Saratoga Investment Corp.

Transcription

1 Saratoga Investment Corp. Fiscal Third Quarter 2019 Shareholder Presentation January 10, 2019

2 Continued Growth and Outperformance in Q Fiscal Third Quarter 2019 Highlights: Continued strengthening of financial foundation Investment quality remains strong 98.6 % of loan investments with highest internal rating LTM ROE of 10.1% for Q3 FY19, similar to last year s 10.2% and beating industry mean of 9.6% Gross Unlevered IRR of 12.9% on total unrealized portfolio as of November 30, 2018 Gross Unlevered IRR of 13.4% on $299.1 million of total realizations Consistent strong long-term originations contribute to growing assets under management AUM up 13% since last quarter, up 31% from last year One new portfolio company this quarter, eight new platforms since May this year Latest dividend of $0.53 per share continued seventeenth increase in quarterly dividends Over-earning our adjusted Q3 NII per share of $0.65 per share by 23% Saratoga CLO refinanced, extending reinvestment period to January 2021 CLO also upsized from $300 million to $500 million of assets Base of capital and liquidity remains strong As of quarter-end, existing available liquidity of $37.4 million without external financing Key performance indicators up in Q3 versus last year Adjusted NII of $4.8 million is up 49%, Adjusted NII per share of 65c is up 9c, Adjusted NII yield of 11.2% is up 160bps and NAV per share of $23.13 is up $0.55, or 2.4% 2

3 Continued Asset Growth and Strong Credit Quality $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 $80 Asset Base Expansion Trend $95 $155 $206 $241 $284 $293 $343 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Investments at Fair Value ($ million) $444 Q3 FY19 100% 80% 60% 40% 20% 0% Overall Credit Quality Continues Strong 64.3% 82.4% 90.5% 94.2% 98.3% 94.1% 96.8% 98.6% FY12 FY13 FY14 FY15 FY16 FY17 FY18 Q3 FY19 Expected Loss of Principal Underperforming Performing Fair value of AUM increased 13% quarter-over-quarter, 30% since year-end, and 455% since FY11 Over 98% of our SAR loan investments hold our highest internal rating; highest level ever; two on non-accrual at quarter-end* * Excludes our investment in our CLO, and our equity and written-off legacy investments. 3

4 Q3 FY19: Strong Financial Foundation and Momentum Key Performance Metrics for the Fiscal Quarter For the quarter ended and as of ($ in millions except per share) Nov 30, 2017 Aug 31, 2018 Nov 30, 2018 Net investment income $3,015 $5,144 $5,139 Adjusted net investment income* $3,264 $4,761 $4,850 Net investment income per share $0.50 $0.74 $0.69 Adjusted net investment income per share* $0.54 $0.69 $0.65 Net investment income yield 8.8% 12.9% 11.9% Adjusted net investment income yield* 9.6% 11.9% 11.2% Return on Equity Last Twelve Months 10.2% 11.6% 10.1% Fair value of investment portfolio $338.8 $392.9 $443.8 Investments in new/existing portfolio companies Total net assets $138.8 $172.7 $173.3 $5.2 $51.7 $73.7 $10,000 $0 $10,000 $0 $1.40 $0.70 $0.00 $1.40 $0.70 $ % 0% 13% 0% 15% 10% 5% $500 $0 $150 $0 $100 $0 Loan Investments held in strong credit ratings 97.2% 99.4% 98.6% 100% 90% *Adjusted for accrued capital gains incentive fee expense, reconciliation to GAAP net investment income included in our fiscal second quarter 2019 earnings release. NOTE: For calculation purposes, Q2 FY19 reflects the impact of the equity offering for half the quarter (to weighted average number of shares and yield/roe calcs). 4

5 NAV Continues to Benefit from Performance in millions $180 $170 $160 Net Asset Value (FY 2011 to Q3 FY19) 21% increase since year-end 102% increase in over 7 years $173.3 $150 $140 $143.7 $130 $120 $122.6 $125.1 $127.3 $110 $100 $107.0 $113.0 $90 $80 $86.0 $97.0 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Q3 FY19 5

6 Quarterly Reconciliation of NII and NAV per Share Reconciliation of Quarterly Adjusted NII per Share Impacts are shown net of incentive fee $0.07 $0.01 ($0.01) ($0.02) ($0.01) ($0.03) ($0.05) $0.69 $0.65 Adjusted NII for Q2 FY19 Increase in Net Interest Margin (excl. CLO) Increase in CLO Interest Income Decrease in Other Income Increase in Base Increase in Management Fee Operating Expenses (excl. deferred taxes) Decrease in Deferred Tax Benefit Dilution from Increased Shares (Equity Offering and DRIP) Adjusted NII for Q3 FY19 Reconciliation of Quarterly NAV per Share $23.16 $0.69 ($0.20) ($0.52) $0.00 $23.13 NAV per Share as of Q2 FY19 GAAP NII for Q3 FY19 Net Realized and Unrealized Losses on Investments Q2 Dividend Declared of $0.52 Accretive Net Impact of NAV per Share as of Q3 FY19 Equity Offering and DRIP in Q3 6

7 Dry Powder Remains Available (As of Nov 30, 2018) Total Borrowing Capacity Outstanding Available Liquidity Remaining Maturity Period Fixed / Floating Rate Secured Revolving Credit Facility $45.0 million $11.8 million $33.2 million 7 Years Floating SBA Debentures $150.0 million $150.0 million $0.0 million 5-10 years Fixed Publicly- Traded Notes (at fair value) SAB $76.7 million $76.7 million $0.0 million 5 Years Fixed SAF $40.0 million $40.0 million $0.0 million 7 Years Fixed Cash and Cash Equivalents $4.2 million $0.0 million $4.2 million - - Total Available Liquidity (at quarter-end): $ 37.4 million Ability to grow AUM by 8% without any new external financing 7

8 SAR Benefits from Increased Interest Rates +$0.8M (+7.0%) Interest Income Grows with Higher Interest Rates $11.8M Interest income for the quarter ended 11/30/ bps 82.6% of SAR lending at floating rates Hypothetical 1% change in interest rates would result in ~$0.8 million increase in interest income over the quarter ($3.3 million per year) Assumes investments as of 11/30/2018 outstanding for full quarter and no change to existing rate terms 8

9 Portfolio Composition and Yield Portfolio Composition $443.8 m (Based on Fair Values as of November, 2018) Portfolio Yield 10.8% (Weighted Average Current Yield of Existing Total Portfolio) Second Lien 29.2% Structured Finance Securities 3.5% Common Equity 9.1% Second Lien 12.1% Structured Finance Securities 13.3% Common Equity 3.4% First Lien 53.6% Unsecured Term Loans 3.1% First Lien 11.2% Unsecured Term Loans 10.1% 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% 11.1% 10.8% Annual Totals* $450 $ % $350 $300 $250 $200 $150 $ % 27.1% 11.3% 6.2% 18.6% 10.6% 6.2% 25.2% 11.1% 7.6% 16.4% 11.0% 5.3% 14.0% 11.0% 5.9% 21.2% 11.2% 11.3% $ % $0 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Q3 FY19 CLO Syndicated Annual total yields on full portfolio., CLO and Syndicated yields are annualized and calculated on fair value of interest earning assets. 10

11 Diversified Across Industry and Geography Investments diversified geographically Investments across 10 distinct industries Northeast Midwest Southwest West Other Consumer Services Business Services Healthcare Services Media Structured Finance Securities Building Products Metals 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) $15,000 $12,368 $11,970 $10,000 $5,000 $0 $562 $1,271 $3,276 $226 FY13 FY14 FY15 FY16 FY17 FY18 YTD FY19 Total Since FY13* $145 -$5,000 -$5,878* -$10,000 * Reflects realized loss on My Alarm Center investment of $7.7m less $1.8m in other realized gains in FY18. 12

13 Number of executed investments SAR debt/ebitda Exercising Disciplined Investment Judgment While Growing Origination Pace SAR Debt Multiples/Deals Closed ( ) Total Portfolio Leverage is 4.66x 1 Market Average Multiples (Total Debt/EBITDA) LTM Sept 30, 2018* >7.0x 5.9% LTM Sept 30, 2017* >7.0x 5.3% 6.0x-6.9x 18.1% 6.0x-6.9x 28.6% 73% 60% 4.66x 5.0x-5.9x 48.5% 5.0x-5.9x 25.6% 4.0x-4.9x 20.2% 4.0x-4.9x 25.1% <4.0x 6.9% <4.0x 15.4% Multiples for SAR deals at low end of industry average Market averages significantly over 5.0x SAR Deals Closed Weighted Average SAR leverage across portfolio New Portfolio Companies *Calendar quarters, not fiscal Source: S&P Global market Intelligence US:Q3 2018, 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 Excludes nine loans underwritten using recurring revenue metrics.

14 Robust and Growing Pipeline During Tough Execution Market 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 Saratoga maintains investment discipline which is demonstrated by passing on ~65 deals a year that other firms close Term Sheets 67 (28%) 48 2% 49 49% 73 Saratoga issues an average of 18 term sheets per quarter, or 9% of deals reviewed ~ 80% of term sheets are issued for transactions involving a private equity sponsor Deals Executed (new and follow-on) % 18 33% 24 Saratoga closes an average of 6 new deals or followons per quarter, ~2.5% of deals reviewed New portfolio companies Eight new portfolio companies in the past twelve months *Calendar quarters, not fiscal quarters. 14

15 Demonstrated Strong Track Record Realized Investments (Gross Unlevered IRR%) Unrealized Investments 1 (Gross Unlevered IRR%) $321.1m $209.1m 16% $90.0m $299.1m 16% 14% 13.8% 14.4% 13.4% 14% 12.5% 12% 12% $121.5m $442.6m 12.9% 10% 10% 8.8% 8% 8% 6% 6% 4% 4% 2% 2% 0% SBIC Investments* Investments* Combined Weighted SBIC and Investments* 0% SBIC Investments Investments* Combined Weighted SBIC and Investments* Track Records as of 11/30/18 1 IRRs for unrealized investments include fair value and accrued interest as of 11/30/18 * SBIC investments represent all investments in the first license. investments exclude investments existing when Saratoga management took over, and corporate financing investments. 15

16 SBIC Portfolio Primarily Senior Debt SBIC portfolio consists of investments in 23 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 4.73x 1. 5 of the SBIC portfolio consists of senior debt investments, down from 52.7% in August % of the SBIC portfolio consists of first lien, last out or second lien/subordinated debt investments, up from 39.9% in August Composition of SBIC Portfolio 2 5.3% 2.2% % Senior Debt First Lien First Lien Last Out/Second Lien/Subordinated Debt Equity/Warrants Unsecured/Subordinated 1 Excludes six loans underwritten using recurring revenue metrics. 2 Based on market value as of November 30,

17 $ Millions SBIC Assets Fully Funded $300 $250 SBIC Assets* $50.9 $41.8 $19.1 $3.1 SBIC first license provided $171m, $143m, $105m, $51m, $42m, $19m and $3m of available capacity in FY13, FY14, FY15, FY16, FY17, FY18 and Q3FY19, respectively (debt and equity at 2:1 leverage) $200 $104.9 $150 $100 $171.0 $143.0 $200.6 $ $241.1 SBIC represented 34%, 42%, 56%, 71%, 76%, 63% and 54% of total assets in FY13, FY14, FY15, FY16, FY17, FY18 and Q3 FY19, respectively $135.8 $50 $86.5 $0.0 $52.6 $0 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Q3 FY19 * At Fair Value as of November 30, % 42% 56% 71% 76% 63% 54% 17

18 Dividends Continue to Increase Established dividend policy to pay regular quarterly cash dividends to stockholders pursuant to dividend reinvestment plan ( DRIP ) Increased dividend by 194% since program launch Declared Q dividend of $0.53, an increase of $0.01 (2%) Overearning our dividend currently (23.0% on adjusted Q3 FY19 NII per Dividends Per Share* 0.33 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q share) *Excludes special dividend of $0.20 per share paid on September 5, Q3 FY19 Adjusted NII/share

19 CSWC MVC NEWT SAR GAIN MAIN SLRC MRCC SCM G GARS ARCC GECC HRZN TPVG TSLX WHF GLAD AINV TCPC TCRD OXSQ OHAI PFLT OFS GSBD FDUS HTGC NMFC PNNT SUNS CMFN BKCC CGBD FSIC HCAP KCAP OCSI PSEC OCSL CPTA MCC A B -93.3% -47.1% -14.8% -15.6% -16.7% -18.4% -20.6% -24.0% -35.9% -37.5% 9.1% 8.2% 4.7% 2.7% 2.5% 20.8% 11.1% Saratoga Growing Dividends the Past Seventeen Quarters Year-Over-Year Quarterly Dividend Growth at Top of Industry 4 2 Industry Mean -3.8% Industry Median Source: Raymond James report as of 12/14/18 19

20 SAR LTM Total Return Outperforms Index LTM Total Return (%) (January 2018 to January 2018) 35 SAR +5% vs. Index -5% Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Source: WF Index SAR US Equity WF Index 20

21 CSWC OXSQ MFIN B SCM KCAP HRZN CPTA WHF ARCC SLRC PNNT SAR NMFC OFS TSLX HCAP G PSEC TPVG BKCC Average HTGC Median TCPC PFLT SUNS OCSL GAIN MAIN GSBD GARS GECC GLAD TURN FDUS GSVC AINV MVC CMFN TCRD MRCC RAND SCM SAR CSWC GAIN OXSQ WHF SLRC TSLX MAIN PNNT ARCC GLAD MVC PFLT SUNS HRZN TPVG OFS NMFC G GSBD Median TCPC KCAP PSEC HTGC Average HCAP FDUS AINV MRCC OCSL CMFN CPTA TURN TCRD GSVC BKCC GARS MFIN B RAND MCC SAR GAIN SCM MAIN WHF OFS ARCC NMFC PFLT G HRZN SLRC GLAD SUNS CSWC MRCC TCPC OXSQ HCAP Median HTGC Average BKCC PNNT PSEC FDUS MVC AINV GARS RAND OCSL KCAP CPTA GSVC TCRD TURN B MFIN MCC SAR Performance at Top of Industry Total Return (%) (20) (40) (60) (80) Past 5 years: 101% Top (20) (40) (60) Last 3 years: 85% Top (10) (20) (30) LTM: 5% Top 13 Source: WF Index 21 21

22 Strongly Differentiated Outperformance 11.5% 11.0% 10.5% 1 9.5% Interest % on Portfolio 11.3% 10.9% 11.0% 12% 11% 10% 9% 8% 7% 6% 5% 11.2% LTM NII Yield 8.3% 8.8% 11% 10% 10% 9% 9% 8% 10.1% LTM ROE 9.6% 8.5% 5% 4% 3% 2% 1% 3.9% LTM Operating Expense Ratio* 3.4% 3.2% 9.0% SAR Mean Median 4% SAR Mean Median 8% SAR Mean Median 0% SAR Mean Median 130% 110% 90% 70% 50% 30% 10% -10% Dividend Coverage (NII/Dividend) 123.1% SAR 108.2% 104.2% Mean Median 10% 8% 6% 4% 2% 0% -2% -4% -6% Year-over-Year Dividend Growth 8.2% SAR -3.8% Mean Median 3% 2% 1% 0% -1% -2% -3% NAV Per Share Growth 2.4% SAR -2.3% Mean 0.1% Median 12% 10% 8% 6% 4% 2% 0% Investment Capacity % 8.4% SAR 10.3% Mean 8.0% Median Source: SNL Financial / Company Filings / Raymond James report as of 12/14/18 * LTM Operating Expense Ratio defined as total operating expenses, net of interest and debt financing expenses, divided by average total assets. Total operating expenses divided by net assets is 17.1%. 22

23 Establishing Competitive Edge vs. Other s Outstanding performance characteristics Strong and growing dividend Paying a current dividend yield of approx. 1; increased quarterly dividend by 194% over past four years; over-earning dividend by 23% (based Q3 adjusted NII per share); significant management ownership of 21% Strong return on equity Low-cost available liquidity Solid earnings per share and NII Yield Commitment to AUM expansion Well-positioned for higher interest rates Limited oil & gas exposure LTM ROE of 10.1% factors in both investment income and net gains/losses Borrowing capacity still at hand through both credit facility and cash can grow current asset base by 8% as of quarter ended November 30, 2018 Attractive NII per share generated from strong risk-adjusted portfolio returns and favorable capital structure Assets under management has steadily 455% since FY 2011, 30% since year end and 13% since quarter end with strong originations offsetting significant repayments Approx. 83% of our investments have floating interest rates, with all of our investments through their floors. Debt primarily at fixed rates and long-term, with new $40.0m 7-year baby bond issued last quarter. Obtained BBB investment grade rating. 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, 99% of credits are the highest quality, 54% of investments are first lien, protected against potential risk of rising interest rates 23

24 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 24

25 Questions? 25

26 Appendix 26

27 KPIs Balance Sheet Q3 FY 2019 Perio d FMV Investment Po rtfo lio (in millio ns) Q3-17 $ Q4-17 $ Q1-18 $ Q2-18 $ Q3-18 $ Q4-18 $ Q1-19 $ $500.0 $450.0 $400.0 $350.0 $300.0 Q2-19 $ Q3-19 $ $250.0 Perio d NAV (in millio ns) Q3-17 $ Q4-17 $ Q1-18 $ Q2-18 $ Q3-18 $ Q4-18 $ Q1-19 $ Q2-19 $ Q3-19 $ $180.0 $160.0 $140.0 $120.0 $100.0 FMV Investment Portfolio (in millions) Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 NAV (in millions) Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Perio d NAV Per Share Q3-17 $ Q4-17 $ Q1-18 $ Q2-18 $ Q3-18 $ Q4-18 $ Q1-19 $ Q2-19 $ Q3-19 $ $23.4 $22.9 $22.4 $21.9 $21.4 NAV Per Share Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q

28 KPIs Income Statement Q3 FY 2019 Net Interest Margin Perio d (in millio ns) Q3-17 $ 4.6 Q4-17 $ 4.5 Q1-18 $ 4.7 Q2-18 $ 5.5 Q3-18 $ 5.4 Q4-18 $ 5.8 Q1-19 $ 6.0 Q2-19 $ 6.5 Q3-19 $ 7.2 Perio d NII Per Share Q3-17 $ 0.53 Q4-17 $ 0.49 Q1-18 $ 0.50 Q2-18 $ 0.62 Q3-18 $ 0.54 Q4-18 $ 0.60 Q1-19 $ 0.64 Q2-19 $ 0.69 Q3-19 $ 0.65 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $0.8 $0.6 $0.4 $0.2 $- Net Interest Margin Excluding CLO (in millions) Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 NII Per Share Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Perio d NII Yield Q % 14.0% Q % 12.0% Q % 1 Q % 8.0% Q % Q % 6.0% Q % 4.0% Q % 2.0% Q % NII Yield Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q

29 KPIs Income Statement Q3 FY 2019 (continued) Perio d EPS Q3-17 $ 0.27 Q4-17 $ 0.22 Q1-18 $ 0.17 Q2-18 $ 1.15 Q3-18 $ 0.71 Q4-18 $ 0.89 Q1-19 $ 0.61 Q2-19 $ 0.45 Q3-19 $ 0.49 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $- EPS Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Perio d LTM ROE Q % Q % Q % Q % Q % Q % Q % Q % Q % 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% LTM ROE Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q

30 KPIs - SAR Net Interest Margin SAR has more than tripled its Net Interest Margin since taking over management This increase despite the contribution of the CLO shrinking Net Interest Margin 219% increase in run rate in 7.75 years $24,185 $30,084 $17,309 $18,414 $19,460 $9,430 $9,956 $11,904 $14,096 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Q3 FY19* *Q3 FY19 is a simple annualization of the nine months ended November 30, Actual FY19 results might differ. 30