Saratoga Investment Corp. — Form 10-Q Summary
Reporting period: Quarter and six months ended August 31, 2026. Saratoga is an externally managed business development company investing primarily in debt and equity of U.S. middle-market companies. Amounts below are U.S. dollars.
Financial performance and position
- Quarter revenue and earnings: Investment income was $31.2 million, up 1.8% year over year. Net investment income was $7.3 million, down from $9.1 million. After a $16.5 million net unrealized investment depreciation, operations resulted in a $6.7 million net loss, or $(0.41) per share, versus net income of $13.3 million, or $0.84 per share.
- Six-month results: Investment income was $61.9 million, down 1.6%; net investment income was $14.9 million, down from $19.2 million. Net loss from operations was $13.6 million, or $(0.84) per share, versus net income of $27.2 million, or $1.75 per share. Net unrealized depreciation was $31.6 million, compared with $4.7 million of appreciation a year earlier.
- Margins and costs: Net investment income was approximately 23.4% of investment income for the six-month period, versus 30.5% a year ago. Total operating expenses rose 7.6% to $47.0 million; interest and debt financing costs rose 11.6% to $27.7 million. Average borrowing costs increased to 6.12% from 5.58%.
- Portfolio and NAV: Investments at fair value were $1.150 billion, up from $1.109 billion at February 28, 2026. Net assets were $352.6 million, down from $396.2 million, and NAV per share fell to $22.15 from $24.42. The filing reports six-month total returns of (13.97)% based on market value and (2.41)% based on NAV.
- Cash flow and liquidity: Operating activities used $53.7 million in the six months; financing activities provided $127.8 million, including $109.5 million from note issuance. Cash and reserve accounts ended at $95.9 million, including $80.1 million of cash and cash equivalents and $15.8 million in reserve accounts. Cash dividends paid were $21.6 million.
- Debt and coverage: Total debt obligations were approximately $902.4 million; total liabilities were $903.7 million. Asset coverage was 171.9%, above the 150% minimum applicable to the company. Scheduled debt obligations totaled $218.0 million due in less than one year at period-end, including $75.0 million of 4.35% notes and $105.5 million of 6.00% notes, as well as $37.5 million under the Live Oak facility.
Changes versus comparable periods
- Interest income from investments increased 9.2% for the quarter and 4.7% for the six months, principally reflecting a larger investment portfolio. Management said this was partly offset by lower portfolio yields: 9.9% at August 31, 2026 versus 10.4% a year earlier, amid lower SOFR and tighter spreads on new loans.
- Interest income from cash fell to $0.4 million for the quarter and $1.0 million for the six months, from $2.4 million and $4.4 million, respectively, as cash balances were lower during the periods.
- Portfolio investment purchases were $155.3 million and sales and repayments were $87.5 million in the six months, for net investment activity of $67.8 million. Unfunded commitments rose to $181.1 million from $153.1 million.
- Distributions declared were $1.50 per share for the six months, versus $1.99 in the prior-year period. The board declared monthly dividends of $0.25 per share for September, October and November 2026.
Outlook, risks and unusual items
- Outlook and funding: Management expects to fund investments through operating cash flow, credit facilities, SBA debentures and possible debt or equity offerings, but says capital raising may not be available on favorable terms. It believes current liquidity is adequate for near-term requirements. No earnings or NAV guidance is provided.
- Portfolio risk and valuation: Most investments are privately held and valued using Level 3 inputs, requiring estimates and judgment. First-lien loans accounted for about 81.7% of investment fair value; SaaS investments were $516.2 million, or 44.9% of investments. The filing cites significant unrealized markdowns, including Exigo, Pepper Palace and Chronus; Pepper Palace was valued at zero. Saratoga CLO subordinated and F-2-R-3 notes were also valued at zero. The company reported no non-performing portfolio investments at fair value at August 31, compared with $2.0 million at February 28.
- Interest-rate exposure: Management states that changes in rates affect investment income and borrowing costs. Its sensitivity analysis estimates that a 1% rate increase would raise annual interest income by about $10.7 million and interest expense by about $0.7 million, before other effects. The market-risk discussion contains an apparent inconsistency about whether most debt investments are fixed- or floating-rate; verify against the detailed portfolio disclosures.
- Subsequent financing and CLO actions: After quarter-end, Saratoga received SBA approval to raise SBIC III’s leverage limit by $75 million; refinanced its CLO and invested $16.2 million in new subordinated notes; redeemed $105.5 million of 6.00% 2027 notes; and issued additional 8.00% 2031 notes. Following the September offerings, 8.00% 2031 notes outstanding totaled $120.8 million.
- Key-person risk: CFO, Chief Compliance Officer, Treasurer and Secretary Henri Steenkamp notified the board on September 16, 2026 that he would step down from those roles effective October 31, while continuing as a consultant, director and SBIC subsidiaries’ CFO. The 7.25% 2029 notes permit holders to demand early repayment in specified management or regulatory circumstances; the filing warns that inability to repay could trigger cross-defaults.
- Other disclosed matters: Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The company reported no material legal proceedings and no defaults upon senior securities.
Investor facts to verify
- Whether portfolio valuations and the $31.6 million six-month unrealized depreciation reflect current borrower performance, particularly in Exigo, Pepper Palace, Chronus and the Saratoga CLO.
- Debt maturity and refinancing needs, including the $218.0 million scheduled within one year at August 31 and the post-quarter redemption and note issuance.
- Actual liquidity available after borrowing-base, covenant and reserve-account restrictions, and the funding needs associated with $181.1 million of unfunded commitments.
- The effect of the CFO transition on key-person provisions in the 7.25% 2029 notes and other financing agreements.
- The rate sensitivity assumptions and the filing’s inconsistent fixed-versus-floating-rate descriptions; also confirm dividend coverage against net investment income and cash generation.