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SAR Saratoga Investment

Participants
Henri Steenkamp Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary
Chris Oberbeck Chief Executive Officer
Mike Grisius President & Chief Investment Officer
Mickey Schleien Ladenburg Thalmann Financial Services Inc.
Timothy Hayes B. Riley FBR, Inc.
Christopher Testa National Securities Corporation
Call transcript
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Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's Fiscal Fourth Quarter and Fiscal Year 2019 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.

we the remarks, for prepared management's will line open questions. Following Mr. to time, Chief call Officer, I this turn Financial would Compliance Corp's At Investment like the Saratoga over and to Henri Steenkamp. Sir, ahead. please go

Henri Steenkamp

like to quarter recent to results conference refer ask fourth year call Thank you. forward-looking fiscal with I welcome to the and Corp's and call. Saratoga conference earnings most you statements to filings everyone SEC XXXX to includes our fiscal Investment Today's We would undertake important projections. materially that forward-looking factors will cause actual a during projections. so not for forward-looking be these do statements do presentation and we our to differ statements law. to could from our Today, call. by referencing unless We required update

will quarter Relations May be replay night. website. in link page find Officer, introductory year our XX. and Events the like release fiscal to fiscal Executive earnings the be Chairman turn in details. IR who for last Oberbeck, conference can XXXX A Investor Presentations A presentation our section our press of is the Please and today few this fourth and would call to to our I of our through PM press shareholder release to call earnings Chief refer making You over from a Christian will X available remarks. now distributed

Chris Oberbeck

investments performance substantial long-term to capital our further progress of organization our metrics developing key liquidity. of enabling diversified raised welcome, and our Henri, our structure, year's of to capital more made base, new industry markets than growing public everyone. and In from we in our $XX pipeline reflecting in this capital opportunities. available this growing We level you, This investment performance. us leadership year cost-effective record sources adding made past supported million our the quality Thank and capital the asset on high and and strengthening base, in maintain year,

a with in first, trailing rating, investments a basis, and unlevered challenging realizations. $XXX gross of months strong outperforming market XX.X% on quality loan return of equity internal this X.X% on on of our portfolio X, a To the our accomplished of XX.X% maintaining a generating have briefly high-quality a continued, performance highly portfolio level our XX% on IRR unlevered and high the BDC of environment. we our XX.X% last Importantly, with XX-month XX total Slide year having investment of credit unrealized recap of highest gross average nature year on our maintained competitive a end, quarter the of industry at total and approximately million IRR and

we management a offset of QX, $XXX and assets XX% record Second, for a of originations discuss. record in which is we an of us. our X% were These million In growing million. $XX million by platform. We origination offset of increase million, illustrative $XXX originate to increase our will repayments by including investments repayments. to expanded from million, realizations, were $XX decrease year totaling under This a success the last QX, from $XXX year

$X.XX This has dividend quarterly of fiscal per dividend. paid We for of the quarter's of Third, last XXXX. $X.XX foundation consecutive share XXth our over an fourth strength the was on enabled increase the quarter. share increase XXXX continued dividend, to quarterly a XX, March financial per our us quarter of

million baby our bonds we of strong. base issuing equity average to million in and for more ATM debt debt total quarter baby form by dividend This of through exceeded our remained equity periods. XXXX our of have BDCs. bonds secondary equity by payments both same capital February our us from by and of Fourth, income ATM net strengthened most been our price our $X.X than and at upsizing this structure of All investment XXXX an liquidity both bringing our distinguishes finally, $XX under million offerings. adjusted issuances program in the and $XX.XX, And the $XX

have continue future potential in credit to meet a significant powder and dry and pricing opportunities, change to We environment.

liquidity to financing. management assets year-end available grow existing allows Our current any without us new XX%, our by external under

the In and addition, our structured environment. no February outstanding all our and XX, performance at within made compared uncertain XXXX. debt covenants, is nature, key rate rate indicators fixed in as financial We soundly an steady current with previous to year long-term performance for

Our versus million adjusted $XX.X year. NII up is XX% $XX.X of the million last

per $X.XX $X.XX share per XX% last share, Our up is adjusted per year. from NII share

per And above year. XX.X% and the X% Our X.X%. of was share value net average $XX.XX up our equity return was on last year industry last of asset versus from $XX.XX XX.X%

Looking is per this $X.XX NII from at quarter. quarter. XXXX, quarter. $X.XX last $X.XX ended compared last quarter February year XX.X% last XX.X% is this from the XX, X% provide on will Henri up up million more XX, from and to NII adjusted yield XX, X% quarter, $X.XX significant up XX% $X.X the Adjusted from last this up million and XX.X% from and year quarter, as last quarter, share variances. ended detail November February is NII year, XXXX with from later any And consistent $X.X million quarters current last up XXXX adjusted and XX%

overall size past, base. advancing asset the to of and As in our quality we the further remain committed

continued review Henri on look positive With as over credits that, results, this see as performance and turn can Slide our of steadily the our continuing would financial you X, and our forward I assets high. composition call remain like the now well of quality trend. to our under portfolio. back As to to grow to We to management the have

Henri Steenkamp

Chris. Thank you,

our to in week Form included XX, added financial statements, in-depth investments also our our QX earlier as and results of our than order year. also to of XX-K. pleased to a everyone February last In provide will schedule information, are year-end earnings We have XXXX more we which provide be release

strong AUM key paired the quality. quarter Tuesday, for capital Our for The Slide year. highlights to last ended year. related last $X.XX of XX-K from NII is in and calculation, filed of was $X.XX $X.X our XXXX. with fee impact XX, metrics adjusted from XX% from up you $X.XX our incentive million million assets last a can level this gains from quarter February QX. from reflects and year's unrealized adjusting increased $X.XX, metrics quarter, share incentive positive in up quarter be all with accrual, $X.XX credit of net of results was NII last last per X.X% these from the on year due primarily income, up X fee higher increase Across to higher up last interest performance second the XX.X% May long-term see and when $X.XX When investments up trend the Adjusted XX.

these This partial full repayments the of negative XX.X% certain NII benefited up all impact QX, XX.X% from on of with to QX's quarter, for repayments quarter and last year from factors offsetting of unchanged last originations impact the points led XX and from OID These of most quarter. that yield a accelerated in interest additional from significant adjusted XX.X% income increase. basis

quarter on from gain of in investments on gain in million the the unrealized relates of in net on by quarter a net on addition, tax experienced comprised unrealized unrealized Holdings Roscoe unrealized a realized resulting third, performance for of the operations a million Netreo $X.X fourth million investments the realization Ohio net investment; $X.X appreciation $X.X share. the million gains million investments; previously finally, million a investments depreciations second, following: resulting were almost primarily appreciation $X.X investment, our investment. Health discussed unrealized on offset gain reflecting The fully across and Medical smaller projections; was by, gain Medical $X.X exceeding unrealized million These $X.XX first, $X.X net and CLO $X.X unrealized Network exit net million subsidiaries. the $X.XX blocker second, depreciation million million expense appreciation $X.X on assets $X.X to or our the or investments. last reversal deferred of million The $X.X following recognized various our quarter. depreciation on offset share on a The on in depreciation of on a investments first, on unrealized per our numerous appreciations total In million our appreciation Media portfolio a equity HMN increase reflects net unrealized per and the in of $X.X we net appreciation $X.X of investment; realized investment our

whole our Network to in across Media million. $X.X gain, Health portfolio QX the Excluding was unrealized realized appreciation reversal

as of year-end our period, the a on XX, also is full February ended years. couple key compared numbers this it focus to prior important to year As for XXXX is

fees and on million $X.X of This loss to XXXX. Year-over-year, lumpiness. some and excluding from of does to and up but us, of per operating management our XX.X%. this term Adjusted million deferred share incentive taxable on $X.X performance assets. $X.XX last year NII and ROE up industry was equity expenses, from year are expenses, last any NII XX.X% strong X.X% decreased entities. resulting an on indicator XX XX.X%. both adjusted tax X, fees easily yield of million. $X.XX basis gains. longer X-year the XX.X% This slightly up points BDC for to in from on for and base year, quarterly metrics the current to beats is equity figure average X.X% including unrealized up is remains a include a all this Return is performance eliminating financing total Slide million ROE Looking debt of important expenses, becomes blocker Return from and Adjusted realized decrease over $XX.X of benefit NII fiscal strength carry-forwards past to management is XX.X% note net $X.X down in quick X.X% primarily per at from interest our up. year, the X.X% average decreased A total apparent, the our the share

the slides BDC's year. appendix, XX again trend. Excluding change our and included on continued slides we net year-on-year overall These expenses reflecting in higher Slides grown highlighting an cap have in as The our credits. the XX and demonstrate are to upwards performance KPI interest in performance during strong additional strong increased cost that, and company AUM the margin increase the administrator public saw expense analysis

increase year million of from yearend, million a compared as share year of $XXX.X on last yearend to quarter was $XX.XX from last per and as as of Slide quarter. last quarter. as $X.X NAV Moving NAV increase $XX.XX $XXX.X $XX.XX of to X, and million was this $XX.X million last

of the of $XX.X unrealized net on months $X.X gains net XX investment and realized net $XX.X million and subsidiary, offset million unrealized tax Saratoga's earned, income in gains and ended expense of XX, For by were XXXX, $X.X deferred February million dividends of million declared. blocker

stock common of NAV issued, net our of At-the-Market of stock dividend sold million costs. XXX,XXX equity offering year during and respectively. and $XX.X addition, offering were was made through XXX,XXX our dividend distributions In the million shares above $X.X And plan. reinvestment through QX were

Our significant see QX, basis. in in from changes quarterly sequential the increase interest under continue QX's to X, years we our DRIP in over on NAV tax margin, consistent the a CLO $X.XX you net repayments NII excluding CLO, of asset also the in also reflecting gains. benefit. NII increased dilution and a a steadily was share adjusted and and increased will value $X.XX changes $X.XX per $X.XX from in to quarter last a major share per $X.XX the net in increase history interest impact decrease ATM a per increase Slide significant Slide earlier as other past top, shares $X.XX reconciliation income seen discussed Starting There On by increased the in couple deferred from share And income, issued at simple per programs. of offset the share were XX. The on realized has benefit of our $X.XX QX. of

January. the $X.XX lower-half QX Moving the and in the of this reflecting by the generated dilution, NAV record by with the under unrealized $X.XX $X.XX The on DRIP offset declared NII to our on partially $X.XX $X.XX and the at the GAAP for primarily realized the date, and per program slide, our quarter. dividend were discounted shares of reconciles net investments QX a of for QX increase beginning gains issued the impact share

issuing through particularly outlines performed of also reconciliation full-year at highlights share on margin we Slide also X. adjusted while and slide looking year, our net per interest how the as have for is the fixed benefit the X our cash, in dividend undrawn maturity Madison We least period, of on between this well When on assets Slide the our our to as years and outstanding equity. our year-end, borrowings, increased undrawn as period this SBA NAV continued this year facility. NII of over-earn with have the same is which dry debt spread debt. powder This accretive rate of for million debentures available available remaining Madison us is to total. except $XXX.X X at all facility All

We inclusive pleased ability nature position liquidity of our continue financing. QX. our our the XX% in we grow the into of to This are with experienced overall and taking repayments we of level sheet conservative the especially for have without the need account liquidity is external balance assets by to

rising which they of we of rates. LIBOR have Moving the flaws, on almost of short-term have do rates. of means our to them, to sheet, balance the asset a have XX% are And side we beneficiary investments although floating all

rates We continue required. as Slide impact on rising to XX of show the

future conditions upward slowly see current has we market while are the starting uncertain trajectory the to up are However, rate market creep changed such past and certain deals. are interest in for changes the in flaws month, that also

to highlighting end the and of yield like our Slides investment to composition and fiscal our the on the slide, and XX, we'd XX year. Slide portfolio review XX is yield Now, usual composition through portfolio. at of the move

the syndicated BDC excluding million remain with interest-earning consistent, weighted has and loan, consistent companies the levels CLO On $XXX how see high for several in XX total composition one remained yield of the well these Slide as our replacement current investments continued as first and assets, assets. XX% and yield can of core invested our years, portfolio and the lien. CLO past relatively approximately past Our our fund repayments despite around you XX% yields average on of XX, in portfolio and with

QX to decreasing This as to LIBOR primarily decreased compared due this XX.X% XX.X%, quarter, quarter. our from yield slightly to overall

CLO decreased BDC being factoring the of repaid. of Year-over-year, core the Our in another refinancing decreased, yields average asset two high-yielding period the year reinvestment assets impact as and years. spreads the weighted out December this slightly narrowed and has yield CLO our pushed

had eight XXXX, and to the made fiscal follow-ons exits Turning during of of Slide net million in $XXX.X a and $XXX.X portfolio with resulting XX repayments, increase investments new companies we XX, year. million $XX in in investments in for XX million

healthcare a industry, distinct as eight of in highly geography business, by type large and remain diversified on services. as focus investments Our well over terms and spread industries with education

portfolio, us We equity fact industry, investment continue overall strategy. have of an to well. exposure direct part Of our to oil remain the total interests no and gas a consists of that investment extremely and has our X.X% important served

you realization. primarily gains were our can million, As realized $X.X XX, Network reflecting Slide on year this Health Media see

to and call Michael our When or of raises This past equity consistent the reflected equity investments. long-term will factoring in the net to seven in review. performance similar healthy portfolio loss financial from we carry other for For available our or quality, an of $XX.X Grisius, grow us. and I are forwards, a gains years, to million Officer realized had how credit Chief our portfolio sale fiscal combined is of my these over concludes overview Investment sale NAV ROE. redemption interests as capital of early our the for That market. our investment turn now and the President highlights

Mike Grisius

overabundance in we we credits Henri. The environment. the and and see you, current but earnings is describe aggressive is and focus borrower-friendly minutes Thank as market it continues activity supply I'll our it, our described strategy. imbalance the couple I'll investment portfolio take as market is price. on the to Deal persists. to drive current a to then quality still competitive be performance capital as of last for Leverage demand growing, January continues in call a and

the We this to expansion of near-term continue and past talk in despite see no rates. of the LIBOR reduction spread cessation rising slight quarter

daily has in affected that that capital that the be and is prior ebbs loan point less subsided, exposed by believe market of swings. the valuations the portfolio and While capital markets debt large flows saw can the follow our market leverage our It volatility in quarter immediately important to suit. is newswire it's the we observation capital we to the in out massive

result, results broader change even to are quite a overnight can our a based evaluation supply capital spreads the Therefore, market and Loan This the to manner. in although As BDC same spreads credit and not capital whims less better compared this the exposed less changes process market large factors, Rather driven the do larger is into metrics dislocations. markets. impact remaining behave levels as more points lower credit a daily not incorporated much performance does and in a longer-term to our sensitive basis. in of occur leverage leverage market and tend be loan leverage and and market, subject larger leverage middle its to tends hands-on our that and driver. points demand generally loan of by market, weekly thus sizeable on portfolio to certainly spreads on greater loan The even invest volatility a structuring we where to our market in protections with and and valuation, the portfolio be market are market.

of ownership be objective its to to underwrite of of our investments the they approach and grow. make long worth work assessment the follow-on we best ability our businesses, our positioned our well portfolio this capital contributed any this capital run. and approach can is for believe produce the working support of We commitment company risk-adjusted put returns that future risk-adjusted invest out It to the also to believe differentiated where market has directly with long-term steady management finding We as returns many shareholders our model. performance each is has Our our pointing so a of with business companies for and and to us over to our strength accretive to the thorough successful with capital approach downturn.

calendar increased on versus to last year. out deals XX, can our three relatively at have Against times Now been that multiples XX% backdrop, market profile. you in we maintaining achieve QX looking a two of debt of this Slide X above able leverage risk while almost see results, multiples modest with

including and is last total times repayments. X.X leverage Our quarter to similar recent

than just on highlight, we strong the focus of value and models, attractive confident rather will As we leverage with our that return we investment. enterprise profiles exceptionally risk business in sustainable frequently credits sustainably considering investing remains businesses our of where last - exceed dollar the the are

metrics an leverage we while leverage evaluate important of relative the are business. underlying strength Now absolute always consideration, an to

that For in deliver industries expertise their widely software-as-a-service utilizing of example, is recurring businesses characteristics platform have diverse a set business a services customer retention revenue, across terrific gross a developed an through platform. have can we that with and exceptional Good credit software to lending margins.

valuations the than higher debt result, these are also corresponding businesses the a average. for multiples are and As high

some dynamics. these strong, However, believe attractive also investments we risk-adjusted market our returns of can generate lending we because businesses type. of illustrates the consistent credit difficult so this slide achieve are to despite profile good of ability new to This businesses

are that company grow imminent. steadily can we of of past future. in remain criteria. calendar year-end, platforms And may closed in consistent of investment the months last to we portfolio confident follow-ons AUM continue investments investments While just is two expansion from approximately that capital and both this over our we companies, eight subsequent $XX XX have portfolio We also third desire Closing new to quarter, which while with long-term. portfolio companies XX new applying two a follow-ons, resulted near the new in closed the million us

for issued XX, moving to of led and strategic continue focus to XX% this this. three skill three discipline more to Now past business follow-ons. and deals The team's relationships to companies development on our often relationships new platform plus mature This These Slide deals. sources that set, also significant become on term our and the of sheet our over experience the lead has XX become new have demonstrate years. our relationships, new that source of relationships newly past formed our are chart help illustrates months from then new new

funnel deals the only has the the executed size slightly. top significantly, While increased increased of at have

the is deals that but For calendar we we we on two profiles. you closed the us, other not right ingrained were value awarded and get know after comfortable on we to we can with weeks, of their deals preserve In year XX two past is year in the because passed Saratoga. is approximately but passed we firms in in ultimately XXXX, passed. it's difficult, could Passing grow credit how on just that our deal that front of culture, discipline maintaining enterprise a

Looking with is although half of flow XX% at our ownership. companies our are sheets the term deal sponsors the private of equity sources, issued private about deal from equity

Our overall strong. quality remained portfolio

As made Slide by the you investments of is realized can on the million on XX.X% gross XX, realizations. see IRR unlevered $XXX.X management on team Saratoga

On the QX, in excluding average the CLO, under repayments is unlevered XX%. IRR weighted the just

you can total weighted of BDC to chart our the over million right, $XXX.X took since Saratoga the unlevered XX% investments, gross on IRR and is also see combined management. On SBIC the

will that our also Roscoe this non-accrual second quarter. lien investment Medical You put have we on notice

fair this been investment comprises fundamental down quarter performance operational lien as million of marked the well Our weakened $X.X million marks that that value at second has been has reflect $X.X well issues. zero. $X.X investment an both to of as equity written total These million as as

have is the a the we issues evaluate continue competitive addressed, lenders working alternatives near-to-medium been in headwinds largely in senior While we with the sponsor operational the to term. to to believe Saratoga company face and expect industry.

whole. a example solid, portfolio interacts is reminder, As a good this of how high-quality a as

conservative gain and that among Censis Slide debt more relatively $X.X year or million, offset of that mix and our SBIC appreciation unrealized remains XX% investments, investments our out investments, lien either significant XX% was in is comprised highlights Roscoe. leverage. at last for portfolio lien which Vector leverage in depreciation the Netreo, times, investments XX and of unrealized Grey compared and notable second and with The realized in Elyria X.XX especially total others, positive first in Ice, Center, of than XX when senior first low Heller, overall profile Alarm to included unrealized market Our lien. the Easy securities in these our of My relatively

capital allows of us risk this cost deliver from our program accretive the favorable to highly stretching on shareholders to Our spectrum. without returns out

to our to on can year-end, our million XX, moving overall as of reduced representing Now Slide you portfolio. XX% see assets of SBIC $XXX.X

SBIC through is fully letter process Our current license, the license drawn and SBA formal a our year. green second we on continue their the last of to work following licensing issuance to light with us

cash year-end, of investment capacity, license. SBIC our first $XX.X current As million total we within had available all

we operating our platform culminates team, concludes overall, to we committed the our remain a and diligence Credit market. this like focus while demonstrate for the approach. market. overall and Chris? remains underwriting to asset in CEO. procedures. Now top and This I'd and of our the due extremely review remain portfolio, strength the our we our selection quarter year high-quality quality in to feel turn within diligent results of my over And This tough the call

Chris Oberbeck

Mike. you, Thank

As was This our our dividend quarter fourth quarterly outlined dividend to have and increase each we XX, increased recently sequential quarter. our over-earned Slide dividend $X.XX. we XXth on

decreasing BDCs grown increases having payments, have past an had the no With has top in Slide our continually the places the dividends us BDCs only on see differentiated or seven X% either dividend peers. the at increasing which size growth, of dividend us we've can within most And marketplace. one our year-over-year XX, of dividend their you year. of As

XX of of Moving XX%. returns has includes index dividends, capital to both total and XX%, XX, Slide which significantly BDC of ahead our appreciation for generated last months, return the the

Turning the to in X XX, and of the top puts three- you'll five-year see of our all our respectively. us BDCs in while us return and XX-month all places performance Slide X that XX top BDCs,

XX% of broader three Over our metrics. XX% the return performance exceeded certain XXX% return our highlights years, the our over five return years, the and exceeded of the of index. specific past Slide the the the key index outperformance and past the to in return XX% context industry XX

scale industry yield growth, BDC and high the We dividend on achieving return assets XX and net share our economics. on equity, marks investment our assets categories, grown, Of latest is interest - outperform continue per we NII year-over-year yield, XX-month to dividend capacity. grown including months have the value achieve have that core latest coverage, asset across with as diverse note, portfolio, are

ratio expense Our towards moving closer industry the is averages.

We continue on latest and shareholders net to receiving. per XX growing our are the return value equity asset outperformance, reflects emphasize our which value share months

on our are covered the NII, initiatives highest which liquidity grow a industry that institutions. long-term the substantial with and of help to We a of cost this Moving ownership is per characteristics recent include: make that capital Slide one equity; expansion growth slide low to These by will investment maintaining XX, earnings in solid and we return BBB strong that levels XX%; drive differentiated growing and of more currently our the BDC and NII of our have at base, assets all management potential; with in Investment, offerings; strong of the yield dividend outlined size well attractive and bond on rating; this of obtaining quality to to access on grade an including base, our baby under steady asset high-quality management. equity investor including discussed is share; characteristics long-term addition to the call desired community. Saratoga the highly-competitive a believe markets

against with rate profile attractive an its Saratoga floating almost potential structure. XX% liability from risk rate has portfolio risk interest rising Importantly, rate protection and fixed

portfolio industries. to cyclical minimal contains high our exposure addition, quality In credit

course Finally benefiting to we without with remain and on quality, Slide long-term results looking credit solid expand sacrificing financial base scale. at from our XX, goal delivered asset have our while

building to team We increase investments our I would to shareholders thank by management and to like analyze, closing, our and again ongoing In source, support. of also all manage continue capabilities. capacity their close our our for

We like that Investment ahead now lies are for open call and to I Corp. questions. growth Saratoga for the the excited would profitability for

Operator

first our comes And with from Instructions] you. question Thank Mickey [Operator Ladenburg. Schleien

is open. line Your

Mickey Schleien

specific large wanted we in more you more general, I've loan at exhibiting Yes, noticed about healthcare good developing in importantly, consumer the seeing some be little by you've trend in BDCs sort names, other perhaps Can to Roscoe? everyone. start healthcare a a Roscoe. all And morning, following. the capital? of is problems of really are issues of middle noted their asking some you I market which sector know problem and

Mike Grisius

they're And to say Good really would talking. that space we facing more would the company, certainly Mike a around the so this. I to experiences to a company It's And challenges. be morning, fact I the that market. have they're have do question. operate Roscoe at convey you and and highly careful of they can that Mickey. healthcare what the we It's that tell course, a the But good a to private you. do with fact competitive with in less lot challenges it's

So environment. faced is the distributing where of extreme portion the the the has broader to business more retail that they're their challenges really portion

And in seen of be ask about. that to in But experienced or trend general. our haven't relative larger a would so, less to indicative it's healthcare natural been we portfolio

Mickey Schleien

category, is strategy us that the question services next and broad how a for borrowers give the of investment sector you of are Thanks you helpful. group? label. in following. pretty the Mike. which business My sense in cyclical portfolio is Over That's half Could is that that believe your a in the

Mike Grisius

is Most business of the some I'd way is services to to a the think the... respond all. degree catch I that Well,

Mickey Schleien

Yeah, my point. that's

Mike Grisius

Yeah.

not it we as to so, look tend a at And concentration.

that a of a pull to certain in term in be of but term, in. the used We business the that's operating and they BXB, if business credits services, delivering for range of probably strong. very service business marketplace or that's that's reflective that vis-à-vis a our end-markets experience had into business use business models is operate So, that experience extremely any were I that product more another any industries And would this I'm a because - we can all it's ourselves. consumer And many it's as they operating businesses been instance. be that these to fall out wide

product not a business do, very what core and or relative really another they as business to core is. it's side service a provide it's business, well you to you to If very and a show what do quality that their

you sticky can with return up capital. really and can fabulous and margins You relationships on end fabulous

end-market cycle it do. there out that, all that at would and or investment way. view business but more that category reflective in. business. And a that of continue is business to we'll of service again, model product there just describing that to businesses delivering are It that's all as not an one that plenty really as we the same Now, not do have significant reflective it's But, another industry

you really it said can customers do - sticky result If that well, favorable can going in can turn return I be capital. very those and you returns as to on

Mickey Schleien

relatively In a words, be And, they other in sticky would defensive downturn? are Mike, models? these business

Mike Grisius

we're evaluating at mean, company each own have absolutely wouldn't move to to I downturn We we Absolutely. in - would they sync the company point that all that go economy. a look in don't I'd they're to business its want because that merits. each in to think believe defensive the I on models. say there

to each that the one for our comfortable, rigorous investors. sheet a down-cycle the that safe reasonable like circumstances evaluate occupy is all for our in and that spot analysis deals we think we that balance a get of under at, I a capital we look do the might look in what

they're carefully So any I'd I sort look investment - going we at to look be tell the broadly, very in And to one each not but not make do portfolio they're companies. have when our portfolio to of you an cyclicality we of of can all companies, going at correlated.

Mickey Schleien

I appreciate that.

portfolios capacity. geography I to towards deck I the your objectives a Midwest, increase thinking the to the your one is I'd I and of how you're portion is more you the structuring that end perhaps that help may. one of so understand of if sourcing noticed to in question, And portfolio your the about good the Just South like noticed diversify sourcing

Mike Grisius

for on it's in the think it's strategic and - big us I good coming standpoint, this years. a year we're Where a very a question very from because focus focused

see can done a good slide I think You that job. from we've that really

number we deals done evaluate. in-house, a that business that increasing we're team of really job has Our development can bringing of good the

when highly selective that evaluating you're do it highly, continue you If want you you enables be to right, where to invest. to

that's is from to developing that sure to looking a let's that a that deals at want feel et deal where primary of actually funnel top increase we're relationships yield, we're to like a right be seeing the relationships with get is that really perspective, grow number there's just firms from our more the make that type trying deals will cetera. The we now where Our the on with with We fit focus on relationships, of size lot, try of competitive good the is a perspective, number now idea of forever. slide done don't and greater.

they're I the geographic the is or look we we if of true, think and Southeast reason but by to business, in the things, any market national. geography side I a country. it's cheap that for relates not you for be instance, have large, because that selling generally to concentration It's of geography. the to you don't that you think if exposure it to And at XXX% - place most business-friendly feel reside as Southeast, like businesses, business. happen But to at large, the it's those happen and the our to is look within in do mentioned by a a businesses

level. their geography a where in a to usually, is if concentration, company. have this you So driven is located, with would tend were has market look companies in at very value it's service we happen less it's for be selling our look the usually I us geographic at business of years you reason, it, strategic decline lower proposition and that at middle the to marketplace, that's if we proud built across domiciled, portfolio, that start, well But really over XXXX. whatever that, a of think think some core participants a to look where success they're point, that when mean, the known. a the do develop are of very relationships because said providing. by It's where exposed? were where to Right Saratoga its a if took We're over we we market very they're domiciled it back relationships. good now, on national having make or you And did standing polled to from of management we the sourcing of when we've And the the the very to our continue for we lot

have, for proud respected that's that do and we're know We're reputation worked deliver I that say. going on very well the us. people to thorough extremely due on and we of we to very we we think and we're diligence try what and deliver

And way to the we approach referrals relationships that in our gain that. And is by we providing to we because lot a relationships we as expanding are continue our in think among have operators So of operate. of well, market. we better do the the

Mickey Schleien

helpful, That's Mike. morning. time your I really this appreciate all Thank you.

Mike Grisius

Thanks, Mickey.

Operator

you. Thank

comes Tim question the Hayes Riley. following from Our B. line with of

open. line is Your

Timothy Hayes

thing are a can activity, up? back little your repayments rather just loan volatility or if both Hey, a wondering taking just that the know good my picked quarter-by-quarter large. just for light, and related, guys. lumpy but Thanks origination a was on one, volatility if My it was in I first it has timing part played pipeline they morning, be if basis, questions. a

Mike Grisius

it would say volatility I wasn't related.

of live prepared as remarks, think, I I and operate that mentioned outside largely we in marketplace. our

and capital syndicated capital broader aren't to middle of that markets the world that lower in market, the what generally they the the at markets higher the businesses seeking - are and market affected So experiencing by grow, the see are capital what that trying think really have are our where you I affect large have what's what not that a this us is we just quarter. tend we're But very would as focused production didn't but It's production good doesn't much as as look question. much quarter-to-quarter. much. We on we something very to at also liked, - end

I [Technical fuel ones ones done companies BDC they've chance well, could at our some think, not just to but this In good be past the investments, best have off of small started may I've that's portfolio for of that, seeking that sort of steady over follow-ons. to that that come our and said look cases, happen, and growth the you Many portfolio been if grow they there'll in delighted more as they're historically may if by you been we've where and that those of be us our look has these have not years. part investments big we're companies where only the that's their for a then two recipe and and well and in that it's capital in partner likely a be we've out able not equity see been they well. capital that worked worked debt both there's out in the instances the Difficulty] co-investors to course but that's a as investments financial a been the deploy, and also really many growth or we

Timothy Hayes

update on I give repayments No. be those appreciate an as well. willing quarter? to Yeah. you so Would comments far this

Mike Grisius

relative say, like. think, really any we address boy comments what I were - meant deals. you the think, to Naturally do felt someone I to production we're didn't trying would to

done. still the deals that to up in and give an hopefully I getting But marketplace update going. think exactly right precedent to the on address trying to and and what's avoid folks trying we of active were earnings call, we're comfort the coming just giving

Henri Steenkamp

Yeah.

prepared I obviously quickly - think, just Mike's a Tim, is a is imminently. in also I our things add would deal change business. closing deal remarks noted imminently

relevant about of of the repaying. what's relationships to But to and like day basis So and to not the that, but at there's new so and guys time growth very is key noted what grow same ours. new it's long-term closing which to portfolio from companies Mike to some of try what's the continuing color, sort many try be day give we projecting sort you by moving parts extra

Timothy Hayes

historical quarter completely then comment I'll be too loans consistent so Yeah. levels? The with much to can just those pipeline, largely you've us leverage of are extra fair they so in just the try sponsor of That's ratio greedy here. versus give not those far of multiples deals idea and and And the senior? of the is closed appreciated, - non-sponsored, this an are you comments range how

Mike Grisius

consistent levels. with Largely historical

Timothy Hayes

Okay.

Mike Grisius

the and second careful deal, we viewpoint that presentation, our necessarily junior the high bad portion historically, good loan think, when I to deal. capital we're with a necessarily taken were we leverage a And we leverage first with in a a a lien emphasize said and never it have low lien prepared or have of is is

that ourselves into approach taken, think, I resorted never put boxes. to we've that the always we

evaluate For occupy of strength investments of place relative based we our we strength, balance to said best on that sheet. the the on where's let's ourselves in of decide determination company's always the can when we've And then the evaluate the our shareholders, behalf business.

evaluate The on of our we we and first very be junior. fundamentals lien to our think would strong, driven where how or are cash capital. cyclical is business steadiness There allow the the we structure capital see. to to deal, all It's opportunities business best principal they into the wouldn't likely the wouldn't other to you that we like characteristics but by that that want comfortable depends and the opportunity and feel just makes want are protected because there what face are highly in businesses we - us them, be a cyclicality. to potentially more of shareholders the we'll predetermination for it. that like have moving junior think What you want there's lien position, we provide we capital sense, return we'll position. or to a less all of that's do deals, deep that so our capital could perhaps too a are where where where elements super that risk-adjusted feel exposure is flow the junior And less may of first do lot, some in there's some So only the lot unit you tranche a volatility strong

Timothy Hayes

makes That No. sense. definitely That sense. makes Yeah.

for more one follow-up me. And Okay.

looking Just SBIC on an second for update the license.

have I updated the I'm pick just their the at Following past, seen at have if you BDC works but an pace, license We've but know up. back seen the you for shutdown - mind? timing in get SBA own approval just approvals wondering least other one in

Chris Oberbeck

Chris, Tim. is This

I consistent answered have and we've they obviously tried our kind very think shut a shutdown. you of They process discuss a licensing the your part process. own I we to of They be in mean, were I question bit. are think how down.

They didn't phone. even weren't the they the office during So shutdown. answer in that

have is the the there, yes, answer process. firmament we in on an down know not don't that their did - whole we're So Where impact we don't sit exactly. we

to where have performance there do. We I the more to and things that, And ultimately a fewer need confidence is There's and performances all the we're BDC as been that the timing do subject we're license been certainly relative one then and hopeful SBICs respond But and - past, are doing better think think some had time of out, issuing our they'll licenses. period how you and they the new and continue of the issued. certainly that I industry that to performing start we're so licenses all that think things. really strong we submit, I history than - has hopeful, we mean, that, point think to certainly have I recent have that should our we precise of lot weight.

Timothy Hayes

it. Got

Okay. Well, questions thanks for taking my this morning.

Chris Oberbeck

Thank you.

Operator

Thank question you. from last National Testa our Christopher And comes Securities. with

open. is line Your

Christopher Testa

on fees to taking for things. the good quarter. you guys. being incentive a but earned. about fees earned I incentive more were couple being continued said just morning, they my questions. no Thank I during Hi, on the earned, wanted touch to something be remember The CLOs

that will be basis, wondering on if the case. forward go Just a

Henri Steenkamp

Yes.

we - answer agreements. concept our fee is incentive Chris was the - the when let first me the only from CLO, well, So the refinanced that removed

the no be with receive the reason QX to forward. recognition going fees standard, changed there in you QX there'll in actually - incentive recall was if The revenue why that only it still when was, you So change recognition incentive time. CLO, in rather we cash. the we related the CLO accrual than on our that to up basis to when to And from fee effectively received point accrual fee final payment basis the refinance incentive - an

that's P&L why the QX. in And reflected it's for so

Christopher Testa

it. Got

theme of coverage helpful, debt a could given for favorable you have much last revolvers, case, asset given CLO, track thoughts you're opposed that as That's but reduced a a could rates the financing not on senior now with Henri. they guys lot as what you pricing I'm as a a and to know Have is have to in CLOs, just effective if advance well where middle financing the CLO? we name that's sticking market of the and especially you because and secured Thank wondering, flexibility sort not, downturn, you brand you good what have that get with now it that Okay. speak. so provides cut of to as And notes month. you. and obviously are, securitization banks seems spreads more as the record, very

Chris Oberbeck

think like generally I that debt they're middle in that smaller we market be type Well, make CLO we I I mean, - than would senior make. of type lien maybe a that largely debt, comprised think pretty investments senior but more first companies. of more senior the loans, of

you addressing. So that with I than I companies - but are Clearly, of if sort segment our the is market. all is would reflective which be absolute a marketplace, gross than a the look think, it attractive that. gross of And a market do slightly we we there, different kind those that at an think, returns returns on different we're lower investments, will what returns those the be substantially are of work of

in the section in we we the terms obviously, any pipeline is our there's flow. mentioned there. deal but is to very, mean as of lot think, deals out close. have a I that closing challenge This I and kind robust, Q&A, don't of his had Mike very want challenging,

we We our world the so our in plenty different And like addressing forward. us. feel feel to go has - whole we we for segment need get a are don't it to to like - move to enterprise that

a it's at time, much approach press that continuing so to this priority as And with not is as existing just - not our really on focus.

Christopher Testa

any remind guidance And given sort a you target, fair. give you guys did coverage? topic of the please of have me, the leverage sticking That's reduce to on leverage, asset No. Okay. just

Henri Steenkamp

comfortable the returns his said that haven't we that assessment specific where we assess We've that play in the feel we in obviously we're and given guidance. the assess sort part then change on a guidance. we Chris, we the that at Mike any we said as moment. would level risk-adjusted given - close the investments remarks, and No. deals of in well. But haven't with And leverage, as of we as

Christopher Testa

on fishing basis, above the that, Henri, much is Without a to could assume too it obviously reasonable to that you one one excluding go regulatory on SBIC?

Henri Steenkamp

yes. possibility, a be could that Yes,

Christopher Testa

amount great. right, company that, peers on given lot debt and much of couldn't raised you And hit out significant your and who of private a have so All have boat just it water, wondering, with basically like of guys kudos fall success seems had a Okay. a the funds.

move community sponsor funds wondering as the on and grow raising more you there continue Just provide is forward to private sizes to bigger provide you thoughts ticket of guys if to and any certainty more some out? close debt

Chris Oberbeck

clearly, funds. attractive I of a standpoint Well, array have think, it's a broader to from franchise

I believe in good our still in ways think, still to are where scale is, ways achieve - we our BDC. we lifecycle to go got we've

we've go just plenty see and we time. need doing in We reason see We don't of it. to to need of been elsewhere And so we at this front And a limit. us success had more opportunity and see in have what really here. we of - do don't a to

deal is deal the we're get different to about us. sort a I $X of for Once funds, on somewhere something low-end high-end million, to mentioned larger focused having funding what think have ground You the size, $XX that sizes. area fertile larger and you a very million, a that side -

different level start process think winning, you it's It's much higher of for cetera. metrics, into a so, you And there. it's moving credit than I losing set once like protection. leverage It's competitive more a et very that, different covenant in the different competitive documentation, start that's terms the out characteristics

We here. our So that's feel how there's with grown plenty consistent the market And we're very we've have to assets, them grow now. to room where in focused the right of past. right we approach really we attracted are that

I think me… let

Christopher Testa

necessarily pro [ph] just a should if to at I firm] larger debt that million million I you'll - example, phrased AUM, Chris. And you write ticket, exposure exposure gets then have there. I loans have to appreciate it borrower, was going that and $X.X had not $X.X making it. say [sister when but Got let's SAR say And splits the rata, and differently, only it certainly private for maybe same a with $XX a million you

you're just enhancing So your diversification.

less if NIIs an share. as of something So SARs the then it's goes the and NAV as on well impact sour, per

think So be the I that would more benefit. of

Chris Oberbeck

in Right, the would view, we but much grow we our we assets that type to those I was would rather investment. at And very goal. doing similar along our achieve a still of twice lines, size BDC if think have that to the level substantially, assets be were same

what to described. you So start assets as we achieve just our grow,

Christopher Testa

Got it.

Okay, prepayment quarter? that's during And fair. what was the income related the

Henri Steenkamp

sorry. I'm

Chris, question, the repeat Just income? the what

Christopher Testa

both the the in and fees related quarter, OID prepayment income acceleration? What was

Henri Steenkamp

- couple couple had repayment a we had pretty had we big a Yeah, while - quarter. a

early $XX-odd-million obviously repayments. repayments our included of that's the in a of So couple were we that loans had

And associated there with those. penalties prepayment are so,

through the that so, would And line. flow other income

Christopher Testa

it. Got

time Those that's my I today, are all fair. appreciate your Okay, questions. guys.

Chris Oberbeck

you. Thank

Henri Steenkamp

Chris. Thanks,

Operator

Thank like time. the turn you. Chris further I'm call remarks. this now at closing to And questions I would showing to Oberbeck for back no

Chris Oberbeck

us forward everyone look joining thank to with And speaking for like we We'd next Okay. to you today. quarter.