Business Context and Reporting Period
Company: Saratoga Investment Corp.
Filing Type: Form 8-K (Current Report)
Date of Report: October 4, 2021
Event: Entry into a Material Definitive Agreement (Senior Secured Credit Facility).
Key Financial Metrics and Facility Terms
This filing details the establishment of a new credit facility rather than reporting periodic operating results. Key financial terms include:
- Facility Size: Up to $50.0 million, with an option to increase to $75.0 million within the first two years.
- Interest Rate: Floating rate of LIBOR plus 4.0% (LIBOR floor of 0.75%).
- Unused Fee: 0.75% per annum if usage is less than 50% of the commitment; 0.50% if usage is 50% or less.
- Advance Rates: 50% to 75% on eligible loans based on a borrowing base calculation.
- Mandatory Draws: Minimum of $12.5 million for the first six months; thereafter, the greater of $25.0 million or 50% of the commitment amount.
- Term: Three years, with an option to extend by one year.
- Collateral: First priority security interest in substantially all assets of the Borrower (Saratoga Investment Funding II, LLC) and a pledge of the Company's equity interests in the Borrower.
Note: The filing does not provide specific values for revenue, net income, operating cash flow, or existing debt levels outside of this new facility.
Material Changes
The primary material change is the creation of a new direct financial obligation via the Credit Facility with Encina Lender Finance, LLC. The Company has also entered into a Loan Sale and Contribution Agreement to transfer certain loans to the Borrower to support the borrowing base. This represents a new source of liquidity and leverage for the Company's investment activities.
Guidance, Risks, and Covenants
Covenants: The Borrower must comply with an Interest Coverage Test and an Overcollateralization Test. Distributions of loan proceeds and excess cash to the Company are permitted weekly, subject to compliance with these covenants and the absence of defaults.
Risks and Contingencies: The facility contains customary events of default. Upon an event of default, the administrative agent may terminate commitments and declare all outstanding advances immediately due and payable, subject to grace and standstill periods. The interest rate is subject to LIBOR fluctuations and potential benchmark replacement provisions.
Investor Verification Checklist
- Verify the specific loans contributed to the Borrower under the Loan Sale and Contribution Agreement to assess asset quality.
- Review the full text of the Credit and Security Agreement (Exhibit 10.1) for detailed definitions of the Interest Coverage and Overcollateralization tests.
- Monitor the Company's ability to maintain the mandatory minimum draw requirements ($12.5 million initially).
- Assess the impact of the 4.0% LIBOR spread on the Company's overall cost of capital and net interest margin.