Saratoga Investment Corp Shines in Q2 2027: Record AUM Growth, Stable Adjusted NII, and Strategic Refinancing
Saratoga Investment Corp has reported a stellar second quarter for fiscal year 2027, with numerous highlights that demonstrate the company's resilience and strategic prowess. As announced during their recent conference call, Saratoga's Chairman and Chief Executive Officer, Christian Oberbeck, expressed gratitude to outgoing Chief Financial and Chief Compliance Officer, Henri Steenkamp, who has been an invaluable member of the team for almost 13 years.
One of the quarter's most significant highlights was net positive originations of $37.1 million, including two new non-software portfolio companies originated in the period. This achievement reflects Saratoga's commitment to identifying and investing in high-quality assets that drive long-term growth and returns for shareholders. The company also witnessed sustained AUM growth, with an increase of 2.1% during the quarter, reaching a record level of $1.15 billion.
In another notable development, Saratoga successfully issued $85 million worth of its SAX Baby Bond, which was subsequently increased to $120.8 million through the exercise of the green shoe and reopening of the issuance. This strategic move allowed for the refinancing of the company's $105.5 million SAT Baby Bond due early 2027, reducing refinancing risk for next year.
The company also maintained stable adjusted net investment income (NII) at $0.46 per share, inclusive of the cost of its recently refinanced capital structure. Additionally, Saratoga took advantage of a robust refinancing environment to reset its legacy CLO at $350 million at lower rates, resulting in a new three-year reinvestment period and ensuring future BDC management fees and significant interest income.
Furthermore, the company's core BDC portfolio fair value remained within 1.6% of cost, demonstrating solid overall credit quality in a challenging and volatile macroeconomic environment. Saratoga's non-accruals are now zero following the resolution of its remaining non-accrual investments.
However, not all news was positive. The company experienced headwinds due to balance sheet refinancing, resulting in additional interest expense from higher cost debt. Nevertheless, Saratoga sees base rate increases benefiting interest income, with every 25 basis points increasing interest income by $0.033 per quarter.
The company's NAV per share declined by $0.82 per share, specifically related to performance in three distinct credits and $0.30 per share related to dividend distributions exceeding net investment income. However, this decline was offset by $0.09 per share appreciation from share repurchases, with $13.3 million of the $25.9 million NAV decline attributed to accretive share repurchases, representing 32% of the change.
