeSantis: 81.5% 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. Excuse me. We have no direct energy or commodities exposure. Looking at leverage on this same slide, you can see that industry debt multiples recently increased to the 6x range. While the total leverage for our portfolio decreased to 4.7x, excluding Pepper Palace, reflecting the new investments originated at much lower leverage levels. Turning to slide 15, that provides more data on our deal flow. As you can see, the top of our deal pipeline is significantly up from the end of calendar year 2024. This recent increase is a result of our recent business development initiatives.

Speaker #1: Excuse me. We have no direct energy or commodities exposure. Looking at leverage on this same slide, you can see that industry debt multiples recently increased to the 6x range.

Speaker #1: While the total leverage for our portfolio decreased to 4.7 times, excluding Pepper Palace, this reflects the new investments originated at much lower leverage levels. Turning to slide 15, which provides more data on our deal flow.

Speaker #1: As you can see, the top of our deal pipeline is significantly up from the end of calendar year 2024. This recent increase is a result of our recent business development initiatives.

Speaker #1: Overall, 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.

David DeSantis: Overall, the significant progress we have 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. Our originations this fiscal quarter totaled $76.1 million, consisting of two new investments totaling $54 million, nine follow-ons totaling $12.9 million, and four BB and BBB CLO debt investments of $9.2 million in aggregate. As you can see on slide 16, our overall portfolio credit quality and returns remained solid. Our team remains focused on deploying capital and strong business models where we are confident that under all reasonable scenarios, the enterprise value of the business will sustainably exceed the last dollar of our investment. Our approach and underwriting strategy has always been focused on being thorough and cautious.

Speaker #1: Our originations this fiscal quarter totaled $76.1 million, consisting of two new investments totaling $54 million, nine follow-ons totaling $12.9 million, and four BB and BBB CLO debt investments of $9.2 million in aggregate.

Speaker #1: As you can see on slide 16, our overall portfolio credit quality and returns remained solid. Our team remains focused on deploying capital into strong business models where we are confident that, under all reasonable scenarios, the enterprise value of the business will sustainably exceed the last dollar of our investment.

Speaker #1: Our approach in underwriting strategy has always been focused on being thorough and cautious. Since our management team began working together almost 16 years ago, we've invested $2.66 billion in 134 portfolio companies and have had just three realized economic losses on these investments.

David DeSantis: Since our management team began working together almost 16 years ago, we have invested $2.66 billion in 134 portfolio companies and have had just three realized economic losses on these investments. Over that same time frame, we have successfully exited 90 of those investments, achieving gross unlevered realized returns of 14.9% on $1.41 billion of realizations. Taking into account recent negative events and market turbulence, our combined unlevered realized and unrealized returns on all capital investment is 13.1%. Our overall investment approach has yielded exceptional realized returns and recovery of our invested capital, and our long-term performance remains strong, as seen by our track record on this slide.

Speaker #1: Over that same time frame, we've successfully exited 90 of those investments, achieving gross unlevered realized returns of 14.9% on $1.41 billion of realizations.

Speaker #1: Taking into account recent negative events and market turbulence, our combined unlevered realized and unrealized returns on all capital investment is 13.1%. Our overall investment approach has yielded exceptional realized returns and recovery of our invested capital.

Speaker #1: Our long-term performance remains strong, as seen by our track record on this slide. Moving on to slide 17, you can see our second SBIC license is fully funded and deployed, and we've been ramping up our SBIC 3 license, with $46 million of lower-cost undrawn debentures still available at the end of Q2.

David DeSantis: Moving on to slide 17, you can see our second SBIC license is fully funded and deployed, and we have been ramping up our SBIC 3 license with $46 million of lower cost undrawn debentures still available at the end of Q2, allowing us to continue to support US small businesses, both new and existing. As Henri noted previously, the change in SBA rules will allow us to receive an additional $75 million of long-term capital in the form of SBA guaranteed debentures, increasing available debentures to $121 million. This concludes my review of the market, and I would like to turn the call back over to our CEO, Christian.

Speaker #1: Allowing us to continue supporting U.S. small businesses, both new and existing. As Henri noted previously, the change in SBA rules will allow us to receive an additional $75 million of long-term capital in the form of SBA-guaranteed debentures, increasing available debentures to $121 million.

Speaker #1: This concludes my review of the market, and I'd like to turn the call back over to our CEO, Chris.

Speaker #2: Thank you, Dave. As outlined on slide 18, our latest dividend of $0.75 per share in aggregate for the quarter ended August 31, 2026, was paid in three monthly increments of $0.25.

Christian Oberbeck: Thank you, Dave. As outlined on slide 18, our latest dividend of $0.75 per share in aggregate for the quarter ended 31 August 2026, was paid in three monthly increments of $0.25. Recently, we declared that same level of $0.75 for the quarter ended 30 November 2026, marking the seventh quarter of our new dividend payment structure. The board of directors will continue to evaluate the dividend level on at least a quarterly basis, considering both company and general economic factors, including the current interest rate, macro environment impact on our earnings, and spillover levels. Moving to slide 19, our total return for the last 12 months, which includes both capital appreciation and dividends, generated total returns of -16%, below the BDC index's -6%.

Speaker #2: Recently, we declared that same level of $0.75 for the quarter ended November 30, 2026, marking the seventh quarter of our new dividend payment structure.

Speaker #2: The board of directors will continue to evaluate the dividend level on at least a quarterly basis, considering both company and general economic factors, including the current interest rate, the macro environment's impact on our earnings, and spillover levels.

Speaker #2: Moving to slide 19, our total return for the last 12 months, which includes both capital appreciation and dividends generated, totaled returns of negative 16%, below the BDC index's negative 6%.

Speaker #2: Our longer-term performance is outlined on the next slide, slide 20, which shows that our three-year and five-year total returns both place us in line with the BDC index.

Christian Oberbeck: Our longer-term performance is outlined on the next slide 20, which shows that our three-year and five-year total returns all place us in line with the BDC index. Additionally, since Saratoga Investment Corp took over management of the BDC in 2010, our total return of 700% has been more than 2.5 times the industry's 270%. On slide 21, you can further see our last 12 months of performance placed in the context of the broader BDC industry and specific to certain key performance metrics. We continue to focus on our long-term metrics such as return on equity, NAV per share, NII yield, and dividend growth and coverage, all of which reflect the value our shareholders are receiving.

Speaker #2: Additionally, since Saratoga took over management of the BDC in 2010, our total return of 700% has been more than two and a half times the industry’s 270%.

Speaker #2: On slide 21, you can further see our last 12 months of performance placed in the context of the broader BDC industry, and specific to certain key performance metrics.

Speaker #2: We continue to focus on our long-term metrics such as return on equity and NAV per share, and IRR yield, and dividend growth and coverage, all of which reflect the value our shareholders are receiving.

Speaker #2: The recent reduction in our NAV per share is accounted for as a combination of the payment of previously undistributed profits, as well as the markdowns and discrete credits this quarter, partially offset by the quarter's share repurchases well below NAV.

Christian Oberbeck: The recent reduction in our NAV per share is accounted for as a combination of the payment of previously undistributed profits, as well as the markdowns in discrete credits this quarter, partially offset by the quarter share repurchases well below NAV. The NII yield and dividend coverage metrics reflect the long-term impact of reduced rates and undeployed levels of cash, as well as more recently, our increased cost of capital. In this volatile macro environment, we will continue to deploy our available capital into strong credit opportunities that meet our high underwriting standards. Our focus remains long-term. We also continue to be one of the few BDCs to have grown NAV accretively over the long term and have a consistently healthy return on equity, significantly beating the industry with our long-term return on equity of roughly 1.5 times the industry average. Moving on to slide 22.

Speaker #2: The NII yield and dividend coverage metrics reflect the long-term impact of reduced rates and undeployed levels of cash, as well as, more recently, our increased cost of capital.

Speaker #2: In this volatile macro environment, we will continue to deploy our available capital into strong credit opportunities that meet our high underwriting standards. Our focus remains long-term. We will also continue to be one of the few BDCs to have grown NAV accretively over the long term and to have a consistently healthy return on equity, significantly beating the industry—with our long-term return on equity at roughly 1.5 times the industry average.

Speaker #2: Moving on to slide 22, 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.

Christian Oberbeck: All of our initiatives discussed on this call are designed to make Saratoga Investment Corp a leading BDC that is attractive to the capital markets community. We believe that our differentiated performance characteristics outlined in 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 11.5%, ensuring we are strongly aligned with our shareholders. Looking ahead, we expect the macroeconomic backdrop to remain mixed. Persistent inflation and uncertain interest rate environment, geopolitical uncertainty, and developments within the software sector continue to place pressure on certain borrowers and valuations. Although the broader BDC industry has experienced higher defaults, NAV declines, and dividend reductions, valuation changes in our portfolio this quarter were concentrated in a small number of investments rather than reflecting broad-based deterioration.

Speaker #2: 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.

Speaker #2: These differentiated characteristics, many previously discussed, include maintaining one of the highest levels of management ownership in the industry at 11.5%, ensuring we are strongly aligned with our shareholders.

Speaker #2: Looking ahead, we expect the macroeconomic backdrop to remain mixed. Persistent inflation and an uncertain interest rate environment, as well as geopolitical uncertainty and developments within the software sector, continue to place pressure on certain borrowers and valuations.

Speaker #2: Although the broader BDC industry has experienced higher defaults and NAV declines, as well as dividend reductions, valuation changes in our portfolio this quarter were concentrated in a small number of investments rather than reflecting broad-based deterioration.

Speaker #2: At the same time, we are seeing several constructive indicators: the recent wave of BDC bond issuances, the rebound in higher-quality loan values, and early signs of improving transaction activity—all pointing towards a market that appears to be improving.

Christian Oberbeck: At the same time, we are seeing several constructive indicators, the recent wave of BDC bond issuances, the rebound in higher quality loan values, and early signs of improving transaction activity, all pointing towards a market that appears to be improving. Recent increased base market rates are very positive for us with our variable rate asset base, primarily fixed rate debt structure. As always, we will continue to focus on disciplined underwriting, senior secured first lien investments, and diligent balance sheet management. With a diversified funding base, available liquidity, and a strong pipeline, we believe Saratoga Investment Corp is well-positioned to continue delivering durable risk-adjusted returns to our shareholders over the long term. In closing, I would like to thank all of our shareholders for their ongoing support, and I would like to now open the call for questions.

Speaker #2: Recent increases in base market rates are very positive for us, with our variable rate asset base and primarily fixed rate debt structure. As always, we will continue to focus on disciplined underwriting, senior secured first lien investments, and diligent balance sheet management.

Speaker #2: With a diversified funding base, available liquidity, and a strong pipeline, we believe Saratoga is well positioned to continue delivering durable, risk-adjusted returns to our shareholders over the long term.

Speaker #2: In closing, I would like to thank all of our shareholders for their ongoing support, and I would now like to open the call for questions.

Speaker #1: Thank you. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.

Operator: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile our Q&A roster. Our first question will come from the line of Erik Zwick of Lucid Capital Markets. Eric, your line is open.

Speaker #1: Please stand by while we compile our Q&A roster. Our first question will come from the line of Eric Wick of Lucid Capital Markets.

Speaker #1: Eric, your line is open.

Speaker #3: Thank you. Good morning, all. I wanted to start with a question for Henry, and first just wanted to say, Henry, it's been a pleasure working with you, and I wish you all the best in your future health journey.

Erik Zwick: Thank you. Good morning, all. I wanted to start with a question for Henri. First, just wanted to say, Henri, it has been a pleasure working with you. I wish you all the best in your future health journey. Curious, can you update us on the amount of spillover per share at the end of the quarter?

Speaker #3: Curious—can you update us on the amount of spillover per share at the end of the quarter?

Speaker #2: Sure. Thanks so much, Eric, for that. It's been a pleasure working with you as well. So, as of the end of August, our spillover, which has been reducing, is down to about $1 per share.

Henri Steenkamp: Sure. Thanks so much, Eric, for that. It has been a pleasure working with you as well. As of the end of August, our spillover that has been reducing is down to about $1 per share, as of 31 August.

Speaker #2: As of 8/31.

Speaker #3: Okay, thank you. Next, Christian wanted to kind of follow up on the discussion from last quarter—maybe kind of a two-part question. When we spoke last quarter, you mentioned, you know, maybe kind of a rough outlook for a four- to five-quarter kind of path back to bridging the gap between NII and the dividend. A couple factors kind of pointed towards that trend: one, market stability; two, a healthy pipeline outlook for portfolio growth; three, some slight widening in spreads; plus base rates up.

Erik Zwick: Okay. Thank you. Next, Christian, wanted to kind of follow up on the discussion from last quarter. Maybe kind of a two-part question. When we spoke last quarter, you mentioned maybe a kind of a rough outlook for a four to five quarter kind of path back to bridging the gap between NII and the dividend. A couple of factors kind of pointing towards that trend. One, market stability, healthy pipeline, outlook for portfolio growth, some slight widening in spreads, plus base rates up. I guess, has anything materially changed in your view to kind of bridging that gap? The second part of the question kind of related is, how do you prioritize the importance of maintaining the dividend versus NAV stability?

Speaker #3: So, I guess, has anything materially changed in your view to kind of bridging that gap? And the second part of the question, kind of related, is you know, how do you prioritize the importance of maintaining the dividend versus NAV stability?

Christian Oberbeck: Well, obviously, that's a really important question and something that we are considering constantly at our board level and at the management company at all times. I think you kind of outlined the kind of the spectrum of considerations. I think one of the things we've all experienced in our history at the BDC is that when market conditions change, they don't necessarily all adjust at the same kind of rate. We at Saratoga and also the BDC industry, if you look at a lot of the debt that's been refinanced, we had debt that was issued 5 years ago at many hundred basis points less than the markets are today. The liability side of our structure has basically increased substantially relative to the change in long-term interest rates.

Speaker #2: Well, obviously that's a really important question and something that we are considering constantly at our board level and at the management company at all times.

Speaker #2: I think you kind of outlined the kind of the spectrum of considerations. I think you know one of the things we've all experienced in our history at the BDC is that you know when market conditions change they don't necessarily all adjust at the same kind of same rate.

Speaker #2: And, you know, we at Saratoga and also the BDC industry—you know, if you look at a lot of the loans, a lot of the debt that's been refinanced, you know, we have debt that was issued five years ago at, you know, many hundred basis points less than the markets are today.

Speaker #2: And so, the liability side of our structure has basically, you know, increased substantially relative to the change in long-term interest rates. On the other side, the spread picture and the competitive dynamics in our industry have not changed at that same rate.

Christian Oberbeck: On the other side, the spread picture, and the competitive dynamics in our industry has not changed at that same rate. I think what we're starting to see, and this is consistent with the past, is that all these things will kind of readjust. We're starting to see the beginnings of widening spreads, a little better terms on loans. I think there's a lot of pressure on PE to start more realizations. There's a lot of maturities coming up in PE companies that have to be refinanced. There's a lot of demands for credit out there. I think everyone talks about the AI explosion of construction, and that's absorbing a lot of debts. On a macro basis, the picture is changing from a very substantial abundance of private credit availability to less.

Speaker #2: I think what we're starting to see, and this is consistent with the past, is that all these things will kind of readjust, and we're starting to see the beginnings of widening spreads, a little better terms on loans. You know, I think there's a lot of pressure on private equity to start more realizations. There's a lot of maturities coming up in private equity companies that have to be refinanced. There's a lot of demands for credit out there.

Speaker #2: I think the you know the everyone talks about the you know the AI explosion of construction and that's absorbing a lot of debt. So on a macro basis the picture is changing from you know a very substantial abundance of private credit availability to less.

Speaker #2: Now, we're not predicting that it's going to change radically in the very near term, but we think the whole system is adjusting, you know, to a different level of rates.

Christian Oberbeck: Now, we're not predicting that it's going to change radically in the very near term, but we think the whole system is adjusting to a different level of rates. Fortunately, the liability side has adjusted sooner than the asset side. But we think the asset side is coming around. In addition, in particular, for example, the SBIC debt, the incremental $75 million, that's very favorably financed, both in terms of the absolute rate relative to what we're seeing for new originations. But also the structure of that debt, I think, is really interesting and important to consider. Basically, every one of those debentures is a 10-year facility with a bullet maturity. So none of those debts come due for 10 years. They pay a fixed interest rate, and there's no covenants. This is a very stable source of credit.

Speaker #2: And fortunately the liability side has adjusted sooner you know than the asset side. But we think the asset side is coming around. In addition you know in particular for example the SBIC debt you know the incremental $75 million I mean that's very favorably financed and you know both in terms of the absolute rate you know relative to what we're seeing for new originations but also the structure of that debt I think is really interesting and important to consider and basically every one of those debentures is a 10-year facility with a bullet maturity.

Speaker #2: So none of those none of those debts come due for 10 years. And they pay a fixed interest rate and there's no covenants. And so this is a very stable source of credit and it's been you know the SBIC has been a very important program for us historically and that allows us to invest in reinvest during that 10-year period very substantially.

Christian Oberbeck: The SBIC has been a very important program for us historically, and that allows us to invest and reinvest during that 10-year period very substantially. With all that said, I think we believe our pipeline, our deployment is working well. We think that the reset of the Saratoga CLO is very important. That's going to have incremental management fee income and higher interest income. The debt structure of that is radically different than it was. That was done opportunistically and very well financed. I think we've taken a lot of the refinancing risk off the table for next year by the bond offering that we did and then the resources credit-wise we have for refinancing for next year. So I think the things that we have control over, I think we've done a pretty good job of executing, growing our portfolio, et cetera.

Speaker #2: And so, you know, with all that said, I think, you know, we believe our pipeline or deployment is working well. We think that the reset of the CLO is very important.

Speaker #2: There's going to have incremental management fee income and higher interest income and the debt structure that is radically different than it was and you know and that was done opportunistically and very well financed.

Speaker #2: You know, I think we've taken a lot of the refinancing risk off the table for next year by the bond offering that we did, and then the resources, credit-wise, that we have.

Speaker #2: For refinancing for next year so I think the things that we can we have control over. I think we've done you know a pretty good job of executing you know growing our portfolio etc.

Speaker #2: A lot of the things we've talked about on this call the things we can't control are you know industry spreads and the you know the absolute cost of capital but I think the market is going to come around and adjust to that somewhat.

Christian Oberbeck: A lot of the things we have talked about on this call. The things we cannot control are industry spreads and the absolute cost of capital. I think the market is going to come around and adjust to that somewhat. So we feel good about our credit portfolio. I think as we have discussed at length on this call, we do not have any non-accruals anymore, as a result of activities. So we think our portfolio is solid at this time. We also think that our earnings are in the process of being ready to increase. You mentioned spillover. I think Henri Steenkamp mentioned we still have $1 of spillover to go, and every quarter that we pay incremental dividends to our earnings, we reduce that spillover obligation of the company.

Speaker #2: So, we feel good about our credit portfolio. I think, as we've discussed at length on this call, you know we don't have any non-accruals in our portfolio anymore as a result of recent activities.

Speaker #2: And so we think our you know our portfolio is you know is solid at this time and we also think that our earnings are you know in the process of being ready to increase.

Speaker #2: You mentioned spillover. I think Henri mentioned we still have a dollar of spillover to go, and every quarter that we pay incremental dividends to our earnings, we reduce that spillover obligation of the company.

Speaker #2: And so we're whittling that obligation down and setting the stage for, you know, what we think will be a better earnings picture going forward.

Christian Oberbeck: We are whittling that obligation down and setting the stage for, we think, a better earnings picture going forward.

Speaker #3: Yeah, I appreciate the detailed commentary. And just one last one for me, then I'll hop back in the queue. Dave, you addressed slide 15 in the prepared remarks. Just looking at that, there's roughly an even split between the sourcing of deals via PE sponsors versus private companies without sponsors. And when I look down at the currently issued term sheets, it's 88% in favor of PE sponsors.

Erik Zwick: Yeah. I appreciate the detailed commentary. Just one last one from me, and I will hop back in the queue. Dave, you addressed slide 15 in the prepared remarks. Just looking at that, there is a roughly even split between the sourcing between deals via PE sponsors versus private companies without sponsors. When I look down at the currently issued term sheets, it is 88% in favor of PE sponsors. Just kind of curious, bigger picture, over the longer term, is that pretty typical that you will transact more with the PE sponsors, just kind of given the structure and the support you get from them? Or is there something more specific today that has tipped the scales more in that direction?

Speaker #3: So it's just kind of curious, you know, bigger picture, over the longer term—is that pretty typical that you'll transact more with the PE sponsors, just kind of given the structure and the support you get from them? Or is there something more specific today that has tipped the scales more in that direction?

Speaker #1: Thank you. Great question. You know, typically, just taking a step back, having a traditional private equity sponsor that has a committed fund is advantageous.

David DeSantis: Thank you. Great question. Typically, just taking a step back, having a traditional private equity sponsor that has a committed fund is advantageous. Just giving additional credit support for a transaction, both at the outset as well as from an ongoing perspective. The level of sophistication that they provide is obviously attractive to us, especially now, as we have talked about a few times today, in a fairly volatile and somewhat uncertain environment. So, as we navigate the current environment, we want to have more protections as opposed to less and be more conservatively underwriting things as opposed to more aggressively. Having those private equity sponsors there provides just an added layer of security through not only their sophistication, but most importantly, their capital.

Speaker #1: Just given additional credit support for a transaction, both at the outset as well as from an ongoing perspective, and the level of sophistication that they provide is obviously attractive to us, especially now—as we've talked about a few times today—in a fairly volatile and somewhat uncertain environment.

Speaker #1: So, you know, as we navigate the current environment, we want to have more protections as opposed to less, and be more conservatively underwriting things as opposed to more aggressively.

Speaker #1: And so, having those private equity sponsors there provides an added layer of security through not only their sophistication, but most importantly, their capital.

Speaker #1: And then secondly, you know, finding transactions through the traditional private equity channels is a little more efficient for us than the direct and, you know, what I'll say, independent sponsor channel.

David DeSantis: Secondly, finding transactions through the traditional private equity channels is a little more efficient for us than the direct and what I will say independent sponsor channel. I think that you are also seeing a bit of that dynamic coming through in those figures as well.

Speaker #1: So, I think they are also seeing a bit of that dynamic coming through in those figures as well.

Speaker #3: Thank you for taking my questions today.

Erik Zwick: Thanks for taking my questions today.

Speaker #1: Thank you.

David DeSantis: Thank you.

Speaker #4: And our next question will be coming from the line of Jason Stewart of Compass Point. Your line is open.

Operator: Our next question will be coming from the line of Jason Stewart of Compass Point. Your line is open.

Speaker #5: Hey, thanks. Good morning. Question on leverage in the share repurchase program: if you could just give us a little bit more color, especially with where the stock's trading and how you're thinking about the share repurchase program in the context of balance sheet leverage.

Jason Stewart: Okay, thanks. Good morning. Question on leverage in the share repurchase program. If you could just give us a little bit more color, especially with where the stock's trading and how you're thinking about the share repurchase program in the context of balance sheet leverage.

Speaker #2: Well I think you know again that's an important question that we you know consider you know quite seriously at all times. There is a balance there to maintaining the equity you know every share repurchase reduces our equity and obviously increases our leverage and so that's something that we watch very carefully.

Christian Oberbeck: Well, I think, again, that's an important question that we consider quite seriously at all times. There is a balance there to maintaining the equity. Every share repurchase reduces our equity and obviously increases our leverage. That's something that we watch very carefully. But when our stock trades at the type of discounts that we're seeing, we also feel it's important at the margin, not in a very large way, but to take advantage of that. It's a balance between the two. But at the levels of discount we're trading at, the return on repurchasing our stock is quite substantial. We're trying to balance those two things. As you see, Henri, 9% for the amount of stock we repurchase, that's a pretty sizable level of anti-dilution. So we're weighing all those things at the same time.

Speaker #2: But when our stock trades at the type of discounts that we're seeing we also feel it's important you know at the margin not in a very large way but to take advantage of that.

Speaker #2: And so, you know, it's a balance between the two. But at the levels of discount we're trading at, you know, the return on repurchasing our stock is quite substantial.

Speaker #2: And so we're trying to, you know, balance those two things. And as you see, I mean, we have a pretty, you know, 9%, you know, for the amount of stock we repurchased—that's a pretty sizable level of anti-dilution.

Speaker #2: So we're weighing all those things at the same time. And again I think you know as we've discussed many times on our calls you know the structure of our leverage you know there's a certain amount of leverage which is a number and then there's a structure of the leverage which is when does it come due and we've always had a very you know sort of laddered you know long-term maturity structure.

Christian Oberbeck: Again, I think as we've discussed many times on our calls, the structure of our leverage, there's a certain amount of leverage which is a number, then there's the structure of the leverage, which is when does it come due? We've always had a very sort of laddered long-term maturity structure. I think that has helped to ameliorate perhaps, and at fixed rates, so that in a rising rate environment, which we appear to be in, we think that is somewhat of a tailwind that helps us on our earnings front.

Speaker #2: And so, I think that has helped to ameliorate, perhaps, and then fix rates so that in a rising rate environment—which we appear to be in—we think that is somewhat of a tailwind that helps us on our earnings front.

Speaker #5: Okay. And on that front, with your conversations with the rating agencies, do they appreciate your structure of leverage, or are they looking simply at a number?

Jason Stewart: Okay. On that front, with your conversations with the rating agencies, do they appreciate your structure of leverage, or are they looking simply at a number?

Speaker #2: Yeah, I mean that's part of Henri. Do you want me to talk about that?

Christian Oberbeck: Yeah. I mean, that's part of. Henri, do you want me to talk about that?

Speaker #5: Yeah. Yeah. Sure. I mean it's obviously a combination. I think when the rating agencies you know look at debt and they look at leverage they have multiple metrics that each rating agency assesses and each one assesses it differently.

Henri Steenkamp: Yeah, sure. I mean, it's obviously a combination. I think when the rating agencies look at debt and they look at leverage, they have multiple metrics that each rating agency assesses, and each one assesses it differently. It's a really great question. I think when we deal with them and we talk to them, we obviously highlight to them the structure because we really do believe structure is a very differentiating factor for us in our balance sheet. Our balance sheet looks a lot different than other BDCs. Our credit facilities, as we've said in the past, have no recourse to the BDC and are very well protected from a structure perspective. It's something we obviously clearly highlight to the rating agencies when we go through it with them. But they obviously have multiple factors that they consider, and each rating agency looks at things a little differently.

Speaker #5: So, it's a really great question. I think when we deal with them and we talk to them, we obviously highlight to them the structure, because we really do believe structure is a very differentiating factor for us in our balance sheet.

Speaker #5: Our balance sheet looks a lot different than other BDCs. Our credit facilities, as we've said in the past, have no recourse to the BDC and are very well protected from a structural perspective.

Speaker #5: So, it's something we obviously and clearly highlight to the rating agencies when we go through it with them. But, you know, they obviously have multiple factors that they consider, and each rating agency looks at things a little differently.

Speaker #5: So it's something that I think they factor in, but definitely something that we highlight not just to the rating agencies, but I think to all our constituents, because we do feel like although our leverage is higher, the structure of it is a differentiating factor for us.

Henri Steenkamp: It's something that I think they factor in, but definitely something that we highlight, not just to the rating agencies, but I think to all our constituents. Because we do feel like although our leverage is higher, the structure of it is a differentiating factor for us.

Speaker #5: Okay, thanks, that's helpful. One quick earnings model question: can you remind me how the management fees on the CLO work during the ramp-up period or the non-call period? I think we saw a pretty big drop quarter to quarter, but just how does that ramp back up going forward?

Jason Stewart: Okay, thanks. That's helpful. One quick earnings model question. Can you remind me how the management fees on the CLO work during the ramp-up period or the non-call period? I think we saw a pretty big drop quarter to quarter, but just how that ramps back up going forward.

Speaker #5: Sure. Yeah. No. So the management fees are 50 basis points on average asset and obviously as the assets have ramped down you know obviously the management fee has come down but also in addition to just being a management fee issue it's or sorry a BIPS issue it's also a case of are you in compliance.

Henri Steenkamp: Sure. Yeah. The management fees are 50 basis points on average assets. As the assets have ramped down, the management fee has come down. In addition to just being a management fee issue, or, sorry, a BIPS issue, it is also a case of are you in compliance? The last couple of quarters we were not in compliance anymore just because of the fact that we were so deep outside of our reinvestment period. Now that we have refinanced it, we will be back into compliance immediately, and also be earning full management fees on the $350 million of assets. It is going to be around, I think it is around $450,000 on a quarterly basis. Obviously down from previously because it was a $650 million CLO at that point in time. Up then significantly from what you have seen the last couple of quarters.

Speaker #5: And the last couple of quarters, we were not in compliance anymore, just because of the fact that we were so deep outside of our reinvestment period.

Speaker #5: Now that we've refinanced it, we'll be back into compliance, obviously immediately, and also be earning full management fees on the $350 million of assets.

Speaker #5: So it's going to be around, I think, $450,000 on a quarterly basis. Obviously, that's down from previously, because it was a $650 million CLO at that point in time, but then up significantly from what you've seen in the last couple of quarters.

Speaker #5: And then also, and you know, I know Jason, you haven't been around that long, but about two years ago, when we were still in compliance with our CLO, we were also earning interest income as well.

Henri Steenkamp: Also, I know Jason, you have not been around that long, but about two years ago when we were still in compliance with our CLO, we were also earning interest income as well. In addition to the management fee income, the BDC is also going to be earning interest income. That is generally based on the valuation of the CLO. You then do an effective interest rate method, and then a portion of the equity distributions that gets paid every quarter is allocated to interest income that goes into NII. You can expect to see some interest income then on the subordinated debt of the CLO going forward from a modeling perspective. Also obviously the F-note that we are also invested in, that is a fixed rate note and we will be receiving interest on that as well.

Speaker #5: So, in addition to the management fee income, the BDC is also going to be earning interest income, and that's generally based on the valuation of the CLO. You then do an effective interest rate method, and then a portion of the equity distributions that gets paid every quarter is allocated to interest income that goes into NII.

Speaker #5: So you know you can expect to see some interest income then on the subordinated debt of the CLO going forward from a modeling perspective and then also obviously the E-note that we're also invested in will be that's a fixed rate note and we'll be receiving interest on that as well.

Speaker #5: Got it. Okay. Thank you for taking the questions. Appreciate it. Sure. Thanks, Jason.

Jason Stewart: Got it. Okay. Thank you for taking the questions. Appreciate it.

Henri Steenkamp: Sure. Thanks, Jason.

Speaker #1: And our next question will be coming from the line of Christopher Nolan of Ladenburg Thalmann & Company. Your line is open, Christopher.

Operator: Our next question will be coming from the line of Christopher Nolan of Ladenburg Thalmann & Company. Your line is open, Christopher.

Speaker #6: First of all, Henri, good work with you and good luck going forward. Christine, Chris, congratulations on the promotion. Most of my questions have been asked.

Christopher Nolan: First of all, Henri, good working with you, good luck going forward. Christine, Chris, congratulations on the promotion. Most of my questions have been asked. On the incremental SBA leverage, what percentage of your deal flow is SBIC compliant?

Speaker #6: But on the SB incremental SBA leverage, what percentage of your deal flow is SBIC compliant?

Speaker #5: Yeah, I can jump in there. I think, you know, David, correct me if you disagree, but from the actual deals that we see, probably about 85% to 90% of all the deals we see are SBIC eligible.

Henri Steenkamp: Well, I can jump in there. I think, David, correct me if you disagree, but from the actual deals that we see, probably about 85% to 90% of all the deals we see are SBIC eligible. Our pipeline is really structured in such a way that most of the deals that flow in and that we receive qualify for the SBIC. That is obviously a huge positive in the context of receiving additional capacity now from the SBA with the upsize program.

Speaker #5: So, our pipeline is really structured in such a way that most of the deals that flow in—and that we receive—qualify for the SBIC.

Speaker #5: So that's obviously a huge positive in the context of receiving, you know, additional capacity now from the SBA with the Upsize program.

Speaker #6: And will we, or should we, expect most of the incremental deal flow within the next couple of quarters or so to be going to the SBIC?

Christopher Nolan: Should we expect most of the incremental deal flow within the next couple of quarters or so to be going to the SBIC?

Speaker #5: I mean, generally, yeah. You know, the SBIC debt is our cheapest form of capital, and so, obviously, once cash is used up on our balance sheet, sort of in the order of priority, SBIC financing is our most important because it's by far the one where we get the highest margin.

Henri Steenkamp: I mean, generally, yeah. The SBIC debt is our cheapest form of capital. Obviously once cash is used up on our balance sheet, in the order of priority, SBIC financing is our most important because it is by far the one where we get the highest margin.

Speaker #6: Great. And then, final question on SBIC. Given all the rule changes, will you guys have any further opportunities to get additional SBIC licenses?

Christopher Nolan: Great. Then final question on SBIC. Given all the rules changes, will you guys have any further opportunities to get additional SBIC licenses?

Speaker #5: Yeah, well, that's sort of the next step one goes into. So the first step is the upsize program, and obviously putting that capital to work. And then, sort of as you get towards the end of that, you then approach a new licensing phase.

Henri Steenkamp: Well, that is the next step one goes into. The first step is the upsize program and obviously putting that capital to work, then as you get towards the end of that, you then approach a new licensing phase. It is a sequential thing that one goes through. But no update yet at this point in time on that.

Speaker #5: So it's sort of a sequential thing that one goes through, but there's no update yet at this point in time on that.

Speaker #6: Great. Thank you.

Christopher Nolan: Great. Thank you.

Speaker #5: Great. Thanks Christopher.

Henri Steenkamp: Great. Thanks, Christopher.

Speaker #1: And our next question is a follow-up from Eric Wicke of Lucid Capital Markets. Your line is open, Eric.

Operator: Our next question is a follow-up from Erik Zwick of Lucid Capital Markets. Your line is open, Erik.

Speaker #7: Hello again. Yeah, just one quick follow-up. On the unrealized appreciation in the quarter, I guess specifically, you talked a little bit about Madison Logic and Kronos, and those are both software companies. You mentioned some challenges with non-renewals of customer contracts and slower new customer acquisition.

Erik Zwick: Hello again. Yeah, just one quick follow-up on the unrealized appreciation in the quarter. I guess specifically you talked a little bit about Madison Logic and Chronus, and those are both software companies. You mentioned some challenges with non-renewals of customer contracts and slower new customer acquisition. I guess to your sense of their business models and the challenges they're facing, is that at all related to AI, or is it other things driving those challenges today with those companies?

Speaker #7: I guess, to your sense of their business models and the challenges they're facing— is that at all related to AI, or are there other things driving those challenges today with those companies?

Speaker #2: No. You know taking them in turn you know from a Kronos perspective you know AI continues to actually be incorporated into their products and so the embedded advantage that the company has today has you know we have an seen any meaningful impact of AI from a competitive standpoint.

David DeSantis: No. Taking them in turn, from a Chronus perspective, AI continues to actually be incorporated into their products. The embedded advantage that the company has today has, we haven't seen any meaningful impact of AI from a competitive standpoint. If anything, it's been accretive for that one. Madison Logic, no. I mean, it's related to demand generation and display services for B2B marketers. It helps with that lead generation. Generally we haven't seen a big impact or any impact for that matter on AI on that business. Just generally as we look at our portfolio every day, every week and certainly formally every quarter, we're looking at the impact of AI across every one of our borrowers to understand if the risk is high, low, medium or hopefully non-existent depending on the company.

Speaker #2: If anything, it's been a creative for that one, and Madison Logic, you know... no. I mean, it's related to demand generation and display services for B2B marketers, and it helps with that lead generation. You know, generally, we haven't seen a big impact— or any impact, for that matter— on AI on that business. And, you know, just generally, as we look at our portfolio, every day, every week, and certainly, formally, every quarter, we're looking at the impact of AI across every one of our borrowers.

Speaker #2: To understand if the risk is high, low, medium, or hopefully nonexistent, depending on the company. So it's something we're laser focused on in today's environment, given the resources that have been obtained by AI generally, and the players within that promote AI.

David DeSantis: It is something we are laser focused on in today's environment given the resources that have been obtained by AI generally and the players within that promote AI. No, on those two investments particularly, generally there has not been any meaningful impact from AI.

Speaker #2: But no, on those two investments particularly, generally there's not been any meaningful impact from AI.

Speaker #7: And I appreciate the additional color. Thanks.

Erik Zwick: I appreciate the additional color. Thanks.

Speaker #1: And as a reminder, if you would like to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Operator: As a reminder, if you would like to ask a question, please press star 11 on your telephone and wait for your name to be announced. Again, for any questions, please press star 11. I would now like to hand the call back to Christian for closing remarks.

Speaker #1: Again, for any questions, please press *11. I would now like to hand the call back to Christian for closing remarks.

Speaker #3: I would like to thank everyone for joining us today, and we look forward to speaking with you next quarter.

Christian Oberbeck: We would like to thank everyone for joining us today, and we look forward to speaking with you next quarter.

Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.

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