Saratoga Investment Corp.

Transcription

1 Saratoga Investment Corp. Fiscal Third Quarter 2018 Shareholder Presentation January 11, 2018

2 Continued Progress to Core Objectives in Q Fiscal Third Quarter 2018 Highlights: Continued strengthening of financial foundation Investment quality remains strong 97.2% of loan investments with highest rating Return on equity of 10.2% LTM, up from 8.3% last quarter and beating industry mean of 8.4% Gross Unlevered IRR of 12.4% on total unrealized portfolio as of November 30, 2017 Gross Unlevered IRR of 16.3% on $234.6 million of total realizations Consistent strong long-term originations contribute to growing assets under management AUM up 16% since year-end, up 324% since FY11 $5.2 million of originations in Q3 offset repayments of $1.8 million Latest dividend of $0.49 per share continued thirteenth increase in quarterly dividends Over-earning our current dividend by 10.2% - $0.54 adjusted NII/share for LTM Base of liquidity remains strong - existing available liquidity allows us to increase current AUM by 20% ATM equity program as of November 30, 2017, sold 266,113 shares for gross proceeds of $6.0 million Average price of $22.49 per share Key performance indicators up in Q3 versus last year Adjusted NII of $3.3 million is up 7%, Adjusted NII per share of 54c is up 1c, Adjusted NII yield of 9.6% is up 10bps and NAV per share of $22.58 is up 61c 2

3 Continued Asset Growth and Improving Credit Quality Asset Base Expansion Trend Credit Quality Improved Significantly $400 $350 $300 $250 $200 $150 $100 $50 $80 $95 $155 $206 $241 $284 $293 $ % 80% 60% 40% 20% 21.6% 64.3% 82.4% 90.5% 98.3% 98.3% 94.1% 96.3% 97.3% 97.2% $0 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Q3 FY18 0% FY11 FY12 FY13 FY14 FY15 FY16 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Investments at Fair Value ($ million) Performing Underperforming Expected loss of Principal Fair value of AUM increased 16% since year-end, and 324% since FY11 Over 97% of our SAR loan investments hold our highest internal rating; one on nonaccrual at quarter-end* * Excludes our investment in our CLO, and our equity and written-off legacy investments. 3

4 Q3 FY18: Strong Financial Foundation and Growth Key Performance Metrics for the Fiscal Quarter For the quarter ended and as of ($ in millions except per share) Nov 30, 2016 Aug 31, 2017 Nov 30, 2017 Net investment income $3,419 $2,891 $3,015 Adjusted net investment income* $3,050 $3,680 $3,264 Net investment income per share $0.60 $0.49 $0.50 Adjusted net investment income per share* $0.53 $0.62 $0.54 Net investment income yield 10.7% 8.9% 8.8% Adjusted net investment income yield* 9.5% 11.3% 9.6% Return on Equity Last Twelve Months 7.7% 8.3% 10.2% Fair value of investment portfolio $277.6 $333.0 $338.8 Investments in new/existing portfolio companies Total net assets $127.7 $133.5 $138.8 $30.1 $36.7 $5.2 $4,000 $3,000 $2,000 $5,000 $0 $1.00 $0.00 $0.80 $0.60 $ % 0% 15% 10% 5% 2000% $300 $250 $200 $0 $50 $0 0% Loan Investments held in strong credit ratings 96.7% 97.3% 97.2% 110% 100% 90% *Adjusted for accrued capital gains incentive fee expense, and interest during call period and loss on extinguishment of existing baby bonds debt, reconciliation to GAAP net investment income included in our fiscal third quarter 2018 earnings release. 4

5 NAV Continues to Benefit from Realizations in millions $150 Net Asset Value (FY 2011 to Q3 FY 2018) $140 $130 61% increase in 7 years $138.8 $120 $122.6 $125.1 $127.3 $110 $113.0 $100 $107.0 $90 $80 $86.0 $97.0 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Q3 FY

6 Quarterly Reconciliation of NII and NAV per Share Reconciliation of Quarterly NII per Share Impacts are shown net of incentive fee ( $0.04 ) $0.62 ( $0.06 ) $0.03 ($0.01) $0.54 Adjusted NII for Q2 FY18 Decrease in Total Interest Income Decrease in Other Income Decrease in Interest and Debt Financing Dilution from Increased Shares Adjusted NII for Q3 FY18 Reconciliation of Quarterly NAV per Share $0.21 $0.50 ($0.48) ($0.02) $22.37 $22.58 NAV per Share as of Q2 FY18 GAAP NII for Q3 FY18 Net Appreciation on Investments Q2 Dividend Declared of $0.48 Dilutive Impact of ATM and DRIP issues in Q2 NAV per Share as of Q3 FY18 6

7 Significant Dry Powder Available (As of Nov 30, 2017) Total Borrowing Capacity Outstanding Available Liquidity Maturity Period Fixed / Floating Rate Secured Revolving Credit Facility $45.0 million $1.0 million $44.0 million 8 Years Floating SBA Debentures $150.0 million $134.7 million $15.3 million 6-10 years Fixed Publicly-Traded Notes (at fair value) $78.3 million $78.3 million $0.0 million 7 Years Fixed Cash and Cash Equivalents $8.7 million $0.0 million $8.7 million - - Total Available Liquidity (at quarter-end): $ 68.0 million * Ability to grow AUM by 20% without any new external financing 7

8 SAR Benefits from Increased Interest Rates +$0.6 M Interest Income Grows with Higher Interest Rates $8.9 M Interest income for the quarter ended 11/30/ bps 84% of SAR lending at floating rates Hypothetical 1% change in interest rates would result in ~$0.6 million increase in interest income over the quarter ($2.4 million per year) Assumes investments as of 11/30/17 outstanding for full quarter and no change to existing rate terms 8

9 Portfolio Composition and Yield Portfolio Composition $338.8 m (Based on Fair Values as of November 30, 2017) Portfolio Yield 11.3% (Weighted Average Current Yield of Existing Portfolio) Second Lien 29.3% Structured Finance Securities 4.8% Second Lien 11.9% Structured Finance Securities 19.4% First Lien 54.8% Common Equity 8.4% Syndicated 2.7% First Lien 10.8% Common Equity 3.6% Syndicated 5.6% 9

10 $ Millions Yield of Remains Strong and Consistent Weighted Average Current Yields 13.4% 14.0% 11.8% 11.8% 11.1% 10.8% 11.3% Annual Totals $400 $350 $300 $250 $ % 6.2% 25.2% 7.6% 16.4% 11.0% 5.3% 14.0% 11.0% 5.6% 19.4% 11.1% $150 $ % 27.1% 11.3% 18.6% 10.6% 11.1% $ % $0 FY12 FY13 FY14 FY15 FY16 FY17 Q3 FY18 CLO Syndicated All yields are annualized and calculated on fair value 10

11 Diversified Across Industry and Geography Investments diversified geographically Investments across 9 distinct industries Consumer Services Healthcare Services Midwest Northeast Southwest West Media Structured Finance Securities Building Products Metals Other Business Services Consumer Products Food and Beverage Southeast Northwest Education 11

12 Net Realized Gains Help Protect Shareholder Capital Cumulative net realized gains reflect portfolio credit quality $ in thousands Net Realized Gains (all investments) $14,000 $12,000 $10,000 $8,000 $6,000 $12,368 $12,045 $4,000 $2,000 $0 -$2,000 -$4,000 -$6,000 -$8,000 $562 $1,271 $3,276 $226 FY13 FY14 FY15 FY16 FY17 YTD FY18 Total Since FY13* -$5,658* * Reflects realized loss on My Alarm Center investment of $7.7m less $2.0m in other realized gains 12

13 US Deal Activity Below $25m Continues to Decrease YTD November transactions for US deals below $25 million down by 37% over same period last year In Billions Deal Count $12.00B $10.00B $8.00B $9.28B $10.77B $8.47B $11.20B 2,972 $9.68B 2,701 $7.67B 5,000 4,500 4,000 3,500 3,000 $6.00B $4.00B 2,086 2,396 1,852 1,697 2,500 2,000 1,500 $2.00B 1, $0.00M YTD 11/30/16 YTD 11/30/17 0 Source: PitchBook Data, Inc. Total Capital Invested 13 Deal Count

14 Number of executed investments SAR debt/ebitda Exercising Disciplined Investment Judgment While Growing Origination Pace SAR Debt Multiples/Deals Closed ( ) Total Portfolio Leverage is 4.2x Market Average Multiples (Total Debt/EBITDA) September 30, 2017* >7.0x June 30, 2017* >7.0x 6.0x-6.9x 33.4% 83% 6.0x-6.9x 6 90% 5.0x-5.9x 5 5.0x-5.9x 3 4.2x 4.0x-4.9x 8.3% 4.0x-4.9x 1 <4.0x 8.3% <4.0x Multiples for SAR deals at low end of industry average Market averages significantly over 5.0x *Calendar quarters, not fiscal SAR Deals Closed Weighted Average SAR leverage across portfolio Source: S&P Global market Intelligence US:Q4 2017, issuers with EBITDA less than or equal to $50m. The data has limitations due to a small sample size but that it does reflect trend toward increasing leverage

15 Robust Pipeline During Tough Execution Market Despite a difficult market to close deals, the number of new business opportunities is increasing for us, yet we remain as disciplined as ever. Calendar Deals Sourced % 613 5% % % of deal flow from private equity sponsors 50% of deals from private companies without institutional ownership Term Sheets Deals Executed (new and follow-on) 48 40% 67 (28%) 48 2% % % 18 Saratoga issues an average of 13 term sheets per quarter ~ 80% of term sheets are issued for transactions involving a private equity sponsor Decrease from 2015 reflects inconsistent current quality Saratoga closes an average of 4 new deals or follow-ons per quarter, ~2% of deals reviewed Approximately 40% were follow-ons the past year One new portfolio company in the past quarter and seven in the LTM period *Calendar quarters, not fiscal quarters 15 15

16 Demonstrated Strong Track Record 20% 18% 16% 14% 12% 10% $162.7m 17.7% Realized Investments (Gross Unlevered IRR%) $71.9 m 13.3% $234.6m 16.3% 25% 20% 15% Unrealized Investments 1 (Gross Unlevered IRR%) $262.3m 12.8% $81.2m 11.4% $343.5m 12.4% 8% 10% 6% 4% 5% 2% 0% SBIC Investments* Investments* Combined Weighted SBIC and Investments* 0% SBIC Investments Investments* Combined Weighted SBIC and Investments* Track Records as of 11/30/17 1 IRRs for unrealized investments include fair value through 11/30/17 and accrued interest through 11/30/17 * SBIC investments represent all investments in the first license. investments exclude investments existing when Saratoga management took over, and corporate financing investments. 16

17 SBIC Portfolio Primarily Senior Debt SBIC portfolio consists of investments in 22 portfolio companies across a range of industries. Compared to the broader loan market tracked by S&P and Thomson Reuters, SAR s leverage levels are lower. The weighted average leverage for all SBIC debt investments is 4.28x % of the SBIC portfolio consists of senior debt investments, in line with the 55.6% in August % of the SBIC portfolio consists of first lien, last out or second lien/subordinated debt investments, almost unchanged from 40.3% in August Excludes two loans underwritten using recurring revenue metrics 2 Based on market value as of November 30, Composition of SBIC Portfolio 2 4.1% 40.6% 55.4% Senior Debt First Lien First Lien Last Out/Second Lien/Subordinated Debt Equity/Warrants

18 $ Millions SBIC Assets Close to Fully Funded $300 $250 SBIC Assets* $41.8 SBIC first license provided $171m, $143m, $105m, $51m, $42m and $22m of available capacity in FY13, FY14, FY15, FY16, FY17 and Q3 FY18, respectively (debt and equity at 2:1 leverage) $50.9 $22.4 $200 $104.9 $150 $100 $171.0 $143.0 $200.6 $221.5 $212.7 SBIC represented 34%, 42%, 56%, 71%, 76% and 63% of total assets in FY13, FY14, FY15, FY16, FY17 and Q3 FY18, respectively $135.8 $50 $0 $0.0 $52.6 $ % 42% 56% 71% 76% 63% FY12 FY13 FY14 FY15 FY16 FY17 Q3 FY18 * At Fair Value as of November 30,

19 Dividends Continue to Increase Established dividend policy to pay regular quarterly cash dividends to stockholders pursuant to dividend reinvestment plan ( DRIP ) Increased dividend by 172% since program launch Declared Q dividend of $0.49, an increase of $0.01 (2%) Overearning our dividend currently (10.2% on average LTM NII per share) 0.18 Q Q Dividends Per Share* 0.27 Q Q Q Q Q Q Q Q Q Q Q *Excludes special dividend of $0.20 per share paid on September 5, 2016 Q Adjusted Average NII/share for LTM ended Q3 FY

20 CSWC SAR MAIN GAIN NEWT G A ACSF ARCC FDUS GLAD HCAP HTGC MVC SCM SLRC TCPC TPVG TSLX WHF TCAP MRCC FSIC NMFC PFLT OFS SUNS GSBD NMFC AINV HRZN BKCC OCSI CPTA PSEC GARS KCAP TCRD CMFN OCSL FSC TICC PNNT MCC OHAI -35.7% -46.7% -66.7% -13.0% -14.3% -15.6% -17.0% -18.7% % -28.9% -30.6% -30.6% -31.0% 8.8% 2.8% 2.4% 2.3% 118.2% Saratoga Growing Dividends the Past Thirteen Quarters Year-Over-Year Quarterly Dividend Growth at Top of Industry Industry Mean -5.2% Industry Median Source: Raymond James report as of 12/15/

21 SAR LTM Total Return Outperforms Index LTM Total Return (%) (Dec 2016 to Dec 2017) SAR +31% vs. Index +14% (5.00) Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 SAR (30.95%) s (13.97%) Source: Keefe, Bruyette & Woods 21

22 Performance at Top of Industry Total Return (%) (10) Past 7 years since Saratoga took over: 322% (2) (4) (6) (8) (10) Last 3 years: 105% (2) (4) Last 12 months: 31% (6) (8) Source: Keefe, Bruyette & Woods 22

23 Strongly Differentiated Outperformance 11.2% 11.0% 10.8% 10.6% 10.4% 10.2% Interest % on Portfolio 11.1% 10.9% 10.8% 10% 9% 8% 7% 6% 5% LTM NII Yield 9.6% 9.0% 9.1% 12% 10% 8% 6% 4% 2% 10.2% LTM ROE 8.4% 8.7% 5% 4% 3% 2% 1% 4.1% LTM Expense Ratio 3.2% 3.1% 1 SAR Mean Median 4% SAR Mean Median 0% SAR Mean Median 0% SAR Mean Median 112% 110% 108% 106% 104% 102% 100% 98% 96% 94% 92% Year-over-Year Dividend Dividend Coverage Growth 110.2% (NII/Dividend) 10% 8.9% SAR 98.4% Mean 10 Median 8% 6% 4% 2% 0% -2% -4% -6% SAR -5.2% Mean Median 2% 1% 0% -1% -2% -3% -4% NAV Per Share Growth 1.7% SAR -0.7% Mean -3.0% Median 25% 20% 15% 10% 5% 0% Investment Capacity % 20.1% SAR 16.3% Mean 14.0% Median Source: SNL Financial / Company Filings / Raymond James report as of 12/15/17 / Wells Fargo Scorecard 9/12/17 23

24 Establishing Competitive Edge vs. Other s Outstanding performance characteristics Strong and growing dividend Paying a current dividend yield of approx. 8.8%; increased quarterly dividend by 172% over past three years; significant management ownership of 25% Strong return on equity Ample low-cost, liquidity available Solid earnings per share and NII Yield Commitment to AUM expansion Well-positioned for higher interest rates Limited oil & gas exposure LTM ROE of 10.2% factors in both investment income and net gains/losses Ample borrowing capacity still at hand through both credit facility and SBA debentures relative to competitors can grow current asset base by 20%; maturity extended through recent successful baby bond offering and extension of credit facility Attractive NII per share generated from strong risk-adjusted portfolio returns and favorable capital structure next $40 million of net investment growth very accretive Assets under management has steadily grown 324% since FY 2011 and 16% since year end with strong originations offsetting significant repayments Over 84% of our investments have floating interest rates, with all of our investments through their floors. Debt primarily at fixed rates Will not be facing significant write-downs as a result of major direct exposure to energy/oil/gas investments Attractive risk profile SAR and SBIC leverage is below market averages, 97% of credits are the highest quality, 55% of investments are first lien, protected against potential interest rate risk of rising rates 24

25 Objectives for the Future Expand our asset base without sacrificing credit quality while benefitting from scale Increase our capacity to source, analyze, close and manage our investments by adding to our management team and processes Utilize benefits of fully deploying available financing to build scale and increase our AUM and net investment income/yield, enabling us to achieve growth in: Net Asset Value Return on Equity Earnings per Share Stock Values 25

26 Questions? 26

27 Appendix 27

28 KPIs Balance Sheet Q3 FY 2018 FMV Investment Portfolio Period (in millions) Q3-16 $ Q4-16 $ Q1-17 $ Q2-17 $ Q3-17 $ Q4-17 $ Q1-18 $ Q2-18 $ Q3-18 $ NAV Period (in millions) Q3-16 $ Q4-16 $ Q1-17 $ Q2-17 $ Q3-17 $ Q4-17 $ Q1-18 $ Q2-18 $ Q3-18 $ NAV Period Per Share Q3-16 $ Q4-16 $ Q1-17 $ Q2-17 $ Q3-17 $ Q4-17 $ Q1-18 $ Q2-18 $ Q3-18 $ $400.0 $350.0 $300.0 $250.0 $200.0 $140.0 $135.0 $130.0 $125.0 $120.0 $115.0 $22.90 $22.40 $21.90 $21.40 FMV Investment Portfolio (in millions) Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 NAV (in millions) Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 NAV Per Share Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q

29 KPIs Income Statement Q3 FY 2018 Net Interest Margin Period (in millions) Q3-16 $ 3.2 Q4-16 $ 3.9 Q1-17 $ 4.4 Q2-17 $ 4.4 Q3-17 $ 4.6 Q4-17 $ 4.5 Q1-18 $ 4.7 Q2-18 $ 5.5 Q3-18 $ 5.4 $6.0 $5.0 $4.0 $3.0 Net Interest Margin (excluding CLO) (in millions) Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Period NII Per Share Q3-16 $ 0.42 Q4-16 $ 0.45 Q1-17 $ 0.46 Q2-17 $ 0.53 Q3-17 $ 0.53 Q4-17 $ 0.49 Q1-18 $ 0.50 Q2-18 $ 0.62 Q3-18 $ 0.54 $0.60 $0.50 $0.40 NII Per Share Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Period NII Yield Q % Q % Q % Q % Q % Q % Q % Q % Q % 12.0% 11.0% 1 9.0% 8.0% 7.0% NII Yield Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q

30 KPIs Income Statement Q3 FY 2018 (continued) Period EPS Q3-16 $ 0.61 Q4-16 $ (0.07) Q1-17 $ 0.57 Q2-17 $ 0.92 Q3-17 $ 0.27 Q4-17 $ 0.22 Q1-18 $ 0.17 Q2-18 $ 1.15 Q3-18 $ 0.71 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $- $(0.20) EPS Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Period LTM ROE Q % Q % Q % Q % Q % Q % Q % Q % Q % 13.0% 11.0% 9.0% 7.0% 5.0% LTM ROE Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q

31 KPIs - SAR Net Interest Margin SAR has more than doubled its Net Interest Margin since taking over management This increase despite the contribution of the CLO shrinking 148% increase in 7 years Please note that FY18 is a simple annualization of the nine months ended November 30, Actual FY18 results may differ. 31