OVERVIEW

Saratoga Investment Corp. is a Maryland corporation that has elected to be regulated as a Business Development Company (BDC) under the Investment Company Act of 1940. The company’s investment objective is to generate current income and long-term capital appreciation by investing primarily in senior and unitranche leveraged loans and mezzanine debt issued by private U.S. middle-market companies.

Corporate History

Saratoga Investment Corp. commenced operations in 2007 as GSC Investment Corp. and completed an initial public offering in 2007. In 2010, the company engaged Saratoga Investment Advisors to replace its former investment adviser and changed its name to Saratoga Investment Corp.

The company has formed two wholly owned SBIC subsidiaries, Saratoga Investment Corp. SBIC II LP and Saratoga Investment Corp. SBIC III LP, which have received SBIC licenses from the SBA. These SBIC subsidiaries provide up to $175 million each in long-term capital in the form of SBA-guaranteed debentures.

Saratoga Investment Corp. has also formed special purpose entities, Saratoga Investment Funding II LLC and Saratoga Investment Funding III LLC, to enter into senior secured revolving credit facilities with Encina Lender Finance, LLC and Live Oak Banking Company, respectively. These credit facilities provide additional sources of financing.

Additionally, the company has formed a joint venture, Saratoga Senior Loan Fund I JV LLC, with TJHA JV I LLC to co-manage investments in a diversified portfolio of broadly syndicated first lien and second lien term loans or bonds.

Critical Accounting Policies and Estimates

Saratoga Investment Corp. accounts for its investments at fair value in accordance with FASB ASC Topic 820. The company uses multiple valuation techniques, including market comparables, discounted cash flows, and enterprise value waterfalls, to determine the fair value of its investments. The company also relies on independent third-party valuation firms to review the fair value of certain investments.

The company recognizes interest income on an accrual basis, and may also generate revenue from management fees, structuring and advisory fees, and dividend income. The company stops accruing interest on investments when it is determined that the interest is no longer collectible.

Saratoga Investment Corp. records an expense accrual relating to the capital gains incentive fee payable to the investment manager when the company’s unrealized gains on investments exceed all realized capital losses.

Portfolio and Investment Activity

As of August 31, 2025, Saratoga Investment Corp.’s investment portfolio consisted of 101 investments across 44 portfolio companies, with an average investment size of $9.2 million and a weighted average maturity of 2.4 years. The portfolio was primarily composed of first lien term loans (84.3% of the total portfolio), with the remainder in second lien term loans, unsecured term loans, structured finance securities, and equity interests.

The company’s investment portfolio had a weighted average current yield of 10.4% as of August 31, 2025, with 98.8% of the interest-earning portfolio in floating rate debt. The portfolio’s credit quality remained strong, with 90.6% of investments at fair value rated green or yellow on the company’s internal credit monitoring rating system.

During the six months ended August 31, 2025, Saratoga Investment Corp. made $102.3 million in new and follow-on investments and had $94.9 million in aggregate exits and repayments, resulting in net investments of $7.4 million for the period.

Results of Operations

For the six months ended August 31, 2025, Saratoga Investment Corp. reported total investment income of $62.9 million, a decrease of 22.9% compared to the same period in the prior year. This was primarily due to a 26.2% decrease in interest income from investments, driven by lower SOFR base rates and the non-recurrence of interest income related to a previously non-accrual investment.

Total operating expenses for the six months ended August 31, 2025 were $43.7 million, a decrease of 11.0% compared to the same period in the prior year. This was mainly attributable to a 3.9% decrease in interest and debt financing expenses and a 41.1% decrease in incentive management fees.

Net investment income for the six months ended August 31, 2025 was $19.2 million, compared to $32.5 million for the same period in the prior year. The decrease was primarily due to the lower investment income.

Saratoga Investment Corp. recorded a net increase in net assets resulting from operations of $27.2 million, or $1.75 per share, for the six months ended August 31, 2025, compared to a net increase of $19.9 million, or $1.45 per share, for the same period in the prior year.

Financial Condition, Liquidity and Capital Resources

Saratoga Investment Corp. intends to continue generating cash primarily from operations, including interest income, as well as through the Encina and Live Oak credit facilities, SBA-guaranteed debentures, and future debt and equity offerings. The company’s asset coverage ratio was 166.6% as of August 31, 2025, providing it with additional borrowing capacity.

The company has entered into a $65 million senior secured revolving credit facility with Encina Lender Finance, LLC and a $75 million senior secured revolving credit facility with Live Oak Banking Company to provide additional sources of financing. As of August 31, 2025, the company had $32.5 million and $37.5 million outstanding under the Encina and Live Oak credit facilities, respectively.

Saratoga Investment Corp. has also issued various unsecured notes, including 7.75% 2025 Notes, 6.25% 2027 Notes, 4.375% 2026 Notes, 4.35% 2027 Notes, 6.00% 2027 Notes, 7.00% 2025 Notes, 8.00% 2027 Notes, and 8.125% 2027 Notes, to further diversify its sources of capital.

The company has an active share repurchase plan and equity ATM program to provide additional flexibility in managing its capital structure. As of August 31, 2025, Saratoga Investment Corp. had sold 8,532,953 shares for gross proceeds of $225.7 million under the ATM program.

Saratoga Investment Corp. has distributed sufficient dividends to eliminate taxable income for its completed tax years. The company’s dividend distributions from August 31, 2025 to inception are detailed in the report.

Overall, Saratoga Investment Corp. appears to have a diversified capital structure and ample liquidity to support its near-term capital requirements and investment activities.