Business Context and Reporting Period
This Form 8-K Current Report, dated July 15, 2021 (with events occurring through July 20, 2021), concerns Saratoga Investment Corp., a Maryland corporation operating as a Business Development Company (BDC). The filing details the entry into a material definitive agreement for a new debt offering and the subsequent decision to redeem existing debt.
Key Financial Metrics and Capital Structure
- New Debt Issuance: The Company issued $125,000,000 aggregate principal amount of 4.375% Notes due 2026.
- Net Proceeds: Approximately $123.5 million, after deducting a $2.5 million underwriting discount and approximately $225,000 in estimated offering expenses.
- Offering Price: 101.00% of the aggregate principal amount.
- Debt Redemption: The Company announced the redemption of $60,000,000 aggregate principal amount of its 6.25% Notes due 2025.
- Redemption Price: 100% of principal plus accrued and unpaid interest.
- Transaction Close Date: July 20, 2021.
- Redemption Date: August 31, 2021.
Material Changes and Strategic Actions
The filing reports a significant refinancing strategy. Upon issuance of the new notes, the total outstanding principal of the 4.375% Notes due 2026 will reach $175,000,000 (combining the new $125 million with $50 million issued in March 2021). The Company intends to use the net proceeds from the new offering to:
- Redeem all outstanding 6.25% fixed-rate notes due 2025.
- Repay outstanding indebtedness under its senior secured revolving credit facility.
- Make investments in middle-market companies through its SBIC subsidiaries.
- Fund general corporate purposes.
Outlook, Risks, and Covenants
Management Commentary and Use of Proceeds: Management is executing a capital structure optimization by replacing higher-cost debt (6.25% notes) with lower-cost debt (4.375% notes) and reducing reliance on its revolving credit facility.
Covenants and Restrictions: The Indenture for the new notes includes covenants requiring compliance with Section 18(a)(1)(A) of the Investment Company Act of 1940. Specifically, the Company cannot declare cash dividends or purchase stock unless it maintains an asset coverage ratio of at least the threshold specified in Section 18(a)(1)(B) of the 1940 Act, after deducting the dividend or purchase price.
Change of Control: Holders of the new notes have the right to require the Company to repurchase the notes at 100% of principal plus accrued interest upon a "Change of Control Repurchase Event."
Risks: The filing notes that the new notes are unsecured obligations, ranking pari passu with other unsubordinated unsecured debt but effectively subordinated to secured indebtedness (including the Credit Facility) and structurally subordinated to subsidiary obligations.
Investor Verification Checklist
- Verify the final closing of the $125 million 4.375% Notes due 2026 and the receipt of net proceeds.
- Confirm the successful redemption of the $60 million 6.25% Notes due 2025 on August 31, 2021.
- Review the Company's updated leverage ratios and asset coverage following the debt swap.
- Assess the impact of the new debt covenants on the Company's ability to declare future cash dividends.
- Monitor the deployment of remaining net proceeds into middle-market investments as stated in the investment objective.