Business Context and Reporting Period
Saratoga Investment Corp. (SAR) filed a Current Report on Form 8-K dated March 27, 2024. The filing discloses the entry into a material definitive agreement involving a new special purpose vehicle financing credit facility.
Key Financial Metrics and Facility Terms
The Company, through its wholly owned subsidiary Saratoga Investment Funding III LLC ("SIF III"), established the "Live Oak Credit Facility" with Live Oak Banking Company as the administrative agent.
- Facility Size: Initial aggregate borrowing capacity of $50.0 million, with an option to increase up to $150.0 million within the first two years.
- Maturity: March 27, 2027, with an option for a one-year extension subject to lender agreement.
- Minimum Draw Requirements: $12.5 million required until March 27, 2025; thereafter, the greater of $25.0 million or 50% of the facility amount.
- Interest Rate: Floating rate based on Adjusted Term SOFR plus a margin between 3.50% and 4.25% based on utilization.
- Fees: Unused fee of 0.50% on unused commitments.
- Collateral: Secured by a first priority security interest in substantially all of SIF III's assets and a pledge of the Company's equity interests in SIF III.
Material Changes and Operational Impact
This filing represents a new material financial obligation not present in prior periods. The Company entered into a Loan Sale and Contribution Agreement to transfer certain loans to SIF III to support the borrowing base. The facility allows for the distribution of loan proceeds and excess cash to the Company upon three business days' notice, subject to compliance with covenants and the absence of defaults.
Covenants, Risks, and Contingencies
The Credit Agreement imposes specific financial covenants that SIF III must comply with:
- Interest Coverage Test.
- Overcollateralization Test.
Events of Default: The agreement includes customary events of default such as nonpayment, material misrepresentation, breach of covenant, bankruptcy, and change of control. Upon an event of default, the administrative agent may terminate commitments and declare all obligations immediately due and payable.
Investor Verification Checklist
- Verify the specific terms of the Interest Coverage and Overcollateralization tests in the full Credit Agreement (Exhibit 10.1).
- Confirm the volume and quality of loans contributed to SIF III under the Loan Sale and Contribution Agreement (Exhibit 10.3).
- Monitor the Company's ability to maintain the minimum drawn amount of $12.5 million through March 2025.
- Review the impact of the floating interest rate (SOFR + margin) on future interest expense projections.