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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended November 30, 2012

 

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 1-33376

 

SARATOGA INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

 

Maryland

 

20-8700615

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

535 Madison Avenue
New York, New York

 

10022

(Address of principal executive office)

 

(Zip Code)

 

(212) 906-7800

(Registrant’s telephone number, including area code)

 

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large Accelerated Filer o

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer x

 

Smaller Reporting Company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of January 14, 2013 was 4,730,116.

 

 

 



Table of Contents

 

SARATOGA INVESTMENT CORP.

FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 2012

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Statements of Assets and Liabilities as of November 30, 2012 (unaudited) and February 29, 2012

3

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended November 30, 2012 and 2011 (unaudited)

4

 

 

 

 

Consolidated Schedules of Investments as of November 30, 2012 (unaudited) and February 29, 2012

5

 

 

 

 

Consolidated Statements of Changes in Net Assets for the nine months ended November 30, 2012 and 2011 (unaudited)

8

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended November 30, 2012 and 2011 (unaudited)

9

 

 

 

 

Notes to Consolidated Financial Statements as of November 30, 2012 (unaudited)

10

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

 

 

 

Item 4.

Controls and Procedures

47

 

 

 

PART II

OTHER INFORMATION

48

 

 

 

Item 1.

Legal Proceedings

48

 

 

 

Item 1A.

Risk Factors

48

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

 

 

 

Item 3.

Defaults upon Senior Securities

48

 

 

 

Item 4.

Mine Safety Disclosures

48

 

 

 

Item 5.

Other Information

48

 

 

 

Item 6.

Exhibits

48

 

 

 

Signatures

 

50

 

2



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Assets and Liabilities

 

 

 

As of

 

 

 

November 30, 2012

 

February 29, 2012

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Investments at fair value

 

 

 

 

 

Non-control/non-affiliate investments (amortized cost of $97,083,018 and $73,161,722, respectively)

 

$

94,649,656

 

$

69,513,434

 

Control investments (cost of $20,361,593 and $23,540,517, respectively)

 

24,641,107

 

25,846,414

 

Total investments at fair value (amortized cost of $117,444,611 and $96,702,239, respectively)

 

119,290,763

 

95,359,848

 

Cash and cash equivalents

 

2,494,552

 

1,325,698

 

Cash and cash equivalents, reserve accounts

 

3,787,183

 

25,534,195

 

Outstanding interest rate cap at fair value (cost of $0 and $131,000, respectively)

 

 

75

 

Interest receivable, (net of reserve of $228,113 and $273,361, respectively)

 

1,906,186

 

1,689,404

 

Deferred credit facility financing costs, net

 

1,453,985

 

1,199,490

 

Management fee receivable

 

216,947

 

227,581

 

Other assets

 

18,973

 

94,823

 

Receivable from unsettled trades

 

 

59,511

 

Total assets

 

$

129,168,589

 

$

125,490,625

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Revolving credit facility

 

$

14,850,000

 

$

20,000,000

 

SBA debentures payable

 

4,000,000

 

 

Payable for unsettled trades

 

 

4,072,500

 

Dividend payable

 

3,295,306

 

 

Management and incentive fees payable

 

3,364,719

 

2,885,670

 

Accounts payable and accrued expenses

 

508,042

 

704,949

 

Interest and credit facility fees payable

 

140,424

 

53,262

 

Due to manager

 

117,877

 

394,094

 

Total liabilities

 

$

26,276,368

 

$

28,110,475

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

Common stock, par value $.001, 100,000,000 common shares authorized, 4,730,116 and 3,876,661 common shares issued and outstanding, respectively

 

$

4,730

 

$

3,877

 

Capital in excess of par value

 

174,824,076

 

161,644,426

 

Distribution in excess of net investment income

 

(25,319,688

)

(13,920,068

)

Accumulated net realized loss from investments and derivatives

 

(48,463,047

)

(48,874,767

)

Net unrealized appreciation (depreciation) on investments and derivatives

 

1,846,150

 

(1,473,318

)

Total Net Assets

 

102,892,221

 

97,380,150

 

 

 

 

 

 

 

Total liabilities and Net Assets

 

$

129,168,589

 

$

125,490,625

 

 

 

 

 

 

 

NET ASSET VALUE PER SHARE

 

$

21.75

 

$

25.12

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Operations

 

 

 

For the three months ended
November 30,

 

For the nine months ended
November 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

Interest from investments

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

$

2,466,595

 

$

1,877,650

 

$

6,951,338

 

$

5,212,182

 

Control investments

 

1,046,285

 

1,155,241

 

3,186,751

 

3,095,304

 

Total interest income

 

3,512,880

 

3,032,891

 

10,138,089

 

8,307,486

 

Interest from cash and cash equivalents

 

731

 

1,567

 

5,368

 

6,815

 

Management fee income

 

500,454

 

501,920

 

1,500,519

 

1,512,091

 

Other income

 

19,750

 

92,671

 

172,310

 

238,579

 

Total investment income

 

4,033,815

 

3,629,049

 

11,816,286

 

10,064,971

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

Interest and credit facility financing expenses

 

529,858

 

307,221

 

1,808,586

 

987,042

 

Base management fees

 

528,735

 

393,888

 

1,492,345

 

1,203,820

 

Professional fees

 

347,459

 

356,144

 

986,781

 

1,282,009

 

Administrator expenses

 

250,000

 

250,000

 

750,000

 

730,000

 

Incentive management fees

 

(412,654

)

1,178,750

 

887,020

 

842,097

 

Insurance

 

128,891

 

145,105

 

389,506

 

448,786

 

Directors fees and expenses

 

53,705

 

51,000

 

155,705

 

153,000

 

General & administrative

 

117,357

 

121,019

 

265,720

 

290,232

 

Other expense

 

1,311

 

2,150

 

4,434

 

5,340

 

Total expenses

 

1,544,662

 

2,805,277

 

6,740,097

 

5,942,326

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

2,489,153

 

823,772

 

5,076,189

 

4,122,645

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

 

 

 

 

 

 

 

 

 

Net realized gain (loss) from investments

 

95,372

 

(5,831,905

)

542,720

 

(5,839,864

)

Net realized loss from derivatives

 

 

 

(131,000

)

 

Net unrealized appreciation (depreciation) on investments

 

(1,838,957

)

11,221,387

 

3,188,543

 

11,927,052

 

Net unrealized appreciation (depreciation) on derivatives

 

 

166

 

130,925

 

(15,108

)

Net gain (loss) on investments

 

(1,743,585

)

5,389,648

 

3,731,188

 

6,072,080

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

745,568

 

$

6,213,420

 

$

8,807,377

 

$

10,194,725

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

 

$

0.19

 

$

1.88

 

$

2.25

 

$

3.10

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED

 

3,970,447

 

3,310,021

 

3,907,696

 

3,287,979

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Schedule of Investments

 

November 30, 2012

(unaudited)

 

Company (a)

 

Industry

 

Investment Interest
Rate/Maturity

 

Principal/
Number of Shares

 

Cost

 

Fair Value (c)

 

% of
Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments - 92.0% (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coast Plating, Inc. (d)

 

Aerospace

 

First Lien Term Loan
11.71% Cash, 9/13/2014

 

$

2,550,000

 

$

2,550,000

 

$

2,550,000

 

2.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coast Plating, Inc. (d)

 

Aerospace

 

First Lien Term Loan
12.46% Cash, 9/13/2014

 

$

950,000

 

950,000

 

950,000

 

0.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Aerospace

 

 

 

3,500,000

 

3,500,000

 

3.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Truck Protection Co., Inc. (d, h)

 

Automotive

 

Common Stock

 

589

 

500,000

 

564,507

 

0.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Truck Protection Co., Inc. (d)

 

Automotive

 

First Lien Term Loan, 15.50% Cash, 8/10/2017

 

$

5,500,000

 

5,500,000

 

5,500,000

 

5.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Take 5 Oil Change, L.L.C. (d)

 

Automotive

 

First Lien Term Loan
9.00% Cash, 11/28/2016

 

$

6,400,000

 

6,400,000

 

6,400,000

 

6.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Take 5 Oil Change, L.L.C. (d, h)

 

Automotive

 

Common Stock

 

7,128

 

712,800

 

742,738

 

0.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Automotive

 

 

 

13,112,800

 

13,207,245

 

12.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Cabinets Holdings (d, h)

 

Building Products

 

Common Stock Voting A-1

 

2,535

 

220,900

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Cabinets Holdings (d, h)

 

Building Products

 

Common Stock  Voting B-1

 

1,600

 

139,424

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Cabinets, Inc. (d)

 

Building Products

 

First Lien Term Loan
7.25% (1.00% Cash/6.25% PIK), 5/3/2014

 

$

326,980

 

326,980

 

255,731

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Building Products

 

 

 

687,304

 

255,731

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Knowland Technology Holdings, L.L.C. (d)

 

Business Services

 

First Lien Term Loan
11.00% Cash, 11/29/2017

 

$

6,200,000

 

6,076,136

 

6,200,000

 

6.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sourcehov LLC (d)

 

Business Services

 

Second Lien Term Loan
10.50% Cash, 4/30/2018

 

$

3,000,000

 

2,631,515

 

2,715,000

 

2.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Business Services

 

 

 

8,707,651

 

8,915,000

 

8.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C.H.I. Overhead Doors, Inc. (CHI) (d)

 

Consumer Products

 

First Lien Term Loan
7.25% Cash, 8/17/2017

 

$

4,987,374

 

4,940,497

 

4,987,374

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Group International, Inc. (d)

 

Consumer Products

 

First Lien Term Loan
11.00% Cash, 5/24/2016

 

$

3,950,000

 

3,894,385

 

3,959,875

 

3.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Holdings, Inc. (d)

 

Consumer Products

 

Unsecured Notes
10.00% PIK, 6/14/2019

 

$

1,799,479

 

1,799,479

 

1,027,683

 

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Holdings, Inc. (d)

 

Consumer Products

 

Unsecured Notes
16.00% Cash, 10/26/2018

 

$

319,711

 

312,359

 

292,631

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Holdings, Inc. (d, h)

 

Consumer Products

 

Common Stock

 

62,413

 

566,765

 

3,731,673

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Consumer Products

 

 

 

11,513,485

 

13,999,236

 

13.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFF Acquisition LLC (d)

 

Consumer Services

 

First Lien Term Loan
7.50% Cash, 7/31/2015

 

$

2,435,516

 

2,274,911

 

2,353,439

 

2.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PrePaid Legal Services, Inc. (d)

 

Consumer Services

 

First Lien Term Loan
11.00% Cash, 12/31/2016

 

$

3,000,000

 

2,932,804

 

2,919,900

 

2.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Consumer Services

 

 

 

5,207,715

 

5,273,339

 

5.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M/C Acquisition Corp., LLC (d)

 

Education

 

First Lien Term Loan
8.75% (6.75% Cash/2.00% PIK), 12/31/2012

 

$

2,780,315

 

1,626,380

 

323,629

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M/C Acquisition Corp., LLC (d, h)

 

Education

 

Class A Common Stock

 

544,761

 

30,242

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Education

 

 

 

1,656,622

 

323,629

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group Dekko, Inc. (d)

 

Electronics

 

Second Lien Term Loan
10.50% (6.50% Cash/4.00% PIK), 5/1/2013

 

$

7,804,794

 

7,804,794

 

7,323,238

 

7.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Electronics

 

 

 

7,804,794

 

7,323,238

 

7.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USS Parent Holding Corp. (d, h)

 

Environmental

 

Non Voting Common Stock

 

765

 

133,002

 

115,681

 

0.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USS Parent Holding Corp. (d, h)

 

Environmental

 

Voting Common Stock

 

17,396

 

3,025,798

 

2,631,735

 

2.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Environmental

 

 

 

3,158,800

 

2,747,416

 

2.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DS Waters of America, Inc. (d)

 

Food and Beverage

 

First Lien Term Loan
10.50% Cash, 8/29/2017

 

$

3,980,000

 

4,006,126

 

4,089,450

 

4.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HOA Restaurant Group, LLC. (d)

 

Food and Beverage

 

Senior Secured Notes
11.25% Cash, 4/1/2017

 

$

4,000,000

 

3,892,643

 

3,560,000

 

3.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TM Restaurant Group LLC (d)

 

Food and Beverage

 

First Lien Term Loan
7.75% Cash, 7/16/2017

 

$

2,981,250

 

2,960,569

 

2,977,672

 

2.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Food and Beverage

 

 

 

10,859,338

 

10,627,122

 

10.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maverick Healthcare Group (d)

 

Healthcare Services

 

First Lien Term Loan
10.75% Cash, 12/31/2016

 

$

4,912,500

 

4,843,563

 

4,887,937

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Healthcare Services

 

 

 

4,843,563

 

4,887,937

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

McMillin Companies LLC (d, h)

 

Homebuilding

 

Senior Secured Notes
0% Cash, 12/31/2013

 

$

550,000

 

530,535

 

289,465

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Homebuilding

 

 

 

530,535

 

289,465

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capstone Logistics, LLC (d)

 

Logistics

 

First Lien Term Loan
7.50% Cash, 9/16/2016

 

$

987,809

 

976,102

 

987,809

 

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capstone Logistics, LLC (d)

 

Logistics

 

First Lien Term Loan
13.50% Cash, 9/16/2016

 

$

4,000,000

 

3,952,596

 

4,000,000

 

3.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Worldwide Express Operations, LLC (d)

 

Logistics

 

First Lien Term Loan
7.50% Cash, 6/30/2013

 

$

6,546,441

 

6,430,154

 

6,465,920

 

6.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Logistics

 

 

 

11,358,852

 

11,453,729

 

11.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elyria Foundry Company, LLC (d)

 

Metals

 

Senior Secured Notes
17.00% (13.00% Cash/4.00% PIK), 3/1/2013

 

$

7,728,566

 

7,657,604

 

6,641,156

 

6.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elyria Foundry Company, LLC (d, h)

 

Metals

 

Warrants to Purchase Limited Liability Company Interests

 

3,000

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Metals

 

 

 

7,657,604

 

6,641,156

 

6.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Communications, Inc. (d)

 

Publishing

 

Unsecured Notes
8.60% PIK, 1/14/2020

 

$

2,494,810

 

2,042,031

 

920,585

 

0.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Communications, Inc. (d, h)

 

Publishing

 

Common Stock

 

211,429

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Penton Media, Inc. (d)

 

Publishing

 

First Lien Term Loan
5.00% Cash, 8/1/2014

 

$

4,838,880

 

4,441,924

 

4,284,828

 

4.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Publishing

 

 

 

6,483,955

 

5,205,413

 

5.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

97,083,018

 

94,649,656

 

92.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Control investments - 23.9% (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP (g, h)

 

Financial Services

 

100% General
Partnership Interest

 

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Investment Corp. CLO 2007 LTD. (d, e, g)

 

Structured Finance Securities

 

Other/Structured
Finance Securities
18.81%, 1/21/2020

 

$

30,000,000

 

20,361,593

 

24,641,107

 

23.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control investments

 

 

 

 

 

 

 

20,361,593

 

24,641,107

 

23.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 0.0% (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP (f, h)

 

Financial Services

 

6.24% Limited
Partnership Interest

 

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

 

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS - 115.9% (b)

 

 

 

 

 

 

 

$

117,444,611

 

$

119,290,763

 

115.9

%

 


(a)  All of our equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except GSC Investment Corp. CLO 2007 Ltd. and GSC Partners CDO GP III, LP.

(b)  Percentages are based on net assets of $102,892,221 as of November 30, 2012.

(c)  Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors. (see Note 3 to the consolidated financial statements).

(d)  These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).

(e) 18.81% represents the modeled effective interest rate that is expected to be earned over the life of the investment.

(f)  As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

 

 

 

 

 

 

 

 

 

Interest

 

Management

 

Net Realized

 

Net Unrealized

 

Company

 

Purchases

 

Redemptions

 

Sales (cost)

 

Income

 

fee income

 

gains/(losses)

 

gains/(losses)

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(g)  As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

 

 

 

 

 

 

 

 

Interest

 

Management

 

Net Realized

 

Net Unrealized

 

Company

 

Purchases

 

Redemptions

 

Sales (cost)

 

Income

 

fee income

 

gains/(losses)

 

gains/(losses)

 

GSC Investment Corp. CLO 2007 LTD.

 

$

 

$

 

$

 

$

3,186,751

 

$

1,500,519

 

$

 

$

4,279,514

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(h) Non-income producing at November 30, 2012.

 

5



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Schedule of Investments

 

February 29, 2012

 

Company(a)

 

Industry

 

Investment Interest Rate/Maturity

 

Principal/
Number of
Shares

 

Cost

 

Fair Value(c)

 

% of
Net
Assets

 

Non-control/Non-affiliated investments—71.4%(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

Coast Plating, Inc.(d)

 

Aerospace

 

First Lien Term Loan 11.77% Cash, 9/13/2014

 

$

2,550,000

 

$

2,550,000

 

$

2,550,000

 

2.6

%

Coast Plating, Inc.(d)

 

Aerospace

 

First Lien Term Loan 12.52% Cash, 9/13/2014

 

$

950,000

 

950,000

 

950,000

 

1.0

%

 

 

 

 

Total Aerospace

 

 

 

3,500,000

 

3,500,000

 

3.6

%

Legacy Cabinets Holdings(d)(h)

 

Building Products

 

Common Stock Voting A-1

 

2,535

 

220,900

 

 

0.0

%

Legacy Cabinets Holdings(d)(h)

 

Building Products

 

Common Stock Voting B-1

 

1,600

 

139,424

 

 

0.0

%

Legacy Cabinets, Inc.(d)

 

Building Products

 

First Lien Term Loan 7.25% (1.00% Cash/6.25% PIK), 5/3/2014

 

$

312,198

 

312,198

 

221,629

 

0.2

%

 

 

 

 

Total Building Products

 

 

 

672,522

 

221,629

 

0.2

%

Targus Group International, Inc.(d)

 

Consumer Products

 

First Lien Term Loan 11.00% Cash, 5/24/2016

 

$

3,980,000

 

3,911,828

 

3,944,976

 

4.1

%

Targus Holdings, Inc.(d)

 

Consumer Products

 

Unsecured Notes 10.00% PIK, 6/14/2019

 

$

1,799,479

 

1,799,479

 

963,621

 

1.0

%

Targus Holdings, Inc.(d)(h)

 

Consumer Products

 

Common Stock

 

62,413

 

566,765

 

2,675,645

 

2.7

%

 

 

 

 

Total Consumer Products

 

 

 

6,278,072

 

7,584,242

 

7.8

%

CFF Acquisition LLC(d)

 

Consumer Services

 

First Lien Term Loan 7.50% Cash, 7/31/2015

 

$

2,684,141

 

2,462,831

 

2,448,205

 

2.5

%

PrePaid Legal Services, Inc.(d)

 

Consumer Services

 

First Lien Term Loan 11.00% Cash, 12/31/2016

 

$

3,000,000

 

2,920,411

 

2,940,000

 

3.0

%

 

 

 

 

Total Consumer Services

 

 

 

5,383,242

 

5,388,205

 

5.5

%

M/C Acquisition Corp., LLC(d)

 

Education

 

First Lien Term Loan 10.00% (4.25% Cash/5.75% PIK), 12/31/2012

 

$

2,944,596

 

1,790,662

 

591,864

 

0.6

%

M/C Acquisition Corp., LLC(d)(h)

 

Education

 

Class A Common Stock

 

544,761

 

30,242

 

 

0.0

%

 

 

 

 

Total Education

 

 

 

1,820,904

 

591,864

 

0.6

%

Advanced Lighting Technologies, Inc.(d)

 

Electronics

 

Second Lien Term Loan 6.25% Cash, 6/1/2014

 

$

2,000,000

 

1,902,053

 

1,910,400

 

2.0

%

Group Dekko, Inc.(d)

 

Electronics

 

Second Lien Term Loan 10.50% (6.50% Cash/4.00% PIK), 5/1/2013

 

$

7,571,152

 

7,571,152

 

7,003,316

 

7.2

%

 

 

 

 

Total Electronics

 

 

 

9,473,205

 

8,913,716

 

9.2

%

USS Parent Holding Corp.(d)(h)

 

Environmental

 

Non Voting Common Stock

 

765

 

133,002

 

97,810

 

0.1

%

USS Parent Holding Corp.(d)(h)

 

Environmental

 

Voting Common Stock

 

17,396

 

3,025,798

 

2,225,180

 

2.3

%

 

 

 

 

Total Environmental

 

 

 

3,158,800

 

2,322,990

 

2.4

%

DCS Business Services, Inc.(d)

 

Financial Services

 

First Lien Term Loan 14.00% Cash, 9/30/2012

 

$

1,600,000

 

1,604,464

 

1,600,000

 

1.6

%

Big Train, Inc.(d)

 

Food and Beverage

 

First Lien Term Loan 7.75% Cash, 3/31/2012

 

$

1,406,768

 

1,389,640

 

1,368,785

 

1.4

%

HOA Restaurant Group, LLC.(d)

 

Food and Beverage

 

Senior Secured Notes 11.25% Cash, 4/1/2017

 

$

4,000,000

 

3,880,000

 

3,880,000

 

4.0

%

 

 

 

 

Total Food and Beverage

 

 

 

5,269,640

 

5,248,785

 

5.4

%

Maverick Healthcare Group(d)

 

Healthcare Services

 

First Lien Term Loan 10.75% Cash, 12/31/2016

 

$

4,950,000

 

4,867,725

 

4,824,270

 

5.0

%

McMillin Companies LLC(d)(h)

 

Homebuilding

 

Senior Secured Notes 0% Cash, 12/31/2013

 

$

550,000

 

511,952

 

288,915

 

0.3

%

Capstone Logistics, LLC(d)

 

Logistics

 

First Lien Term Loan 7.50% Cash, 9/16/2016

 

$

997,118

 

982,954

 

997,118

 

1.0

%

Capstone Logistics, LLC(d)

 

Logistics

 

First Lien Term Loan 13.50% Cash, 9/16/2016

 

$

4,000,000

 

3,943,183

 

4,000,000

 

4.1

%

Worldwide Express Operations, LLC(d)

 

Logistics

 

First Lien Term Loan 7.50% Cash, 6/30/2013

 

$

6,680,276

 

6,412,355

 

6,103,100

 

6.3

%

 

 

 

 

Total Logistics

 

 

 

11,338,492

 

11,100,218

 

11.4

%

Sabre Industries, Inc(d)

 

Manufacturing

 

Senior Unsecured Loan 15.00% (12.00% Cash/3.00% PIK), 6/6/2016

 

$

6,000,000

 

5,852,741

 

6,000,000

 

6.2

%

Elyria Foundry Company, LLC(d)

 

Metals

 

Senior Secured Notes 17.00% (13.00% Cash/4.00% PIK), 3/1/2013

 

$

7,428,456

 

7,224,787

 

6,537,041

 

6.7

%

Elyria Foundry Company, LLC(d)(h)

 

Metals

 

Warrants to Purchase Limited Liability Company Interests

 

3,000

 

 

 

0.0

%

 

 

 

 

Total Metals

 

 

 

7,224,787

 

6,537,041

 

6.7

%

Network Communications, Inc.(d)

 

Publishing

 

Unsecured Notes 8.60% PIK, 1/14/2020

 

$

2,422,095

 

1,924,577

 

1,044,892

 

1.0

%

Network Communications, Inc.(d)(h)

 

Publishing

 

Common Stock

 

211,429

 

 

691,373

 

0.7

%

Penton Media, Inc.(d)

 

Publishing

 

First Lien Term Loan 5.00% (4.00% Cash/ 1.00% PIK), 8/1/2014

 

$

4,839,526

 

4,280,599

 

3,655,294

 

3.8

%

 

 

 

 

Total Publishing

 

 

 

6,205,176

 

5,391,559

 

5.5

%

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

73,161,722

 

69,513,434

 

71.4

%

Control investments—26.5%(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP(g)(h)

 

Financial Services

 

100% General Partnership Interest

 

 

 

 

0.0

%

GSC Investment Corp. CLO 2007 LTD.(d)(e)(g)

 

Structured Finance Securities

 

Other/Structured Finance Securities 17.38%, 1/21/2020

 

$

30,000,000

 

23,540,517

 

25,846,414

 

26.5

%

Sub Total Control investments

 

 

 

 

 

 

 

23,540,517

 

25,846,414

 

26.5

%

Affiliate investments—0.0%(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP(f)(h)

 

Financial Services

 

6.24% Limited Partnership Interest

 

 

 

 

0.0

%

Sub Total Affiliate investments

 

 

 

 

 

 

 

 

 

0.0

%

TOTAL INVESTMENTS—97.9%(b)

 

 

 

 

 

 

 

$

96,702,239

 

$

95,359,848

 

97.9

%

 

6



Table of Contents

 

Outstanding interest rate cap

 

Interest
rate

 

Maturity

 

Notional

 

Cost

 

Fair
Value

 

% of
Net
Assets

 

Interest rate cap

 

8.0

%

2/9/2014

 

$

19,591,837

 

$

87,000

 

$

54

 

0.0

%

Interest rate cap

 

8.0

%

11/30/2013

 

10,332,000

 

44,000

 

21

 

0.0

%

Total Outstanding interest rate cap

 

 

 

 

 

 

 

$

131,000

 

$

75

 

0.0

%

 


*

Amounts to less than 0.05%

 

 

(a)

All of our equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except GSC Investment Corp. CLO 2007 Ltd. and GSC Partners CDO GP III, LP.

 

 

(b)

Percentages are based on net assets of $97,380,150 as of February 29, 2012.

(c)

Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors. (see Note 3 to the consolidated financial statements).

 

 

(d)

These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).

 

 

(e)

17.38% represents the modeled effective interest rate that is expected to be earned over the life of the investment.

 

 

(f)

As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

 

Company

 

Purchases

 

Redemptions

 

Sales
(cost)

 

Interest
Income

 

Management
fee income

 

Net Realized
gains/(losses)

 

Net
Unrealized
gains/(losses)

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(g)

As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

Company

 

Purchases

 

Redemptions

 

Sales
(cost)

 

Interest
Income

 

Management
fee income

 

Net Realized
gains/(losses)

 

Net
Unrealized
gains/(losses)

 

GSC Investment Corp. CLO 2007 LTD.

 

$

 

$

 

$

 

$

4,198,007

 

$

2,011,516

 

$

 

$

6,938,209

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(h)

Non-income producing at February 29, 2012.

 

7



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Changes in Net Assets

 

 

 

For the nine months ended
November 30, 2012

 

For the nine months ended
November 30, 2011

 

 

 

(unaudited)

 

(unaudited)

 

INCREASE FROM OPERATIONS:

 

 

 

 

 

Net investment income

 

$

5,076,189

 

$

4,122,645

 

Net realized gain (loss) from investments

 

542,720

 

(5,839,864

)

Net realized loss from derivatives

 

(131,000

)

 

Net unrealized appreciation on investments

 

3,188,543

 

11,927,052

 

Net unrealized appreciation (depreciation) on derivatives

 

130,925

 

(15,108

)

Net increase in net assets from operations

 

8,807,377

 

10,194,725

 

DECREASE FROM SHAREHOLDER DISTRIBUTIONS:

 

 

 

 

 

Distributions declared

 

(16,475,809

)

(9,831,231

)

Net decrease in net assets from shareholder distributions

 

(16,475,809

)

(9,831,231

)

CAPITAL SHARE TRANSACTIONS:

 

 

 

 

 

Stock dividend distribution

 

13,180,503

 

7,864,784

 

Net increase in net assets from capital share transactions

 

13,180,503

 

7,864,784

 

 

 

 

 

 

 

Total increase in net assets

 

5,512,071

 

8,228,278

 

Net assets at beginning of period

 

97,380,150

 

86,071,454

 

Net assets at end of period

 

$

102,892,221

 

$

94,299,732

 

 

 

 

 

 

 

Net asset value per common share

 

$

21.75

 

$

24.32

 

Common shares outstanding at end of period

 

4,730,116

 

3,876,661

 

 

 

 

 

 

 

Distribution in excess of net investment income

 

$

(25,319,688

)

$

(14,627,476

)

 

See accompanying notes to consolidated financial statements.

 

8



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Cash Flows

 

 

 

For the nine months ended
November 30, 2012

 

For the nine months ended
November 30, 2011

 

 

 

(unaudited)

 

(unaudited)

 

Operating activities

 

 

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

 

$

8,807,377

 

$

10,194,725

 

ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

Paid-in-kind interest income

 

(821,830

)

(1,188,674

)

Net accretion of discount on investments

 

(710,418

)

(1,002,986

)

Amortization of deferred credit facility financing costs

 

342,505

 

510,376

 

Net realized (gain) loss from investments

 

(542,720

)

5,839,864

 

Net realized loss from derivatives

 

131,000

 

 

Net unrealized appreciation on investments

 

(3,188,543

)

(11,927,052

)

Net unrealized (appreciation) depreciation on derivatives

 

(130,925

)

15,108

 

Proceeds from sale and redemption of investments

 

15,990,963

 

31,873,349

 

Purchase of investments

 

(34,658,367

)

(28,948,936

)

(Increase) decrease in operating assets:

 

 

 

 

 

Cash and cash equivalents, reserve accounts

 

21,747,012

 

3,536,441

 

Interest receivable

 

(216,782

)

370,286

 

Management fee receivable

 

10,634

 

4,291

 

Other assets

 

75,850

 

(2,880,897

)

Receivable from unsettled trades

 

59,511

 

 

Increase (decrease) in operating liabilities:

 

 

 

 

 

Payable for unsettled trades

 

(4,072,500

)

(4,900,000

)

Management and incentive fees payable

 

479,049

 

287,095

 

Accounts payable and accrued expenses

 

(196,907

)

(99,496

)

Interest and credit facility fees payable

 

87,162

 

(21,959

)

Due to manager

 

(276,217

)

44,580

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

2,915,854

 

1,706,115

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Borrowings on debt

 

7,350,000

 

 

Paydowns on debt

 

(8,500,000

)

(4,500,000

)

Credit facility financing cost

 

(597,000

)

 

NET CASH USED BY FINANCING ACTIVITIES

 

(1,747,000

)

(4,500,000

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

1,168,854

 

(2,793,885

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

1,325,698

 

10,735,755

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

2,494,552

 

$

7,941,870

 

 

 

 

 

 

 

Supplemental Information: