SARATOGA INVESTMENT CORP.

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 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”).

Current wording

We are a Maryland corporation that has elected to be regulated 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 each provide up to $175.0 million. 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. Our wholly owned subsidiary SBIC LP repaid its outstanding debentures and subsequently surrendered its license to the SBA 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

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 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 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

We and TJHA have committed to provide up to a combined $50.0 million of financing to SLF JV through cash contributions, where we provided $43.75 million and TJHA provides $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 October 20, 2033. As of February 29, 2024, 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. As of February 28, 2023, the Company 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. As of February 29, 2024, and February 28, 2023, the Company’s investment in the unsecured note of SLF JV had a fair value of $15.8 million and $17.6 million, respectively, and the Company’s investment in the membership interests of SLF JV had a fair value of $9.4 million and $13.1 million, respectively.

Current 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 provided $43.75 million and TJHA provides $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 October 20, 2033. As of February 28, 2025, 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. As of February 29, 2024, the Company 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. As of February 28, 2025, and February 29, 2024, the Company’s investment in the unsecured note of SLF JV had a fair value of $16.5 million and $15.8 million, respectively, and the Company’s investment in the membership interests of SLF JV had a fair value of $3.1 million and $9.4 million, respectively.

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 February 29, 2024 and February 28, 2023, the fair value of these Class E Notes were $12.3 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 February 28, 2025 and February 29, 2024, the fair value of these Class E Notes were $12.3 million and $12.3 million, respectively.

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 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.

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 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.

Previous wording

We hold debt and preferred equity investments in our portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We stop accruing PIK interest if we do not expect the issuer to be able to pay all principal and interest when due.

Current wording

We may hold debt and preferred equity investments in our portfolio that contain a payment-in-kind (“PIK”) interest provision. The PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We stop accruing PIK interest if we do not expect the issuer to be able to pay all principal and interest when due.

Previous wording

In December 2023, the FASB issued ASU 2023-09,* Improvements to Income Tax Disclosures*. The amendments in this update require more disaggregated information on income taxes paid. ASU 2023-09 is effective for years beginning after December 15, 2024. Early adoption is permitted, however the Company has not elected to adopt this provision as of the date of the financial statements contained in this report. The Company is still assessing the impact of the new guidance. However, it does not expect ASU 2023-09 to have a material impact on the consolidated financial statements and the notes thereto.

Current wording

In December 2023, the FASB issued ASU 2023-09,* Improvements to Income Tax Disclosures*. The amendments in this update require more disaggregated information on income taxes paid. ASU 2023-09 is effective for years beginning after December 15, 2024. Early adoption is permitted, however the Company has not elected to early adopt this provision as of the date of the financial statements contained in this report. The Company is still assessing the impact of the new guidance.

Previous wording

At February 29, 2024, our investment in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value of $9.5 million and constituted 0.8% of our portfolio. This investment constitutes a first loss position in a portfolio that, as of February 29, 2024 and February 28, 2023, was composed of $640.8 million and $658.0 million, respectively, in aggregate principal amount of primarily senior secured first lien term loans. In addition, as of February 29, 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.

Current wording

At February 28, 2025, our investment in the subordinated notes of Saratoga CLO, a collateralized loan obligation fund, had a fair value of $0.2 million and constituted 0.02% of our portfolio. This investment constitutes a first loss position in a portfolio that, as of February 28, 2025 and February 29, 2024, was composed of $527.1 million and $640.8 million, respectively, in aggregate principal amount of primarily senior secured first lien term loans. In addition, as of February 28, 2025, 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 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”). 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 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 of the Saratoga CLO portfolio investments were in default with a fair value of $0.3 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 Saratoga CLO, see the audited financial statements for Saratoga CLO included elsewhere herein.

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”). 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 February 28, 2025, $484.3 million or 98.4% of the Saratoga CLO portfolio investments in terms of market value had a CMR color rating of green or yellow and eight of the Saratoga CLO portfolio investments were in default with a fair value of $4.4 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 of the Saratoga CLO portfolio investments were in default with a fair value of $0.3 million. For more information relating to Saratoga CLO, see the audited financial statements for Saratoga CLO included elsewhere herein.

Previous wording

The change in reserve from $2.2 million as of February 28, 2023 to $9.5 million as of February 29, 2024 was primarily related to the non-accrual of interest income related to our investments in Knowland Group, Pepper Palace and Zollege.

Current wording

The change in reserve from $9.5 million as of February 29, 2024 to $0.2 million as of February 28, 2025 was primarily related to the reversal and receipt of the non-accrual of interest income related to our investment in Knowland Group, and the write-down of all reserved interest income related to our investments in Pepper Palace and Zollege as part of their restructurings this year.

Previous wording

For the fiscal year ended February 28, 2023, total investment income increased $28.4 million, or 40.1%, to $99.1 million for the fiscal year ended February 28, 2023 compared to $13.1 million for the fiscal year ended February 28, 2022. Interest income from investments increased $26.7 million, or 45.7%, to $85.2 million for the year ended February 28, 2023 from $58.5 million for the fiscal year ended February 28, 2022. The increase in interest income for the fiscal year ended February 28, 2023 is primarily attributable to an increase of 19.0% in total investments to $972.6 million from $817.6 million in the prior period, as well as the increase in the weighted average current yield on investments of 10.7% compared to 7.7% in the prior period.

Current wording

For the fiscal year ended February 28, 2025, total investment income increased $5.1 million, or 3.6%, to $148.9 million for the fiscal year ended February 28, 2025 compared to $143.7 million for the fiscal year ended February 29, 2024. Interest income from investments increased $3.2 million, or 2.5%, to $131.0 million for the year ended February 28, 2025 from $127.8 million for the fiscal year ended February 29, 2024. The increase in interest income for the fiscal year ended February 28, 2025 is primarily due to the recognition of $8.2 million interest income related to our Knowland investment that was previously on non-accrual and was fully repaid this year with all interest, offset by lower interest income on the overall portfolio as the weighted average interest rate decreased from 11.4% as of February 29, 2024 to 10.8% as of February 28, 2025.

Previous wording

Management fee income reflects the fee income received for managing the Saratoga CLO. For the years ended February 29, 2024, 2023 and 2022, total management fee income was $3.3 million, $3.3 million and $3.3 million, respectively.

Current wording

Management fee income reflects the fee income received for managing the Saratoga CLO. For the years ended February 28, 2025, February 29, 2024 and February 28, 2023, total management fee income was $3.1 million, $3.3 million and $3.3 million, respectively.

Previous wording

For the fiscal year ended February 29, 2024, February 28, 2023 and February 28, 2022, total dividend income was $6.5 million, $2.7 million and $1.9 million, respectively. Dividends received is recorded in the consolidated statements of operations when earned, and the increase primarily reflects $5.9 million of dividend income received on the SLF JV.

Current wording

For the fiscal year ended February 28, 2025, February 29, 2024 and February 28, 2023, total dividend income was $4.6 million, $6.5 million and $2.7 million, respectively. Dividends received is recorded in the consolidated statements of operations when earned, and the decrease primarily reflects the reduced $4.0 million of dividend income received on the SLF JV as of February 28, 2025 compared to $5.9 million as of February 29, 2024.

Previous wording

For the fiscal year ended February 29, 2024, February 28, 2023 and February 28, 2022, total structuring and advisory fee income was $2.1 million, $3.6 million and $4.3 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, with the changes year-over-year primarily reflecting the increased or decreased originations during the period.

Current wording

For the fiscal year ended February 28, 2025, February 29, 2024 and February 28, 2023, total structuring and advisory fee income was $1.6 million, $2.1 million and $3.6 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, with the changes year-over-year primarily reflecting the increased or decreased originations during the period.

Previous wording

For the fiscal year ended February 29, 2024, February 28, 2023 and February 28, 2022, other income was $1.5 million, $2.9 million and $2.7 million, respectively. Other income primarily includes prepayment, amendment and redemption fees and is recorded in the consolidated statements of operations when earned.

Current wording

For the fiscal year ended February 28, 2025, February 29, 2024 and February 28, 2023, other income was $2.0 million, $1.5 million and $2.9 million, respectively. Other income primarily includes prepayment, amendment and redemption fees and is recorded in the consolidated statements of operations when earned.

Previous wording

For the year ended February 29, 2024, total operating expenses increased $22.9 million, or 35.9%, to $86.8 million compared to $63.9 million for the year ended February 28, 2023. For the year ended February 28, 2023, total operating expenses increased $13.1 million, or 25.8%, to $63.9 compared to $50.8 million for the year ended February 28, 2022.

Current wording

For the year ended February 28, 2025, total operating expenses increased $9.0 million, or 10.4%, to $95.9 million compared to $86.8 million for the year ended February 29, 2024. For the year ended February 29, 2024, total operating expenses increased $22.9 million, or 35.9%, to $86.8 million compared to $63.9 million for the year ended February 28, 2023.

Previous wording

For the year ended February 28, 2023, interest and debt financing expenses increased $13.6 million, or 68.5% compared to the year ended February 28, 2022. The increase is attributable to both the total average outstanding debt increasing from $417.4 million for the year ended February 28, 2022 to $663.0 million for the year ended February 28, 2023, as well as the weighted average interest rate on our outstanding indebtedness increasing from 4.15% to 4.48% for the same periods. The increase in total average outstanding debt and the weighted average interest rate was primarily due to the issuance during the year ended February 28, 2023 of the higher-cost 6.00% 2027 Notes, 7.00% 2025 Notes, 8.00% 2027 Notes and 8.125% 2027 Notes. At February 28, 2023 and February 28, 2022, the lower-cost SBA debentures represented 27.7% and 36.2% of overall

Current wording

For the year ended February 28, 2025, interest and debt financing expenses increased $2.9 million, or 5.9% compared to the year ended February 29, 2024. The increase is attributable to both the total average outstanding debt increasing from $798.9 million for the year ended February 29, 2024 to $836.2 million for the year ended February 28, 2025, as well as the weighted average interest rate on our outstanding indebtedness increasing from 5.46% to 5.56% for the same periods.

Previous wording

For the year ended February 28, 2023, base management fees increased $4.5 million, or 38.0% compared to the fiscal year ended February 28, 2022. The increase in base management fees is due to the 38.0% increase in the average value of our total assets, less cash and cash equivalents, from $680.1 million as of February 28, 2022 to $938.5 million as of February 28, 2023.

Current wording

For the year ended February 28, 2025, base management fees decreased $0.8 million, or 4.3% compared to the fiscal year ended February 29, 2024. The decrease in base management fees is due to the 4.3% decrease in the average value of our total assets, less cash and cash equivalents, from $1,097.8 million as of February 29, 2024 to $1,050.5 million as of February 28, 2025.

Previous wording

For the year ended February 28, 2023, incentive fees decreased $6.7 million, or 57.1% compared to the fiscal year ended February 28, 2022. The incentive fee on income increased this year from $6.4 million for the year ended February 28, 2022 to $6.8 million for the year ended February 28, 2023, reflecting the increased operating performance of our debt investments during this period. The incentive fees on capital gains decreased from $5.5 million expense for the fiscal year ended February 28, 2022 to ($1.7) million benefit for the fiscal year ended February 28, 2023, both reflecting the incentive fee income and expense on net unrealized appreciation and depreciation recognized during both these periods.

Current wording

For the year ended February 28, 2025, incentive fees increased $5.2 million, or 65.1% compared to the fiscal year ended February 29, 2024. The incentive fee on income increased this year from $13.0 million for the year ended February 29, 2024 to $13.2 million for the year ended February 28, 2025, reflecting the increased operating performance of our debt investments during this period. The incentive fees on capital gains increased from $(8.3) million benefit for the fiscal year ended February 29, 2024 to $(5.9) million benefit for the fiscal year ended February 28, 2025, both reflecting the incentive fee income and expense on net unrealized appreciation and depreciation recognized during both these periods, with the liability floor capped at zero.

Previous wording

For the year ended February 28, 2023, professional fees increased $0.4 million, or 31.5% compared to the fiscal year ended February 28, 2022. This increase primarily reflects growth across accounting, legal and consulting fees in connection with an increase in our assets and legal entities, as well as the increased rates across vendors in the current inflation environment.

Current wording

For the year ended February 28, 2025, professional fees increased $0.3 million, or 16.5% compared to the fiscal year ended February 29, 2024. This increase is primarily due to inflationary increases from vendors across accounting, legal and consulting fees across the Company, as well as the additional cost of performing a Sarbanes Oxley audit this year with the Company becoming an accelerated filer.

Previous wording

For the year ended February 28, 2023, administrator expenses increased $0.3 million, or 8.7% compared to the fiscal year ended February 28, 2022, which reflects an increase to the cap on the payment or reimbursement of expenses by the Company from $3.0 million to 3.275 million, effective August 1, 2022.

Current wording

For the year ended February 28, 2025, administrator expenses increased $0.8 million, or 21.6% compared to the fiscal year ended February 29, 2024, which reflects an increase to the cap on the payment or reimbursement of expenses by the Company from $4.3 million last year to $5.0 million, effective August 1, 2024.

Previous wording

For the fiscal years ended February 29, 2024, February 28, 2023 and February 28, 2022, the average borrowings outstanding under the Credit Facilities was approximately $37.9 million, $26.3 million and $8.7 million, respectively, and the average weighted average interest rate on the outstanding borrowing under the Credit Facilities was 9.66%, 6.72% and 5.22%, respectively.

Current wording

For the fiscal years ended February 28, 2025, February 29, 2024 and February 28, 2023, the average borrowings outstanding under the Credit Facilities was approximately $33.1 million, $37.9 million and $26.3 million, respectively, and the average weighted average interest rate on the outstanding borrowing under the Credit Facilities was 9.49%, 9.66% and 6.72%, respectively.

Previous wording

For the fiscal years ended February 29, 2024, February 28, 2023 and February 28, 2022, the average borrowings outstanding of SBA debentures was $202.5 million, $230.0 million and $180.4 million, respectively. For the years ended February 29, 2024, February 28, 2023 and February 28, 2022, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 3.08%, 2.78% and 2.60%, respectively.

Current wording

For the fiscal years ended February 28, 2025, February 29, 2024 and February 28, 2023, the average borrowings outstanding of SBA debentures was $213.8 million, $202.5 million and $230.0 million, respectively. For the years ended February 28, 2025, February 29, 2024 and February 28, 2023, the weighted average interest rate on the outstanding borrowings of the SBA debentures was 3.32%, 3.08% and 2.78%, respectively.

Previous wording

For the years ended February 29, 2024, February 28, 2023 and February 28, 2022, we recognized income tax expense (benefit) of $0.04 million, ($0.15) million and ($0.04) million, respectively. This relates to net deferred federal and state income tax expense (benefit) with respect to operating gains and losses and income derived from equity investments held in entities that are treated as corporations for U.S. federal income tax purposes, as well as current U.S. federal and state income taxes on those operating gains and losses when realized.

Current wording

For the years ended February 28, 2025, February 29, 2024 and February 28, 2023, we recognized income tax expense (benefit) of $0.41 million, $0.04 million and ($0.15) million, respectively. This relates to net deferred federal and state income tax expense (benefit) with respect to operating gains and losses and income derived from equity investments held in entities that are treated as corporations for U.S. federal income tax purposes, as well as current U.S. federal and state income taxes on those operating gains and losses when realized.

Previous wording

For the year ended February 29, 2024, we accrued excise taxes of $1.8 million on undistributed taxable income as of December 31, 2023. For the year ended February 28, 2023, we accrued excise taxes of $1.1 million on undistributed taxable income as of December 31, 2022.

Current wording

For the year ended February 28, 2025, we accrued excise taxes of $2.4 million on undistributed taxable income as of December 31, 2024. For the year ended February 29, 2024, we accrued excise taxes of $1.8 million on undistributed taxable income as of December 31, 2023.

Previous wording

The $0.1 million of net realized loss was from the repayment of the structured finance securities in the Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-1-R-3 Note.

Current wording

The $6.6 million net change in unrealized depreciation in our investment Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-2-R-3 Note was driven by the impact of the performance of individual credits in the CLO portfolio.

Previous wording

The $3.1 million net change in unrealized depreciation in our investment in GreyHeller LLC. was driven by the sale of that investment, resulting in a reversal of previously recognized unrealized appreciation reclassified to realized gains.

Current wording

The $3.1 million net change in unrealized depreciation in our investment Invita (fka HemaTerra Holding Company, LLC) was driven by market factors that reduced the eventual proceeds received from the sale.

Previous wording

The $2.6 million net change in unrealized appreciation in our investment in Destiny Solutions Inc. was driven by growth and overall strong financial performance.

Current wording

The $2.6 million net change in unrealized appreciation in our investment Axero Holdings, LLC was driven by strong financial portfolio company performance.

Previous wording

For the fiscal years ended February 29, 2024, February 28, 2023 and February 28, 2022, we recorded a net increase in net assets resulting from operations of $8.9 million, $24.7 million and $45.7 million, respectively. Based on 12,670,939 weighted average common shares outstanding as of February 29, 2024, our per share net increase in net assets resulting from operations was $0.71 for the fiscal year ended February 29, 2024. This compares to a per share net increase in net assets resulting from operations of $2.06 for the fiscal year ended February 28, 2023 (based on 11,963,533 weighted average common shares outstanding as of February 28, 2023), and a per share net increase in net assets resulting from operations of $3.99 for the fiscal year ended February 28, 2022 (based on 11,456,631 weighted average common shares outstanding as of February 28, 2022).

Current wording

For the fiscal years ended February 28, 2025, February 29, 2024 and February 28, 2023, we recorded a net increase in net assets resulting from operations of $28.1 million, $8.9 million and $24.7 million, respectively. Based on 13,912,170 weighted average common shares outstanding as of February 28, 2025, our per share net increase in net assets resulting from operations was $2.02 for the fiscal year ended February 28, 2025. This compares to a per share net increase in net assets resulting from operations of $0.71 for the fiscal year ended February 29, 2024 (based on 12,670,939 weighted average common shares outstanding as of February 29, 2024), and a per share net increase in net assets resulting from operations of $2.06 for the fiscal year ended February 28, 2023 (based on 11,963,533 weighted average common shares outstanding as of February 28, 2023).

Previous wording

We intend to continue to generate cash primarily from cash flows from operations, including interest earned from our investments in debt in middle-market companies, interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less, the Encina Credit Facility and the Live Oak Credit Facility, our continued access to the SBA debentures future borrowings and future offerings of debt and equity securities.

Current wording

We intend to continue to generate cash primarily from cash flows from operations, including interest earned from our investments in debt in middle-market companies, interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less, draws of the Encina Credit Facility and the Live Oak Credit Facility, our continued access to the SBA debentures future borrowings and future offerings of both private and public debt and equity securities.

Previous wording

Although we expect to fund the growth of our investment portfolio through the net proceeds from future equity offerings, including our dividend reinvestment plan (“DRIP”), our equity ATM program, and issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act, we cannot assure you that our plans to raise capital will be successful. In this regard, because our common stock has historically traded at a price below our current NAV per share and we are limited in our ability to sell our common stock at a price below NAV per share, we have been and may continue to be limited in our ability to raise equity capital.

Current wording

Although we expect to continue to fund the growth of our investment portfolio through the net proceeds from future equity offerings, including our dividend reinvestment plan (“DRIP”), our equity ATM Program (as defined below), and issuances of senior securities or future borrowings, to the extent permitted by the 1940 Act, we cannot assure you that our plans to raise capital will be successful. In this regard, because our common stock has historically traded at a price below our current NAV per share and we are limited in our ability to sell our common stock at a price below NAV per share, we have been and may continue to be limited in our ability to raise equity capital.

Previous wording

Also, as a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%, reduced to 150% effective April 16, 2019 following the approval received from our board of directors, including a majority of our independent directors, on April 16, 2018. This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 161.1% as of February 29, 2024 and 165.9% as of February 28, 2023. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and other debt-related markets, which may or may not be available on favorable terms, if at all.

Current wording

Also, as a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 200%, reduced to 150% effective April 16, 2019 following the approval received from our board of directors, including a majority of our independent directors, on April 16, 2018. This requirement limits the amount that we may borrow. Our asset coverage ratio, as defined in the 1940 Act, was 162.9% as of February 28, 2025 and 161.1% as of February 29, 2024. To fund growth in our investment portfolio in the future, we anticipate needing to raise additional capital from various sources, including the equity markets and other public and private debt-related markets, which may or may not be available on favorable terms, if at all.

Previous wording

Below is a summary of the terms of the senior secured revolving credit facility we entered into with Encina Lender Finance, LLC on October 4, 2021 (the “Encina Credit Facility”).

Current wording

Below is a summary of the terms of the Encina Credit Facility.

Previous wording

Commitment. We entered into the Credit and Security Agreement (the “Encina Credit Agreement”) relating to the Encina Credit Facility in the initial facility amount of $50.0 million (the “Facility Amount”).

Current wording

Commitment. We entered into the Credit and Security Agreement (the “Encina Credit Agreement”) relating to the Encina Credit Facility in the initial facility amount of $50.0 million (the “Encina Facility Amount”).

Previous wording

Availability. We can draw up to the lesser of (i) the Facility Amount and (ii) the Borrowing Base. The Borrowing Base is an amount equal to (i) the difference of (A) the product of the applicable advance rate which varies from 50.0% to 75.0% depending on the type of loan asset (Defaulted Loans being excluded in that they carry an advance rate of 0%) and the value, determined in accordance with the Encina Credit Facility (the “Adjusted Borrowing Value”), of certain “eligible” loan assets pledged as security for the loan (the “Borrowing Base Value”) and (B) the Excess Concentration Amount, as calculated in accordance with the Encina Credit Facility, plus (ii) any amounts held in the Prefunding Account and, without duplication, Excess Cash held in the Collection Account, less (iii) the product of (a) the amount of any undrawn funding commitments we have under any loan asset and (b) the Unfunded Exposure Haircut Percentage, and less (iv) $100,000. Each loan asset we held as of the date on which the Encina Credit Facility was closed was valued as of that date and each loan asset that we acquires after such date will be valued at the lowest of its fair value, its face value (excluding accrued interest) and the purchase price paid for such loan asset. Adjustments to the value of a loan asset will be made to reflect, among other things and under certain circumstances, changes in its fair value, a default by the obligor on the loan asset, insolvency of the obligor, acceleration of the loan asset, and certain modifications to the terms of the loan asset.

Current wording

Availability. We can draw up to the lesser of (i) the Encina Facility Amount and (ii) the Borrowing Base. The Borrowing Base is an amount equal to (i) the difference of (A) the product of the applicable advance rate which varies from 50.0% to 75.0% depending on the type of loan asset (Defaulted Loans being excluded in that they carry an advance rate of 0%) and the value, determined in accordance with the Encina Credit Facility (the “Adjusted Borrowing Value”), of certain “eligible” loan assets pledged as security for the loan (the “Borrowing Base Value”) and (B) the Excess Concentration Amount, as calculated in accordance with the Encina Credit Facility, plus (ii) any amounts held in the Prefunding Account and, without duplication, Excess Cash held in the Collection Account, less (iii) the product of (a) the amount of any undrawn funding commitments we have under any loan asset and (b) the Unfunded Exposure Haircut Percentage, and less (iv) $100,000. Each loan asset we held as of the date on which the Encina Credit Facility was closed was valued as of that date and each loan asset that we acquire after such date will be valued at the lowest of its fair value, its face value (excluding accrued interest) and the purchase price paid for such loan asset. Adjustments to the value of a loan asset will be made to reflect, among other things and under certain circumstances, changes in its fair value, a default by the obligor on the loan asset, insolvency of the obligor, acceleration of the loan asset, and certain modifications to the terms of the loan asset.

Previous wording

The Encina Credit Facility requires certain minimum drawn amounts. For the period beginning on the closing date and ended April 4, 2022, the minimum funding amount was $12.5 million. For the period beginning on April 5, 2022 through maturity, the minimum funding amount is the greater of $25.0 million and 50% of the Facility Amount in effect from time to time.

Current wording

The Encina Credit Facility requires certain minimum drawn amounts. For the period beginning on the closing date and ended April 4, 2022, the minimum funding amount was $12.5 million. For the period beginning on April 5, 2022 through maturity, the minimum funding amount is the greater of $25.0 million and 50% of the Encina Facility Amount in effect from time to time.

Previous wording

Collateral. The Encina Credit Facility is secured by assets of Saratoga Investment Funding II LLC (“SIF II”) and pledged to the lender under the credit facility. SIF II is a wholly owned special purpose entity formed for the purpose of entering into the Encina Credit Facility.

Current wording

Collateral. The Encina Credit Facility is secured by assets of SIF II and pledged to Encina under the Encina Credit Facility. SIF II is a wholly owned special purpose entity formed for the purpose of entering into the Encina Credit Facility.

Previous wording

As of February 29, 2024, we had $35.0 million outstanding borrowings under the Credit Facility and $214.0 million of SBA-guaranteed debentures outstanding (which are discussed below). As of February 28, 2023, we had $32.5 million outstanding borrowings under the Credit Facility and $202.0 million of SBA-guaranteed debentures outstanding. Our borrowing base under the Credit Facility at February 29, 2024 and February 28, 2023 was $65.0 million and $65.0 million, respectively.

Current wording

As of February 28, 2025, we had $32.5 million outstanding borrowings under the Encina Credit Facility. As of February 29, 2024, we had $35.0 million outstanding borrowings under the Encina Credit Facility. Our borrowing base under the Encina Credit Facility at February 28, 2025 and February 29, 2024 was $78.6 million and $65.0 million, respectively.

Previous wording

On March 27, 2024, we and our wholly owned special purpose subsidiary, Saratoga Investment Funding III LLC (“SIF III”), entered into a credit and security agreement (the “Live Oak Credit Agreement”), by and among SIF III, as borrower, us, as collateral manager and equity holder, the lenders from time to time parties thereto, Live Oak Banking Company (“Live Oak”), as administrative agent and collateral agent, U.S. Bank National Association, as custodian, and U.S. Bank Trust Company, National Association, as collateral administrator, relating to a special purpose vehicle financing credit facility (the “Live Oak Credit Facility”).

Current wording

On March 27, 2024, the Company and its wholly owned special purpose subsidiary, SIF III, entered into a credit and security agreement (the “Live Oak Credit Agreement”), by and among SIF III, as borrower, the Company, as collateral manager and equityholder, the lenders from time to time parties thereto, Live Oak, as administrative agent and collateral agent, U.S. Bank National Association, as custodian, and U.S. Bank Trust Company, National Association, as collateral administrator, relating to Live Oak Credit Facility.