Saratoga has good liquidity from bond sale; company weathers Covid-19

By Devika Patel

Knoxville, Tenn., July 9 – Saratoga Investment Corp. has no near-term debt, with all of its maturities coming due in three years or more.

Management believes that the company is in a strong position and will be able to cope with any challenges presented by the Covid-19 pandemic and resulting market uncertainty.

The company boosted its liquidity through a $43,125,000 baby bond sale that priced in June and settled the greenshoe on July 6.

“In June, and including the exercise of the greenshoe this week, we further increased our capital and liquidity by raising a new $43.1 million public baby bond, the first BDC issuing public debt since the pandemic began,” chairman and chief executive officer Christian L. Oberbeck said on the company’s first quarter ended May 31 earnings conference call on Thursday.

“This substantially increases our quarter-end BDC cash and our available liquidity to support our existing portfolio companies,” Oberbeck said.

“Since quarter-end we increased our available BDC liquidity by raising $43.1 million in a 7.25% five-year maturity two-year non-core baby bond,” chief compliance officer, treasurer and chief financial officer Henri Steenkamp said on the call.

“We remain pleased with our liquidity position, especially taking into account the overall conservative nature of our balance sheet and the fact that all our debt is long-term in nature, actually all three years plus,” Steenkamp said.

As of May 31, the fair value of Saratoga’s portfolio was $482.9 million, principally invested in 36 portfolio companies and one collateralized loan obligation fund.

The overall portfolio composition consisted of 73.4% of first lien term loans, 14.4% of second lien term loans, 1.2% of unsecured term loans, 5.6% of subordinated notes in a CLO and 5.4% of common equity.

“The weighted average fair value yield on the CLO remains relatively unchanged and the CLO is currently performing and current,” Steenkamp said.

Management believes the company will fare well despite these challenging times due to uncertainty caused by the Covid-19 pandemic.

“Coming off one of the most challenging quarters in our experience, we believe Saratoga is in a strong position to weather the increased economic challenges presented by Covid-19,” Oberbeck stated in a press release.

“We believe that our historically conservative approach to investing, leverage utilization, maintenance of solid levels of liquidity and some good fortune have put us in a strong position with the balance sheet strength to face these uncertain and challenging times,” Oberbeck said on the call.

“While no business can anticipate with clarity how long the displacement in the market and global economy will last, we are confident that our capital structure, liquidity, organization and management experience will enable us to efficiently and effectively navigate this challenging current and uncertain future environment,” Oberbeck said on the call.

As of May 31, Saratoga had no outstanding borrowings under its $45 million senior secured revolving credit facility with Madison Capital Funding LLC.

With $45 million available under the credit facility and the $25.8 million of cash and cash equivalents as of May 31, Saratoga has a total of $70.8 million of liquidity.

On June 24, the company issued $37.5 million of 7.25% notes due 2025 at par for net proceeds of $36.3 million in a sale that priced on June 17.

On July 6, the underwriters fully exercised the deal’s $5,625,000 greenshoe for additional net proceeds of $5.4 million.

Ladenburg Thalmann & Co. Inc., Janney Montgomery Scott LLC, BB&T Capital Markets, B. Riley FBR, Inc. and Compass Point Research & Trading, LLC were the bookrunners.

Lead managers were Incapital LLC, National Securities Corp. and Maxim Group LLC.

The notes are redeemable on or after June 24, 2022.

Saratoga plans to use the proceeds to make investments in middle-market companies in accordance with its investment objective and strategies and for general corporate purposes.

Saratoga is a Florham Park, N.J.-based business development company.

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