SARATOGA INVESTMENT CORP

Previous wording

We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this Quarterly Report on Form 10-Q, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Current wording

We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this Quarterly Report on Form 10-Q, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or SEC rule or regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Previous wording

We are a Maryland corporation that has elected to be treated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). Our investment objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from our investments. We invest primarily in senior and unitranche leveraged loans and mezzanine debt issued by private U.S. middle-market companies, which we define as companies having earnings before interest, tax, depreciation and amortization (“EBITDA”) of between $2 million and $50 million, both through direct lending and through participation in loan syndicates. We may also invest up to 30.0% of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in distressed debt, which may include securities of companies in bankruptcy, foreign debt, private equity, securities of public companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds. Although we have no current intention to do so, to the extent we invest in private equity funds, we will limit our investments in entities that are excluded from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, which includes private equity funds, to no more than 15.0% of its net assets. We have elected and qualified to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

Current wording

We are a Maryland corporation that has elected to be treated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). Our investment objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from our investments. We invest primarily in senior and unitranche leveraged loans and mezzanine debt issued by private U.S. middle-market companies, which we define as companies having earnings before interest, tax, depreciation and amortization (“EBITDA”) of between $2 million and $50 million, both through direct lending and through participation in loan syndicates. We may also invest up to 30.0% of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in distressed debt, which may include securities of companies in bankruptcy, foreign debt, private equity, securities of public companies that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds. Although we have no current intention to do so, to the extent we invest in private equity funds, we will limit our investments in entities that are excluded from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, which includes private equity funds, to no more than 15.0% of our net assets. We have elected and qualified to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

Previous wording

Our wholly owned subsidiaries, Saratoga Investment Corp. SBIC LP (“SBIC LP”), Saratoga Investment Corp. SBIC II LP (“SBIC II LP”), and Saratoga Investment Corp. SBIC III LP (“SBIC III LP”, and together with SBIC LP and SBIC II LP, the “SBIC Subsidiaries”), received SBIC licenses from the SBA on March 28, 2012, August 14, 2019, and September 29, 2022, respectively. SBIC LP’s license provided up to $150.0 million in additional long-term capital in the form of SBA debentures, while SBIC II LP’s and SBIC III LP’s SBIC licenses provide up to $175.0 million each. Under current SBIC regulations, for two or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot exceed $350.0 million with at least $175.0 million in combined regulatory capital. With all debentures repaid to the SBA, SBIC LP’s license was surrendered on January 3, 2024, providing the Company access to all undistributed capital of SBIC LP.

Current wording

Our wholly owned subsidiaries, Saratoga Investment Corp. SBIC II LP (“SBIC II LP”) and Saratoga Investment Corp. SBIC III LP (“SBIC III LP”, and together with SBIC II LP, the “SBIC Subsidiaries”), received SBIC licenses from the SBA on August 14, 2019 and September 29, 2022, respectively. Each of the SBIC Subsidiaries provides up to $175.0 million in long-term capital in the form of debentures guaranteed by the SBA. With all debentures repaid to the SBA, SBIC LP’s license was surrendered on January 3, 2024, providing the Company access to all undistributed capital of SBIC LP, and SBIC LP subsequently merged with and into the Company. Under current SBIC regulations, for two or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot exceed $350.0 million with at least $175.0 million in combined regulatory capital.

Previous wording

On February 26, 2021, we completed the fourth refinancing of the Saratoga CLO. This refinancing, among other things, extended the Saratoga CLO reinvestment period to April 2024, and extended its legal maturity to April 2033, and added a non-call period ending February 2022. A non-call period ending February 2022 was also added. In addition, and as part of the refinancing, the Saratoga CLO was upsized from $500 million in assets to approximately $650 million. As part of this refinancing and upsizing, we invested an additional $14.0 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased $17.9 million in aggregate principal amount of the Class F-R-3 Notes tranche at par. Concurrently, the existing $2.5 million of Class F-R-2 Notes, $7.5 million of Class G-R-2 Notes and $25.0 million CLO 2013-1 Warehouse 2 Loan were repaid. We also paid $2.6 million of transaction costs related to the refinancing and upsizing on behalf of the Saratoga CLO, to be reimbursed from future equity distributions. At August 31, 2021, the outstanding receivable of $2.6 million was repaid.

Current wording

On February 26, 2021, we completed the fourth refinancing of the Saratoga CLO. This refinancing, among other things, extended the Saratoga CLO reinvestment period to April 2024, and extended its legal maturity to April 2033, and added a non-call period ending February 2022. In addition, and as part of the refinancing, the Saratoga CLO was upsized from $500 million in assets to approximately $650 million. As part of this refinancing and upsizing, we invested an additional $14.0 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased $17.9 million in aggregate principal amount of the Class F-R-3 Notes tranche at par. Concurrently, the existing $2.5 million of Class F-R-2 Notes, $7.5 million of Class G-R-2 Notes and $25.0 million CLO 2013-1 Warehouse 2 Loan were repaid. We also paid $2.6 million of transaction costs related to the refinancing and upsizing on behalf of the Saratoga CLO, to be reimbursed from future equity distributions. At August 31, 2021, the outstanding receivable of $2.6 million was repaid.

Previous wording

We have formed a wholly owned special purpose entity, Saratoga Investment Funding II LLC, a Delaware limited liability company (“SIF II”), for the purpose of entering into a $50.0 million senior secured revolving credit facility with Encina Lender Finance, LLC (the “Lender”), supported by loans held by SIF II and pledged to the Lender under the credit facility (the “Encina Credit Facility”). The Encina Credit Facility closed on October 4, 2021. During the first two years following the closing date, SIF II may request an increase in the commitment amount under the Encina Credit Facility to up to $75.0 million. The terms of the Encina Credit Facility required a minimum drawn amount of $12.5 million at all times during the first six months following the closing date, which increased to the greater of $25.0 million or 50% of the commitment amount in effect at any time thereafter. The term of the Encina Credit Facility is three years. Advances under the Encina Credit Facility bear interest at a floating rate per annum equal to LIBOR plus 4.0%, with LIBOR having a floor of 0.75%, with customary provisions related to our and the Lender’s selection of a replacement benchmark rate. Concurrently with the closing of the Encina Credit Facility, all remaining amounts outstanding on our existing revolving credit facility with Madison Capital Funding, LLC were repaid and the facility was terminated. On January 27, 2023, among other things, the borrowings available under the Encina Credit Facility was increased from up to $50.0 million to up to $65.0 million, the underlying benchmark rate used to compute interest changed from LIBOR to Term SOFR for one-month tenor plus a 0.10% credit spread adjustment, the applicable effective margin rate on borrowings increased from 4.00% to 4.25% and the maturity date was extended from October 4, 2024 to January 27, 2026.

Current wording

We have formed a wholly owned special purpose entity, Saratoga Investment Funding II LLC, a Delaware limited liability company (“SIF II”), for the purpose of entering into a $50.0 million senior secured revolving credit facility with Encina Lender Finance, LLC (“Encina”), supported by loans held by SIF II and pledged to Encina under the credit facility (the “Encina Credit Facility). The Encina Credit Facility closed on October 4, 2021. During the first two years following the closing date, SIF II may request an increase in the commitment amount under the Encina Credit Facility to up to $75.0 million. The terms of the Encina Credit Facility require a minimum drawn amount of $12.5 million at all times during the first six months following the closing date, which increases to the greater of $25.0 million or 50% of the commitment amount in effect at any time thereafter. The term of the Encina Credit Facility is three years. Advances under the Encina Credit Facility bear interest at a floating rate per annum equal to LIBOR plus 4.0%, with LIBOR having a floor of 0.75%, with customary provisions related to our and Encina’s selection of a replacement benchmark rate. Concurrently with the closing of the Encina Credit Facility, all remaining amounts outstanding on our existing revolving credit facility with Madison Capital Funding, LLC were repaid and the facility was terminated. On January 27, 2023, among other things, the borrowings available under the Encina Credit Facility was increased from up to $50.0 million to up to $65.0 million, the underlying benchmark rate used to compute interest changed from LIBOR to Term SOFR for one-month tenor plus a 0.10% credit spread adjustment; the applicable effective margin rate on borrowings increased from 4.00% to 4.25% and the maturity date was extended from October 4, 2024 to January 27, 2026.

Previous wording

SLF JV’s initial investment in SLF 2022 was in the form of an unsecured loan. The unsecured note paid a fixed rate of 10.00% per annum and is due and payable in full on October 20, 2033. The unsecured loan was repaid in full on October 28, 2022, as part of the CLO closing.

Current wording

SLF JV’s initial investment in SLF 2022 was in the form of an unsecured loan. The unsecured loan paid a floating rate of LIBOR plus 7.00% per annum and was paid in full on June 9, 2023. The unsecured loan was repaid in full on October 28, 2022, as part of the CLO closing.

Previous wording

We have determined that SLF JV is an investment company under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946,Financial Services—Investment Companies; however, in accordance with such guidance we will generally not consolidate our investment in a company other than a wholly owned investment company subsidiary. SLF JV is not a wholly owned investment company subsidiary as we and TJHA each have an equal 50% voting interest in SLF JV and thus neither party has a controlling financial interest. Furthermore, FASB ASC Topic 810,Consolidation, concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, we do not consolidate SLF JV.

Current wording

We have determined that SLF JV is an investment company under (“FASB”) Accounting Standards Codification (“ASC”) Topic 946,Financial Services—Investment Companies; however, in accordance with such guidance we will generally not consolidate our investment in a company other than a wholly owned investment company subsidiary. SLF JV is not a wholly owned investment company subsidiary as we and TJHA each have an equal 50% voting interest in SLF JV and thus neither party has a controlling financial interest. Furthermore, FASB ASC Topic 810,Consolidation, concludes that in a joint venture where both members have equal decision making authority, it is not appropriate for one member to consolidate the joint venture since neither has control. Accordingly, we do not consolidate SLF JV.

Previous wording

On October 28, 2022, SLF 2022 issued $402.1 million of debt through the JV CLO trust. The 2022 JV CLO Notes were issued pursuant to the JV Indenture, with the Trustee. As part of the transaction, we purchased 87.50% of the Class E Notes from SLF 2022 with a par value of $12.25 million. As of November 30, 2023 and February 28, 2023, the fair value of these Class E Notes were $11.5 million and $11.4 million, respectively.

Current wording

On October 28, 2022, SLF 2022 issued $402.1 million of debt through the JV CLO trust. The 2022 JV CLO Notes were issued pursuant to the JV Indenture, with the Trustee. As part of the transaction, we purchased 87.50% of the Class E Notes from SLF 2022 with a par value of $12.25 million. As of May 31, 2024 and February 29, 2024, the fair value of these Class E Notes were $12.3 million and $12.3 million, respectively.

Previous wording

Critical Accounting Policies and Use of Estimates

Current wording

Critical Accounting Policies and Estimates

Previous wording

We account for investments at fair value in accordance with FASB ASC Topic 820,Fair Value Measurement (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. Under ASC 820 we are required to assume that its investments are to be sold or its liabilities are to be transferred at the measurement date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

Current wording

We account for investments at fair value in accordance with the FASB ASC Topic 820,Fair Value Measurement(“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. Under ASC 820 we are required to assume that its investments are to be sold or its liabilities are to be transferred at the balance sheet date in the principal market to independent market participants, or in the absence of a principal market, in the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact.

Previous wording

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third-party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from Saratoga Investment Advisors, the audit committee of our board of directors and a third party independent valuation firm. We use multiple techniques for determining fair value based on the nature of the investment and experience with those types of investments and specific portfolio companies. The selections of the valuation techniques and the inputs and assumptions used within those techniques often require subjective judgements and estimates. These techniques include market comparables, discounted cash flows and enterprise value waterfalls. Fair value is best expressed as a range of values from which we determine a single best estimate. The types of inputs and assumptions that may be considered in determining the range of values of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis and volatility in future interest rates, call and put features, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flows and other relevant factors.

Current wording

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third-party pricing services and market makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting the value of these investments. We value investments for which market quotations are not readily available at fair value as approved, in good faith, by our board of directors based on input from Saratoga Investment Advisors, the audit committee of our board of directors and a third party independent valuation firm. We use multiple techniques for determining fair value based on the nature of the investment and experience with those types of investments and specific portfolio companies. The selections of the valuation techniques and the inputs and assumptions used within those techniques often require subjective judgements and estimates. These techniques include market comparables, discounted cash flows and enterprise value waterfalls. Fair value is best expressed as a range of values from which we determines a single best estimate. The types of inputs and assumptions that may be considered in determining the range of values of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis and volatility in future interest rates, call and put features, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flows and other relevant factors.

Previous wording

Rule 2a-5 under the 1940 Act (“Rule 2a-5”) established a regulatory framework for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits boards, subject to board oversight and certain other conditions, to designate the investment adviser to perform fair value determinations. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must determine the fair value of a security. Rule 31a-4 under the 1940 Act (“Rule 31a-4”) provides the recordkeeping requirements associated with fair value determinations. Finally, the SEC rescinded previously issued guidance on related issues, including the role of the board in determining fair value and the accounting and auditing of fund investments. While our board of directors has not elected to designate Saratoga Investment Advisors as the valuation designee, we have adopted certain revisions to its valuation policies and procedures in order comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.

Current wording

Rule 2a-5 under the 1940 Act (“Rule 2a-5”) establishes a regulatory framework for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits boards, subject to board oversight and certain other conditions, to designate the investment adviser to perform fair value determinations. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must determine the fair value of a security. Rule 31a-4 under the 1940 Act (“Rule 31a-4”) provides the recordkeeping requirements associated with fair value determinations. While our board of directors has not elected to designate Saratoga Investment Advisors as the valuation designee, we has adopted certain revisions to its valuation policies and procedures in order comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.

Previous wording

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. We stop accruing interest on its investments when it is determined that interest is no longer collectible. Discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums on investments.

Current wording

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on its investments when it is determined that interest is no longer collectible. Discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortization of premiums on investments.

Previous wording

On December 14, 2018, we completed a third refinancing and upsize of the Saratoga CLO. The third Saratoga CLO refinancing, among other things, extended its reinvestment period to January 2021, extended its legal maturity date to January 2030, and added a non-call period of January 2020. Following this refinancing, the Saratoga CLO portfolio increased from approximately $300.0 million in aggregate principal amount to approximately $500.0 million of predominantly senior secured first lien term loans. In addition to refinancing its liabilities, we invested an additional $13.8 million in all of the newly issued subordinated notes of the Saratoga CLO and also purchased $2.5 million in aggregate principal amount of the Class F-R-2 and $7.5 million in aggregate principal amount of the Class G-R-2 notes tranches at par, with a coupon of 3M USD LIBOR plus 8.75% and 3M USD LIBOR plus 10.00%, respectively. As part of this refinancing, we also redeemed our existing $4.5 million aggregate amount of the Class F notes tranche at par and the $20.0 million CLO 2013-1 Warehouse Loan was repaid.

Current wording

On December 14, 2018, we completed a third refinancing and upsize of the Saratoga CLO. The third Saratoga CLO refinancing, among other things, extended its reinvestment period to January 2021, and extended its legal maturity date to January 2030, and added a non-call period of January 2020. Following this refinancing, the Saratoga CLO portfolio increased from approximately $300.0 million in aggregate principal amount to approximately $500.0 million of predominantly senior secured first lien term loans. In addition to refinancing its liabilities, we invested an additional $13.8 million in all of the newly issued subordinated notes of the Saratoga CLO and also purchased $2.5 million in aggregate principal amount of the Class F-R-2 and $7.5 million aggregate principal amount of the Class G-R-2 notes tranches at par, with a coupon of 3M USD LIBOR plus 8.75% and 3M USD LIBOR plus 10.00%, respectively. As part of this refinancing, we also redeemed our existing $4.5 million aggregate amount of the Class F notes tranche at par and the $20.0 million CLO 2013-1 Warehouse Loan was repaid.

Previous wording

On February 11, 2020, we entered into an unsecured loan agreement (“CLO 2013-1 Warehouse 2 Loan”) with Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd (“CLO 2013-1 Warehouse 2”), a wholly owned subsidiary of Saratoga CLO. During the fourth quarter ended February 28, 2021, the CLO 2013-1 Warehouse 2 Ltd. was repaid in full.

Current wording

On February 11, 2020, we entered into an unsecured loan agreement (“CLO 2013-1 Warehouse 2 Loan”) with Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd (“CLO 2013-1 Warehouse 2”), a wholly owned subsidiary of Saratoga CLO, pursuant to which CLO 2013-1 Warehouse 2 may borrow from time to time up to $20.0 million from the Company in order to provide capital necessary to support warehouse activities. On October 23, 2020, the availability under the CLO 2013-1 Warehouse 2 Loan was increased to $25.0 million, which was immediately fully drawn and, which expires on August 20, 2021. The interest rate was also amended to be based on a pricing grid, starting at an annual rate of 3M USD LIBOR + 4.46%. During the fourth quarter ended February 28, 2021, the CLO 2013-1 Warehouse 2 Ltd was repaid in full.

Previous wording

On February 26, 2021, we completed the fourth refinancing of the Saratoga CLO. This refinancing, among other things, extended the Saratoga CLO reinvestment period to April 2024, extended its legal maturity to April 2033, and added a non-call period of February 2022. In addition, and as part of the refinancing, the Saratoga CLO was upsized from $500 million in assets to approximately $650 million. As part of this refinancing and upsizing, we invested an additional $14.0 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased $17.9 million in aggregate principal amount of the Class F-R-3 Notes tranche at par. Concurrently, the existing $2.5 million of Class F-R-2 Notes, $7.5 million of Class G-R-2 Notes and $25.0 million of the CLO 2013-1 Warehouse 2 Loan were repaid. We also paid $2.6 million of transaction costs related to the refinancing and upsizing on behalf of the Saratoga CLO, to be reimbursed from future equity distributions. At August 31, 2021, the outstanding receivable of $2.6 million was repaid in full.

Current wording

On February 26, 2021, we completed the fourth refinancing of the Saratoga CLO. This refinancing, among other things, extended the Saratoga CLO reinvestment period to April 2024, extended its legal maturity to April 2033, and added a non-call period of February 2022. In addition, and as part of the refinancing, the Saratoga CLO was upsized from $500 million in assets to approximately $650 million. As part of this refinancing and upsizing, the Company invested an additional $14.0 million in all of the newly issued subordinated notes of the Saratoga CLO, and purchased $17.9 million in aggregate principal amount of the Class F-R-3 Notes tranche at par. Concurrently, the existing $2.5 million of Class F-R-2 Notes, $7.5 million of Class G-R-2 Notes and $25.0 million of the CLO 2013-1 Warehouse 2 Loan were repaid. We also paid $2.6 million of transaction costs related to the refinancing and upsizing on behalf of the Saratoga CLO, to be reimbursed from future equity distributions. At August 31, 2021, the outstanding receivable of $2.6 million was repaid in full.

Previous wording

We and TJHA have committed to provide up to a combined $50.0 million of financing to SLF JV through cash contributions, where we provide $43.75 million and TJHA proves $6.25 million, resulting in an 87.5% and 12.5% ownership between the two parties. The financing is issued in the form of an unsecured note and equity. The unsecured note will pay a fixed rate of 10.0% per annum and is due and payable in full on June 15, 2023. As of November 30, 2023 our and TJHA’s investment in SLF JV consisted of an unsecured note of $17.6 million and $2.5 million, respectively; and membership interest of $17.6 million and $2.5 million, respectively.

Current wording

The Company and TJHA have committed to provide up to a combined $50.0 million of financing to SLF JV through cash contributions, with the Company providing $43.75 million and TJHA providing $6.25 million, resulting in an 87.5% and 12.5% ownership between the two parties. The financing is issued in the form of an unsecured note and equity. The unsecured note pays a fixed rate of 10% per annum and is due and payable in full on October 20, 2033.

Previous wording

We record an expense accrual relating to the capital gains incentive fee payable by us to the Manager when the unrealized gains on its investments exceed all realized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the Manager if we were to liquidate our investment portfolio at such time. The actual incentive fee payable to the Manager related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains for the period.

Current wording

We record an expense accrual relating to the capital gains incentive fee payable by us to the Manager when the unrealized gains on its investments exceed all realized capital losses on its investments given the fact that a capital gains incentive fee would be owed to the Manager if we were to liquidate our investment portfolio at such time. The actual incentive fee payable to the Company’s Manager related to capital gains will be determined and payable in arrears at the end of each fiscal year and will include only realized capital gains for the period.

Previous wording

In June 2022, the FASB issued ASU 2022-03,Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820)(“ASU 2022-03”), which clarifies that a contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security and is not included in the equity security’s unit of account. Accordingly, an entity should not consider the contractual sale restriction when measuring the equity security’s fair value. In addition, ASU 2022-03 prohibits an entity from recognizing a contractual sale restriction as a separate unit of account. ASU 2022-03’s amendments are effective for fiscal years beginning after December 15, 2023, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2022-03 on our consolidated financial statements**.**

Current wording

In June 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-03,Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820)(“ASU 2022-03”), which clarifies that a contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security and is not included in the equity security’s unit of account. Accordingly, an entity should not consider the contractual sale restriction when measuring the equity security’s fair value. In addition, ASU 2022-03 prohibits an entity from recognizing a contractual sale restriction as a separate unit of account. ASU 2022-03’s amendments are effective for fiscal years beginning after December 15, 2023, with early adoption permitted. With the adoption of ASU 2022-03, there was no significant impact to the consolidated financial statements.

Previous wording

During the three months ended November 30, 2023, we invested $35.6 million in new and existing portfolio companies and had $2.1 million in aggregate amount of exits and repayments resulting in net investments of $33.5 million for the period. During the three months ended November 30, 2022, we invested $87.5 million in new and existing portfolio companies and had $56.9 million in aggregate amount of exits and repayments resulting in net repayments of $30.6 million for the period.

Current wording

During the three months ended May 31, 2024, we invested $39.3 million in new and existing portfolio companies and had $75.7 million in aggregate amount of exits and repayments resulting in net investments of $(36.4) million for the period. During the three months ended May 31, 2023, we invested $139.8 million in new and existing portfolio companies and had $11.1 million in aggregate amount of exits and repayments resulting in net repayments of $128.8 million for the period.

Previous wording

At November 30, 2023, our investment in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value of $8.9 million and constituted 0.8% of our portfolio. This investment constitutes a first loss position in a portfolio that, as of November 30, 2023 and February 28, 2023, was composed of $643.5 million and $658.0 million, respectively, in aggregate principal amount of primarily senior secured first lien term loans. In addition, as of November 30, 2023, we also own $9.0 million in aggregate principal of the F-2-R-3 Notes in the Saratoga CLO, which only rank senior to the subordinated notes.

Current wording

At May 31, 2024, our investment in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value of $4.4 million and constituted 0.4% of our portfolio. This investment constitutes a first loss position in a portfolio that, as of May 31, 2024 and February 29, 2024, was composed of $615.1 million and $640.8 million, respectively, in aggregate principal amount of primarily senior secured first lien term loans. In addition, as of May 31, 2024, we also own $9.4 million in aggregate principal of the F-2-R-3 Notes in the Saratoga CLO, which only rank senior to the subordinated notes.

Previous wording

This investment is subject to unique risks. (See Part 1. Item 1A. Risk Factors—“Our investment in Saratoga CLO constitutes a leveraged investment in a portfolio of predominantly senior secured first lien term loans and is subject to additional risks and volatility” in our Annual Report on Form 10-K for the fiscal year ended February 28, 2023).

Current wording

This investment is subject to unique risks. (See Part 1. Item 1A. Risk Factors—“Our investment in Saratoga CLO constitutes a leveraged investment in a portfolio of subordinated notes representing the lowest-rated securities issued by a pool of predominantly senior secured first lien term loans and is subject to additional risks and volatility. All losses in the pool of loans will be borne by our subordinated notes and only after the value of our subordinated notes is reduced to zero will the higher-rated notes issued by the pool bear any losses” predominantly senior secured first lien term loans and is subject to additional risks and volatility” in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024).

Previous wording

We do not consolidate the Saratoga CLO portfolio in our consolidated financial statements. Accordingly, the metrics below do not include the underlying Saratoga CLO portfolio investments. However, at November 30, 2023, $584.9 million or 98.2% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and four Saratoga CLO portfolio investments were in default with a fair value of $9.8 million. At February 28, 2023, $544.4 million or 89.8% of the Saratoga CLO portfolio investments in terms of market value had a CMR color rating of green or yellow and two Saratoga CLO portfolio investments were in default with a fair value of $2.8 million. For more information relating to the Saratoga CLO, see the audited financial statements for Saratoga in our Annual Report on Form 10-K for the fiscal year ended February 28, 2023.

Current wording

We do not consolidate the Saratoga CLO portfolio in our consolidated financial statements. Accordingly, the metrics below do not include the underlying Saratoga CLO portfolio investments. However, at May 31, 2024, $578.2 million or 98.7% of the Saratoga CLO portfolio investments in terms of market value had a CMR (as defined below) color rating of green or yellow and one Saratoga CLO portfolio investment was in default with a fair value of $0.02 million. At February 29, 2024, $603.0 million or 99.2% of the Saratoga CLO portfolio investments in terms of market value had a CMR color rating of green or yellow and two Saratoga CLO portfolio investments were in default with a fair value of $0.3 million. For more information relating to the Saratoga CLO, see the audited financial statements for Saratoga in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024.

Previous wording

Operating results for the three and nine months ended November 30, 2023 and November 30, 2022 was as follows:

Current wording

Operating results for the three months ended May 31, 2024 and May 31, 2023 was as follows:

Previous wording

The composition of our investment income for three and nine months ended November 30, 2023 and November 30, 2022 was as follows:

Current wording

The composition of our investment income for three months ended May 31, 2024 and May 31, 2023 was as follows:

Previous wording

For the three months ended November 30, 2023, total investment income increased $10.1 million, or 38.4%, to $36.3 million from $26.3 million for the three months ended November 30, 2022. Interest income from investments increased $9.1 million, or 38.9%, to $32.7 million for the three months ended November 30, 2023 from $23.5 million for the three months ended November 30, 2022. Interest income from investments increased due to the increase of $132.0 million, or 13.4%, in total investments at November 30, 2023 from $982.0 million at November 30, 2022 to $1,114.0 million as of November 30, 2023, combined with the increase in the weighted average current yield on investments to 11.4%, up from 10.4% at November 30, 2022.

Current wording

For the three months ended May 31, 2024, total investment income increased $4.1 million, or 11.7%, to $38.7 million from $34.6 million for the three months ended May 31, 2023. Interest income from investments increased $4.7 million, or 16.1%, to $34.3 million for the three months ended May 31, 2024 from $29.6 million for the three months ended May 31, 2023. Interest income from investments increased due to the increase of $11.5 million, or 1.1%, in total investments at May 31, 2024 from $1,084.1 million at May 31, 2023 to $1,095.6 million as of May 31, 2024, combined with the increase in the weighted average current yield on investments to 11.5%, up from 11.4% at May 31, 2023.

Previous wording

For the three and nine months ended November 30, 2023 and November 30, 2022, total PIK income was $0.6 million and $0.4 million, respectively and $1.9 million and $0.7 million, respectively.

Current wording

For the three months ended May 31, 2024 and May 31, 2023, total PIK income was $0.6 million and $0.5 million, respectively.

Previous wording

For the three months ended November 30, 2023 and November 30, 2022, interest from cash and cash equivalents was $0.5 million and $0.2 million, respectively. The increase of $0.3 million was due to the fact that cash and cash equivalents were earning close to zero interest during the three months ended November 30, 2022.

Current wording

For the three months ended May 31, 2024 and May 31, 2023, interest from cash and cash equivalents was $0.6 million and $0.8 million, respectively. The decrease of $0.2 million for the quarter ended May 31, 2024 was due to decreased cash and cash equivalents balances during this period as compared to last year, as last year reflected heightened cash balances following various bond offerings completed during the quarter.

Previous wording

Management fee income reflects the fee income received for managing the Saratoga CLO. For the three months ended November 30, 2023 and November 30, 2022, total management fee income was $0.8 million and $0.8 million, respectively. For the nine months ended November 30, 2023 and November 30, 2022, total management fee income was $2.5 million and $2.5 million, respectively.

Current wording

Management fee income reflects the fee income received for managing the Saratoga CLO. For the three months ended May 31, 2024 and May 31, 2023, total management fee income was $0.8 million and $0.8 million, respectively.

Previous wording

For the three and nine months ended November 30, 2023 and November 30, 2022, total dividend income was $1.8 million and $0.4 million, respectively and $5.3 million and $0.9 million, respectively. Dividends received is recorded in the consolidated statements of operations when earned, and the increase primarily reflects dividend income of $1.3 million received on our membership interest in SLF JV during the three months ended November 30, 2023, and $4.7 million received during the nine months ended November 30, 2023.

Current wording

For the three months ended May 31, 2024 and May 31, 2023, total dividend income was $1.5 million and $1.8 million, respectively. Dividends received is recorded in the consolidated statements of operations when earned, and the decrease primarily reflects lower dividend income received on our membership interest in SLF JV during the three months ended May 31, 2024 as compared to the three months ended May 31, 2023.

Previous wording

For the three and nine months ended November 30, 2023 and November 30, 2022, total structuring and advisory fee income was $0.3 million and $0.6 million, respectively and $1.8 million and $2.8 million, respectively. Structuring and advisory fee income represents fee income earned and received performing certain investment and advisory activities during the closing of new investments.

Current wording

For the three months ended May 31, 2024 and May 31, 2023, total structuring and advisory fee income was $0.4 million and $1.4 million, respectively. Structuring and advisory fee income represents fee income earned and received performing certain investment and advisory activities during the closing of new investments.

Previous wording

For the three and nine months ended November 30, 2023 and November 30, 2022, other income was $0.2 million and $0.7 million, respectively and $0.5 million and $1.0 million, respectively. Other income includes origination fees, monitoring and amendment fees and prepayment fees and is recorded in the consolidated statements of operations when earned.

Current wording

For the three months ended May 31, 2024 and May 31, 2023, other income was $1.0 million and $0.2 million, respectively. Other income includes origination fees, monitoring and amendment fees and prepayment fees and is recorded in the consolidated statements of operations when earned.

Previous wording

The composition of our operating expenses for the three and nine months ended November 30, 2023 and November 30, 2022 was as follows:

Current wording

The composition of our operating expenses for the three months ended May 31, 2024 and May 31, 2023 was as follows:

Previous wording

For the three months ended November 30, 2023, total operating expenses increased $5.8 million, or 35.4%, compared to the three months ended November 30, 2022. For the nine months ended November 30, 2023, total operating expenses increased $21.2 million, or 51.3%, compared to the nine months ended November 30, 2022.

Current wording

For the three months ended May 31, 2024, total operating expenses increased $5.7 million, or 30.4%, compared to the three months ended May 31, 2023.

Previous wording

For the three months ended November 30, 2023, interest and debt financing expenses increased $4.1 million, or 48.2%, compared to the three months ended November 30, 2022. The increase is primarily attributable to an increase of 18.8% in average outstanding debt from $679.0 million for the three months ended November 30, 2022 to $806.8 million for the three months ended November 30, 2023, primarily reflecting (i) the issuance of the 6.00% 2027 Notes, 8.00% 2027 Notes, 7.00% 2025 Notes, and 8.125% 2027 Notes during the year ended February 28, 2023, and (ii) the issuance of the 8.75% 2024 Notes and the 8.50% 2028 Notes during the three months ended May 31, 2023, all of which are now outstanding for the full period this year.

Current wording

For the three months ended May 31, 2024, interest and debt financing expenses increased $1.3 million, or 10.9%, compared to the three months ended May 31, 2023. The increase is primarily attributable to an increase of 6.7% in average outstanding debt from $781.0 million for the three months ended May 31, 2023 to $833.0 million for the three months ended May 31, 2024.

Previous wording

For the three and nine months ended November 30, 2023 and November 30, 2022, the weighted average interest rate on our outstanding indebtedness was 5.52% and 4.43%, respectively and 5.43% and 5.74%, respectively. The increase in weighted average interest rate was primarily driven by the issuance of higher rate borrowings over the past year, reflecting the increase in base rates in the market.

Current wording

For the three months ended May 31, 2024 and May 31, 2023, the weighted average interest rate on our outstanding indebtedness was 5.58% and 5.34%, respectively. The increase in weighted average interest rate was primarily driven by the issuance of higher rate borrowings over the past year, primarily last year, reflecting the increase in base rates in the market at that time.

Previous wording

As of November 30, 2023 and February 28, 2023, the SBA debentures represented 25.3% and 27.7% of overall debt, respectively.

Current wording

As of May 31, 2024 and February 29, 2024, the SBA debentures represented 25.8% and 26.1% of overall debt, respectively.

Previous wording

For the three months ended November 30, 2023, base management fees increased $0.6 million, or 14.0%, from $4.3 million to $4.9 million compared to the three months ended November 30, 2022. The increase in base management fees results from the 14.4% increase in the average value of our total assets, less cash and cash equivalents, from $976.1 million for the three months ended November 30, 2022 to $1,108.5 million for the three months ended November 30, 2023. For the nine months ended November 30, 2023, base management fees increased $2.1 million, or 17.2%, from $12.2 million to $14.3 million compared to the nine months ended November 30, 2022. The increase in base management fees results from the 17.6% increase in the average value of our total assets, less cash and cash equivalents, from $922.6 million for the nine months ended November 30, 2022 to $1,082.1 million for the nine months ended November 30, 2023.

Current wording

For the three months ended May 31, 2024, base management fees increased $0.4 million, or 9.2%, from $4.6 million to $5.0 million compared to the three months ended May 31, 2023. The increase in base management fees results from the 8.9% increase in the average value of our total assets, less cash and cash equivalents, from $1,037.6 million for the three months ended May 31, 2023 to $1,129.6 million for the three months ended May 31, 2024.

Previous wording

For the three months ended November 30, 2023, incentive management fees increased $0.7 million, or 46.5%, compared to the three months ended November 30, 2022. The incentive fee on income increased from $2.3 million to $3.3 million for the three months ended November 30, 2022 and 2023, respectively, reflecting the increase in net investment income during the three months ended November 30, 2023 as compared to the three months ended November 30, 2022. The incentive fee on capital gains decreased from a $(0.8) million benefit for the three months ended November 30, 2022 to a $(1.0) million benefit for the three months ended November 30, 2023, both reflecting the incentive fee on net realized and unrealized depreciation recognized during both these periods.

Current wording

For the three months ended May 31, 2024, incentive management fees increased $3.5 million, or 3,368.6%, compared to the three months ended May 31, 2023. The incentive fee on income increased from $3.2 million to $3.5 million for the three months ended May 31, 2023 and 2024, respectively, reflecting the increase in net investment income during the three months ended May 31, 2024 as compared to the three months ended May 31, 2023. The incentive fee on capital gains increased from a $(3.1) million benefit for the three months ended May 31, 2023 to a $0.0 million expense for the three months ended May 31, 2024, both reflecting the incentive fee on net realized and unrealized depreciation recognized during both these periods, with the liability floor capped at zero.

Previous wording

For the three and nine months ended November 30, 2023, administrator expenses increased $0.3 million, or 31.3% and increased $0.5 million, or 19.5%, respectively, compared to the three and nine months ended November 30, 2022, reflecting the contractual changes to the administrator agreement cap.

Current wording

For the three months ended May 31, 2024, administrator expenses increased $0.3 million, or 31.3% compared to the three months ended May 31, 2023, reflecting the contractual changes to the administrator agreement cap.