Business Context and Reporting Period
Saratoga Investment Corp. (SAR), a Business Development Company (BDC), filed this Form 8-K on August 11, 2022, to report the entry into a material definitive agreement. The company is incorporated in Maryland and its principal executive offices are located in New York, New York.
Key Financial Metrics and Transaction Details
- Debt Issuance: The Company entered into a purchase agreement for the issuance and sale of $8,000,000 aggregate principal amount of 6.00% Notes due 2027 (the "New Notes").
- Transaction Closing: The transaction closed on August 15, 2022.
- Net Proceeds: Approximately $7,750,000, based on a public offering price of 97.800% of the aggregate principal amount, after deducting a $74,000 referral fee and approximately $50,000 in estimated offering expenses.
- Total Outstanding Debt: Upon issuance, the total outstanding aggregate principal amount of the Company's 6.00% Notes due 2027 reached $105,500,000 (combining the New Notes with $87,500,000 issued in April 2022 and $10,000,000 issued in May 2022).
- Interest Terms: The New Notes bear interest at 6.00% per year, payable quarterly on February 28, May 31, August 31, and November 30, commencing August 31, 2022.
- Maturity and Redemption: The Notes mature on April 30, 2027. The Company may redeem them in whole or in part on or after April 27, 2024, at par plus accrued interest.
Material Changes and Use of Proceeds
The primary material change is the increase in the Company's debt obligations by $8,000,000. The New Notes are treated as a single series with existing notes, are fungible, and rank equally with them. The Company intends to use the net proceeds to make investments in middle-market companies, including through its wholly owned SBIC subsidiaries, and for general corporate purposes.
Management Commentary, Risks, and Covenants
- Debt Seniority: The New Notes are direct unsecured obligations ranking pari passu with existing unsubordinated unsecured indebtedness. They are effectively subordinated to secured indebtedness (including the senior secured revolving credit facility) and structurally subordinated to subsidiary obligations.
- Dividend Restrictions: The Indenture contains covenants restricting the declaration of cash dividends or stock repurchases unless the Company maintains an asset coverage ratio of at least the threshold specified in Section 18(a)(1)(B) of the Investment Company Act of 1940 (as modified by Section 61(a)(2)).
- Reporting Obligations: The Company must provide financial information to note holders and the Trustee if it ceases to be subject to reporting requirements under the Securities Exchange Act of 1934.
Investor Verification Checklist
- Verify the total outstanding principal of $105,500,000 for the 6.00% Notes due 2027.
- Confirm the net proceeds of approximately $7,750,000 received from the offering.
- Review the Company's current asset coverage ratio to assess compliance with dividend declaration covenants.
- Monitor the Company's investment activity to ensure proceeds are deployed in accordance with its middle-market investment strategy.
- Check for any subsequent amendments to the Indenture or changes in the Company's secured debt levels that could affect the Notes' effective subordination.