XNYS:SAR Saratoga Investment Corp Quarterly Report 10-Q Filing - 8/31/2012

Effective Date 8/31/2012

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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended August 31, 2012

 

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 1-33376

 

SARATOGA INVESTMENT CORP.

(Exact name of registrant as specified in its charter)

 

Maryland

 

20-8700615

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

535 Madison Avenue
New York, New York

 

10022

(Address of principal executive office)

 

(Zip Code)

 

(212) 906-7800

(Registrant’s telephone number, including area code)

 

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large Accelerated Filer o

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer x

 

Smaller Reporting Company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of October 15, 2012 was 3,876,661.

 

 

 



Table of Contents

 

SARATOGA INVESTMENT CORP.

FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 2012

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Statements of Assets and Liabilities as of August 31, 2012 (unaudited) and February 29, 2012

3

 

 

 

 

Consolidated Statements of Operations for the three and six months ended August 31, 2012 and 2011(unaudited)

4

 

 

 

 

Consolidated Schedules of Investments as of August 31, 2012 (unaudited) and February 29, 2012

5

 

 

 

 

Consolidated Statements of Changes in Net Assets for the six months ended August 31, 2012 and 2011 (unaudited)

9

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended August 31, 2012 and 2011 (unaudited)

10

 

 

 

 

Notes to Consolidated Financial Statements as of August 31, 2012 (unaudited)

11

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

 

 

 

Item 4.

Controls and Procedures

46

 

 

 

PART II

OTHER INFORMATION

46

 

 

 

Item 1.

Legal Proceedings

46

 

 

 

Item 1A.

Risk Factors

46

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

 

 

 

Item 3.

Defaults upon Senior Securities

46

 

 

 

Item 4.

Mine Safety Disclosures

46

 

 

 

Item 5.

Other Information

46

 

 

 

Item 6.

Exhibits

47

 

 

 

Signatures

 

48

 

2



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Assets and Liabilities

 

 

 

As of

 

 

 

August 31, 2012

 

February 29, 2012

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Investments at fair value

 

 

 

 

 

Non-control/non-affiliate investments (amortized cost of $90,404,979 and $73,161,722, respectively)

 

$

88,559,307

 

$

69,513,434

 

Control investments (cost of $21,567,800 and $23,540,517, respectively)

 

27,098,581

 

25,846,414

 

Total investments at fair value (amortized cost of $111,972,779 and $96,702,239, respectively)

 

115,657,888

 

95,359,848

 

Cash and cash equivalents

 

674,057

 

1,325,698

 

Cash and cash equivalents, reserve accounts

 

5,737,872

 

25,534,195

 

Outstanding interest rate cap at fair value (cost of $0 and $131,000, respectively)

 

 

75

 

Interest receivable, (net of reserve of $416,522 and $273,361, respectively)

 

2,052,811

 

1,689,404

 

Deferred credit facility financing costs, net

 

1,487,009

 

1,199,490

 

Management fee receivable

 

227,917

 

227,581

 

Other assets

 

59,096

 

94,823

 

Receivable from unsettled trades

 

 

59,511

 

Total assets

 

$

125,896,650

 

$

125,490,625

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Revolving credit facility

 

$

14,850,000

 

$

20,000,000

 

Payable for unsettled trades

 

 

4,072,500

 

Management and incentive fees payable

 

4,051,383

 

2,885,670

 

Accounts payable and accrued expenses

 

1,074,176

 

704,949

 

Interest and credit facility fees payable

 

186,930

 

53,262

 

Due to manager

 

292,202

 

394,094

 

Total liabilities

 

$

20,454,691

 

$

28,110,475

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

 

Common stock, par value $.001, 100,000,000 common shares authorized, 3,876,661 and 3,876,661 common shares issued and outstanding, respectively

 

$

3,877

 

$

3,877

 

Capital in excess of par value

 

161,644,426

 

161,644,426

 

Distribution in excess of net investment income

 

(11,333,032

)

(13,920,068

)

Accumulated net realized loss from investments and derivatives

 

(48,558,419

)

(48,874,767

)

Net unrealized appreciation (depreciation) on investments and derivatives

 

3,685,107

 

(1,473,318

)

Total Net Assets

 

105,441,959

 

97,380,150

 

 

 

 

 

 

 

Total liabilities and Net Assets

 

$

125,896,650

 

$

125,490,625

 

 

 

 

 

 

 

NET ASSET VALUE PER SHARE

 

$

27.20

 

$

25.12

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Operations

 

 

 

For the three months ended August 31

 

For the six months ended August 31

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

Interest from investments

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

$

2,419,758

 

$

1,836,643

 

$

4,484,743

 

$

3,334,532

 

Control investments

 

1,094,681

 

1,050,486

 

2,140,466

 

1,940,063

 

Total interest income

 

3,514,439

 

2,887,129

 

6,625,209

 

5,274,595

 

Interest from cash and cash equivalents

 

1,791

 

1,100

 

4,637

 

5,248

 

Management fee income

 

500,225

 

503,803

 

1,000,065

 

1,010,171

 

Other income

 

146,834

 

145,908

 

152,560

 

145,908

 

Total investment income

 

4,163,289

 

3,537,940

 

7,782,471

 

6,435,922

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

Interest and credit facility financing expenses

 

653,025

 

309,911

 

1,278,728

 

679,821

 

Base management fees

 

504,802

 

411,468

 

963,610

 

809,932

 

Professional fees

 

293,483

 

632,237

 

639,322

 

925,865

 

Administrator expenses

 

250,000

 

240,000

 

500,000

 

480,000

 

Incentive management fees

 

869,403

 

(1,058,378

)

1,299,674

 

(336,653

)

Insurance

 

130,308

 

146,699

 

260,615

 

303,681

 

Directors fees and expenses

 

51,000

 

51,000

 

102,000

 

102,000

 

General & administrative

 

97,022

 

82,859

 

148,363

 

169,213

 

Other expense

 

 

1,880

 

3,123

 

3,190

 

Total expenses

 

2,849,043

 

817,676

 

5,195,435

 

3,137,049

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME

 

1,314,246

 

2,720,264

 

2,587,036

 

3,298,873

 

 

 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

 

 

 

 

 

 

 

 

 

Net realized gain (loss) from investments

 

268,718

 

(105,967

)

447,348

 

(7,959

)

Net realized loss from derivatives

 

 

 

(131,000

)

 

Net unrealized appreciation (depreciation) on investments

 

3,288,078

 

(4,337,470

)

5,027,500

 

705,665

 

Net unrealized appreciation (depreciation) on derivatives

 

 

(4,732

)

130,925

 

(15,274

)

Net gain (loss) on investments

 

3,556,796

 

(4,448,169

)

5,474,773

 

682,432

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

4,871,042

 

$

(1,727,905

)

$

8,061,809

 

$

3,981,305

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

 

$

1.26

 

$

(0.53

)

$

2.08

 

$

1.22

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED

 

3,876,661

 

3,277,077

 

3,876,661

 

3,277,077

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Schedule of Investments

 

August 31, 2012

(unaudited)

 

Company (a)

 

Industry

 

Investment Interest
Rate/Maturity

 

Principal/
Number of Shares

 

Cost

 

Fair Value ( c )

 

% of
Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments - 84.0% (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coast Plating, Inc. (d)

 

Aerospace

 

First Lien Term Loan 11.75% Cash, 9/13/2014

 

$

2,550,000

 

$

2,550,000

 

$

2,550,000

 

2.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coast Plating, Inc. (d)

 

Aerospace

 

First Lien Term Loan 12.50% Cash, 9/13/2014

 

$

950,000

 

950,000

 

950,000

 

0.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Aerospace

 

 

 

3,500,000

 

3,500,000

 

3.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Truck Protection Co., Inc. (d), (h)

 

Automotive

 

Common Stock

 

589

 

500,000

 

499,998

 

0.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Truck Protection Co., Inc. (d)

 

Automotive

 

First Lien Term Loan, 15.50% Cash, 8/10/2017

 

$

5,500,000

 

5,500,000

 

5,500,000

 

5.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Take 5 Oil Change, L.L.C. (d)

 

Automotive

 

First Lien Term Loan 9.00% Cash, 11/28/2016

 

$

6,400,000

 

6,400,000

 

6,400,000

 

6.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Take 5 Oil Change, L.L.C. (d), (h)

 

Automotive

 

Common Stock

 

7,128

 

712,800

 

712,800

 

0.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Automotive

 

 

 

13,112,800

 

13,112,798

 

12.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Cabinets Holdings (d), (h)

 

Building Products

 

Common Stock Voting A-1

 

2,535

 

220,900

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Cabinets Holdings (d), (h)

 

Building Products

 

Common Stock Voting B-1

 

1,600

 

139,424

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy Cabinets, Inc. (d)

 

Building Products

 

First Lien Term Loan 7.25% (1.00% Cash/6.25% PIK), 5/3/2014

 

$

321,977

 

321,977

 

255,971

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Building Products

 

 

 

682,300

 

255,971

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sourcehov LLC (d)

 

Business Services

 

Second Lien Term Loan 10.50% Cash, 4/30/2018

 

$

3,000,000

 

2,614,545

 

2,666,400

 

2.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Business Services

 

 

 

2,614,545

 

2,666,400

 

2.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C.H.I. Overhead Doors, Inc. (CHI) (d)

 

Consumer Products

 

First Lien Term Loan 7.25% Cash, 8/17/2017

 

$

5,000,000

 

4,950,473

 

4,983,500

 

4.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Group International, Inc. (d)

 

Consumer Products

 

First Lien Term Loan 11.00% Cash, 5/24/2016

 

$

3,960,000

 

3,900,249

 

3,960,000

 

3.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Holdings, Inc. (d)

 

Consumer Products

 

Unsecured Notes 10.00% PIK, 6/14/2019

 

$

1,799,479

 

1,799,479

 

1,097,682

 

1.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Targus Holdings, Inc. (d), (h)

 

Consumer Products

 

Common Stock

 

62,413

 

566,765

 

4,593,597

 

4.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Consumer Products

 

 

 

11,216,966

 

14,634,779

 

13.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CFF Acquisition LLC (d)

 

Consumer Services

 

First Lien Term Loan 7.50% Cash, 7/31/2015

 

$

2,518,391

 

2,336,773

 

2,417,907

 

2.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PrePaid Legal Services, Inc. (d)

 

Consumer Services

 

First Lien Term Loan 11.00% Cash, 12/31/2016

 

$

3,000,000

 

2,928,703

 

2,949,600

 

2.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Consumer Services

 

 

 

5,265,476

 

5,367,507

 

5.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M/C Acquisition Corp., LLC (d)

 

Education

 

First Lien Term Loan 6.75% (4.75% Cash/2.00% PIK), 12/31/2012

 

$

2,791,016

 

1,637,082

 

447,679

 

0.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M/C Acquisition Corp., LLC (d), (h)

 

Education

 

Class A Common Stock

 

544,761

 

30,242

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Education

 

 

 

1,667,323

 

447,679

 

0.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group Dekko, Inc. (d)

 

Electronics

 

Second Lien Term Loan 10.50% Cash, 5/1/2013

 

$

7,725,553

 

7,725,553

 

7,184,764

 

6.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Electronics

 

 

 

7,725,553

 

7,184,764

 

6.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USS Parent Holding Corp. (d), (h)

 

Environmental

 

Non Voting Common Stock

 

765

 

133,002

 

106,887

 

0.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USS Parent Holding Corp. (d), (h)

 

Environmental

 

Voting Common Stock

 

17,396

 

3,025,798

 

2,431,676

 

2.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Environmental

 

 

 

3,158,800

 

2,538,563

 

2.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DS Water of America, Inc. (d)

 

Food and Beverage

 

First Lien Term Loan 10.50% Cash, 8/29/2017

 

$

3,990,000

 

4,017,571

 

4,099,725

 

3.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HOA Restaurant Group, LLC. (d)

 

Food and Beverage

 

Senior Secured Notes 11.25% Cash, 4/1/2017

 

$

4,000,000

 

3,888,557

 

3,800,000

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TM Restaurant Group LLC (d)

 

Food and Beverage

 

First Lien Term Loan 7.75% Cash, 7/16/2017

 

$

3,000,000

 

2,978,067

 

2,994,300

 

2.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Food and Beverage

 

 

 

10,884,196

 

10,894,025

 

10.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maverick Healthcare Group (d)

 

Healthcare Services

 

First Lien Term Loan 10.75% Cash, 12/31/2016

 

$

4,925,000

 

4,851,670

 

4,925,000

 

4.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Healthcare Services

 

 

 

4,851,670

 

4,925,000

 

4.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

McMillin Companies LLC (d), (h)

 

Homebuilding

 

Senior Secured Notes 0% Cash, 12/31/2013

 

$

550,000

 

524,311

 

289,740

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Homebuilding

 

 

 

524,311

 

289,740

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capstone Logistics, LLC (d)

 

Logistics

 

First Lien Term Loan 7.50% Cash, 9/16/2016

 

$

990,278

 

977,771

 

990,278

 

0.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capstone Logistics, LLC (d)

 

Logistics

 

First Lien Term Loan 13.50% Cash, 9/16/2016

 

$

4,000,000

 

3,949,481

 

4,000,000

 

3.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Worldwide Express Operations, LLC (d)

 

Logistics

 

First Lien Term Loan 7.50% Cash, 6/30/2013

 

$

6,563,883

 

6,397,438

 

6,441,139

 

6.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Logistics

 

 

 

11,324,690

 

11,431,417

 

10.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elyria Foundry Company, LLC (d)

 

Metals

 

Senior Secured Notes 17.00% (13.00% Cash/4.00% PIK), 3/1/2013

 

$

7,577,025

 

7,470,358

 

6,561,704

 

6.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Elyria Foundry Company, LLC (d), (h)

 

Metals

 

Warrants to Purchase Limited Liability Company Interests

 

3,000

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Metals

 

 

 

7,470,358

 

6,561,704

 

6.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Communications, Inc. (d)

 

Publishing

 

Unsecured Notes 8.60% PIK, 1/14/2020

 

$

2,493,218

 

2,018,711

 

847,694

 

0.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Communications, Inc. (d), (h)

 

Publishing

 

Common Stock

 

211,429

 

 

207,200

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Penton Media, Inc. (d)

 

Publishing

 

First Lien Term Loan 5.00% Cash, 8/1/2014

 

$

4,838,963

 

4,387,279

 

3,694,064

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Publishing

 

 

 

6,405,990

 

4,748,959

 

4.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

90,404,979

 

88,559,307

 

84.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Control investments - 25.7% (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP (g), (h)

 

Financial Services

 

100% General Partnership Interest

 

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Investment Corp. CLO 2007 LTD. (d), (e), (g)

 

Structured Finance Securities

 

Other/Structured Finance Securities 20.78%, 1/21/2020

 

$

30,000,000

 

21,567,800

 

27,098,581

 

25.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control investments

 

 

 

 

 

 

 

21,567,800

 

27,098,581

 

25.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 0.0% (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP (f), (h)

 

Financial Services

 

6.24% Limited Partnership Interest

 

 

 

 

0.0

%

Sub Total Affiliate investments

 

 

 

 

 

 

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS - 109.7% (b)

 

 

 

 

 

 

 

$

111,972,779

 

$

115,657,888

 

109.7

%

 

5



Table of Contents

 


(a)  All of our equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except GSC Investment Corp. CLO 2007 Ltd. and GSC Partners CDO GP III, LP.

(b)  Percentages are based on net assets of $105,441,959 as of August 31, 2012.

(c)  Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors. (see Note 3 to the consolidated financial statements).

(d)  These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).

(e) 20.78% represents the modeled effective interest rate that is expected to be earned over the life of the investment.

(f)  As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

 

 

 

 

 

 

 

 

 

Interest

 

Management

 

Net Realized

 

Net Unrealized

 

Company

 

Purchases

 

Redemptions

 

Sales (cost)

 

Income

 

fee income

 

gains/(losses)

 

gains/(losses)

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(g)  As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

 

 

 

 

 

 

 

 

Interest

 

Management

 

Net Realized

 

Net Unrealized

 

Company

 

Purchases

 

Redemptions

 

Sales (cost)

 

Income

 

fee income

 

gains/(losses)

 

gains/(losses)

 

GSC Investment Corp. CLO 2007 LTD.

 

$

 

$

 

$

 

$

2,140,466

 

$

1,000,065

 

$

 

$

3,224,884

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

(h) Non-income producing at August 31, 2012.

 

6



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Schedule of Investments

 

February 29, 2012

 

Company(a)

 

Industry

 

Investment Interest Rate/Maturity

 

Principal/
Number of
Shares

 

Cost

 

Fair Value(c)

 

% of
Net
Assets

 

Non-control/Non-affiliated investments—71.4%(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

Coast Plating, Inc.(d)

 

Aerospace

 

First Lien Term Loan 11.77% Cash, 9/13/2014

 

$

2,550,000

 

$

2,550,000

 

$

2,550,000

 

2.6

%

Coast Plating, Inc.(d)

 

Aerospace

 

First Lien Term Loan 12.52% Cash, 9/13/2014

 

$

950,000

 

950,000

 

950,000

 

1.0

%

 

 

 

 

Total Aerospace

 

 

 

3,500,000

 

3,500,000

 

3.6

%

Legacy Cabinets Holdings(d)(h)

 

Building Products

 

Common Stock Voting A-1

 

2,535

 

220,900

 

 

0.0

%

Legacy Cabinets Holdings(d)(h)

 

Building Products

 

Common Stock Voting B-1

 

1,600

 

139,424

 

 

0.0

%

Legacy Cabinets, Inc.(d)

 

Building Products

 

First Lien Term Loan 7.25% (1.00% Cash/6.25% PIK), 5/3/2014

 

$

312,198

 

312,198

 

221,629

 

0.2

%

 

 

 

 

Total Building Products

 

 

 

672,522

 

221,629

 

0.2

%

Targus Group International, Inc.(d)

 

Consumer Products

 

First Lien Term Loan 11.00% Cash, 5/24/2016

 

$

3,980,000

 

3,911,828

 

3,944,976

 

4.1

%

Targus Holdings, Inc.(d)

 

Consumer Products

 

Unsecured Notes 10.00% PIK, 6/14/2019

 

$

1,799,479

 

1,799,479

 

963,621

 

1.0

%

Targus Holdings, Inc.(d)(h)

 

Consumer Products

 

Common Stock

 

62,413

 

566,765

 

2,675,645

 

2.7

%

 

 

 

 

Total Consumer Products

 

 

 

6,278,072

 

7,584,242

 

7.8

%

CFF Acquisition LLC(d)

 

Consumer Services

 

First Lien Term Loan 7.50% Cash, 7/31/2015

 

$

2,684,141

 

2,462,831

 

2,448,205

 

2.5

%

PrePaid Legal Services, Inc.(d)

 

Consumer Services

 

First Lien Term Loan 11.00% Cash, 12/31/2016

 

$

3,000,000

 

2,920,411

 

2,940,000

 

3.0

%

 

 

 

 

Total Consumer Services

 

 

 

5,383,242

 

5,388,205

 

5.5

%

M/C Acquisition Corp., LLC(d)

 

Education

 

First Lien Term Loan 10.00% (4.25% Cash/5.75% PIK), 12/31/2012

 

$

2,944,596

 

1,790,662

 

591,864

 

0.6

%

M/C Acquisition Corp., LLC(d)(h)

 

Education

 

Class A Common Stock

 

544,761

 

30,242

 

 

0.0

%

 

 

 

 

Total Education

 

 

 

1,820,904

 

591,864

 

0.6

%

Advanced Lighting Technologies, Inc.(d)

 

Electronics

 

Second Lien Term Loan 6.25% Cash, 6/1/2014

 

$

2,000,000

 

1,902,053

 

1,910,400

 

2.0

%

Group Dekko, Inc.(d)

 

Electronics

 

Second Lien Term Loan 10.50% (6.50% Cash/4.00% PIK), 5/1/2013

 

$

7,571,152

 

7,571,152

 

7,003,316

 

7.2

%

 

 

 

 

Total Electronics

 

 

 

9,473,205

 

8,913,716

 

9.2

%

USS Parent Holding Corp.(d)(h)

 

Environmental

 

Non Voting Common Stock

 

765

 

133,002

 

97,810

 

0.1

%

USS Parent Holding Corp.(d)(h)

 

Environmental

 

Voting Common Stock

 

17,396

 

3,025,798

 

2,225,180

 

2.3

%

 

 

 

 

Total Environmental

 

 

 

3,158,800

 

2,322,990

 

2.4

%

DCS Business Services, Inc.(d)

 

Financial Services

 

First Lien Term Loan 14.00% Cash, 9/30/2012

 

$

1,600,000

 

1,604,464

 

1,600,000

 

1.6

%

Big Train, Inc.(d)

 

Food and Beverage

 

First Lien Term Loan 7.75% Cash, 3/31/2012

 

$

1,406,768

 

1,389,640

 

1,368,785

 

1.4

%

HOA Restaurant Group, LLC.(d)

 

Food and Beverage

 

Senior Secured Notes 11.25% Cash, 4/1/2017

 

$

4,000,000

 

3,880,000

 

3,880,000

 

4.0

%

 

 

 

 

Total Food and Beverage

 

 

 

5,269,640

 

5,248,785

 

5.4

%

Maverick Healthcare Group(d)

 

Healthcare Services

 

First Lien Term Loan 10.75% Cash, 12/31/2016

 

$

4,950,000

 

4,867,725

 

4,824,270

 

5.0

%

McMillin Companies LLC(d)(h)

 

Homebuilding

 

Senior Secured Notes 0% Cash, 12/31/2013

 

$

550,000

 

511,952

 

288,915

 

0.3

%

Capstone Logistics, LLC(d)

 

Logistics

 

First Lien Term Loan 7.50% Cash, 9/16/2016

 

$

997,118

 

982,954

 

997,118

 

1.0

%

Capstone Logistics, LLC(d)

 

Logistics

 

First Lien Term Loan 13.50% Cash, 9/16/2016

 

$

4,000,000

 

3,943,183

 

4,000,000

 

4.1

%

Worldwide Express Operations, LLC(d)

 

Logistics

 

First Lien Term Loan 7.50% Cash, 6/30/2013

 

$

6,680,276

 

6,412,355

 

6,103,100

 

6.3

%

 

 

 

 

Total Logistics

 

 

 

11,338,492

 

11,100,218

 

11.4

%

Sabre Industries, Inc(d)

 

Manufacturing

 

Senior Unsecured Loan 15.00% (12.00% Cash/3.00% PIK), 6/6/2016

 

$

6,000,000

 

5,852,741

 

6,000,000

 

6.2

%

Elyria Foundry Company, LLC(d)

 

Metals

 

Senior Secured Notes 17.00% (13.00% Cash/4.00% PIK), 3/1/2013

 

$

7,428,456

 

7,224,787

 

6,537,041

 

6.7

%

Elyria Foundry Company, LLC(d)(h)

 

Metals

 

Warrants to Purchase Limited Liability Company Interests

 

3,000

 

 

 

0.0

%

 

 

 

 

Total Metals

 

 

 

7,224,787

 

6,537,041

 

6.7

%

Network Communications, Inc.(d)

 

Publishing

 

Unsecured Notes 8.60% PIK, 1/14/2020

 

$

2,422,095

 

1,924,577

 

1,044,892

 

1.0

%

Network Communications, Inc.(d)(h)

 

Publishing

 

Common Stock

 

211,429

 

 

691,373

 

0.7

%

Penton Media, Inc.(d)

 

Publishing

 

First Lien Term Loan 5.00% (4.00% Cash/ 1.00% PIK), 8/1/2014

 

$

4,839,526

 

4,280,599

 

3,655,294

 

3.8

%

 

 

 

 

Total Publishing

 

 

 

6,205,176

 

5,391,559

 

5.5

%

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

73,161,722

 

69,513,434

 

71.4

%

Control investments—26.5%(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP(g)(h)

 

Financial Services

 

100% General Partnership Interest

 

 

 

 

0.0

%

GSC Investment Corp. CLO 2007 LTD.(d)(e)(g)

 

Structured Finance Securities

 

Other/Structured Finance Securities 17.38%, 1/21/2020

 

$

30,000,000

 

23,540,517

 

25,846,414

 

26.5

%

Sub Total Control investments

 

 

 

 

 

 

 

23,540,517

 

25,846,414

 

26.5

%

Affiliate investments—0.0%(b)

 

 

 

 

 

 

 

 

 

 

 

 

 

GSC Partners CDO GP III, LP(f)(h)

 

Financial Services

 

6.24% Limited Partnership Interest

 

 

 

 

0.0

%

Sub Total Affiliate investments

 

 

 

 

 

 

 

 

 

0.0

%

TOTAL INVESTMENTS—97.9%(b)

 

 

 

 

 

 

 

$

96,702,239

 

$

95,359,848

 

97.9

%

 

7



Table of Contents

 

 

Outstanding interest rate cap

 

Interest
rate

 

Maturity

 

Notional

 

Cost

 

Fair
Value

 

% of
Net
Assets

 

Interest rate cap

 

8.0

%

2/9/2014

 

$

19,591,837

 

$

87,000

 

$

54

 

0.0

%

Interest rate cap

 

8.0

%

11/30/2013

 

10,332,000

 

44,000

 

21

 

0.0

%

Total Outstanding interest rate cap

 

 

 

 

 

 

 

$

131,000

 

$

75

 

0.0

%

 


*

Amounts to less than 0.05%

 

 

(a)

All of our equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except GSC Investment Corp. CLO 2007 Ltd. and GSC Partners CDO GP III, LP.

 

 

(b)

Percentages are based on net assets of $97,380,150 as of February 29, 2012.

(c)

Because there is no readily available market value for these investments, the fair value of these investments is approved in good faith by our board of directors. (see Note 3 to the consolidated financial statements).

 

 

(d)

These securities are pledged as collateral under a senior secured revolving credit facility (see Note 6 to the consolidated financial statements).

 

 

(e)

17.38% represents the modeled effective interest rate that is expected to be earned over the life of the investment.

 

 

(f)

As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

 

 

 

Company

 

Purchases

 

Redemptions

 

Sales
(cost)

 

Interest
Income

 

Management
fee income

 

Net Realized
gains/(losses)

 

Net
Unrealized
gains/(losses)

 

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

(g)

As defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

 

 

 

Company

 

Purchases

 

Redemptions

 

Sales
(cost)

 

Interest
Income

 

Management
fee income

 

Net Realized
gains/(losses)

 

Net
Unrealized
gains/(losses)

 

 

GSC Investment Corp. CLO 2007 LTD.

 

$

 

$

 

$

 

$

4,198,007

 

$

2,011,516

 

$

 

$

6,938,209

 

 

GSC Partners CDO GP III, LP

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

(h)

Non-income producing at February 29, 2012.

 

8



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Changes in Net Assets

 

 

 

For the six months ended
August 31, 2012

 

For the six months ended
August 31, 2011

 

 

 

(unaudited)

 

(unaudited)

 

INCREASE FROM OPERATIONS:

 

 

 

 

 

Net investment income

 

$

2,587,036

 

$

3,298,873

 

Net realized gain (loss) from investments

 

447,348

 

(7,959

)

Net realized loss from derivatives

 

(131,000

)

 

Net unrealized appreciation on investments

 

5,027,500

 

705,665

 

Net unrealized appreciation (depreciation) on derivatives

 

130,925

 

(15,274

)

Net increase in net assets from operations

 

8,061,809

 

3,981,305

 

 

 

 

 

 

 

Total increase in net assets

 

8,061,809

 

3,981,305

 

Net assets at beginning of period

 

97,380,150

 

86,071,454

 

Net assets at end of period

 

$

105,441,959

 

$

90,052,759

 

 

 

 

 

 

 

Net asset value per common share

 

$

27.20

 

$

27.48

 

Common shares outstanding at end of period

 

3,876,661

 

3,277,077

 

 

 

 

 

 

 

Distribution in excess of net investment income

 

$

(11,333,032

)

$

(5,620,017

)

 

See accompanying notes to consolidated financial statements.

 

9



Table of Contents

 

Saratoga Investment Corp.

 

Consolidated Statements of Cash Flows

 

 

 

For the six months ended
August 31, 2012

 

For the six months ended
August 31, 2011

 

 

 

(unaudited)

 

(unaudited)

 

Operating activities

 

 

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

 

$

8,061,809

 

$

3,981,305

 

ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES:

 

 

 

 

 

Paid-in-kind interest income

 

(539,274

)

(907,808

)

Net accretion of discount on investments

 

(481,812

)

(506,326

)

Amortization of deferred credit facility financing costs

 

212,481

 

341,488

 

Net realized (gain) loss from investments

 

(447,348

)

7,959

 

Net realized loss from derivatives

 

131,000

 

 

Net unrealized appreciation on investments

 

(5,027,500

)

(705,665

)

Net unrealized (appreciation) depreciation on derivatives

 

(130,925

)

15,274

 

Proceeds from sale and redemption of investments

 

14,466,944

 

13,488,562

 

Purchase of investments

 

(28,269,050

)

(17,568,936

)

(Increase) decrease in operating assets:

 

 

 

 

 

Cash and cash equivalents, reserve accounts

 

19,796,323

 

1,993,656

 

Interest receivable

 

(363,407

)

33,023

 

Management fee receivable

 

(336

)

2,104

 

Other assets

 

35,727

 

(96,218

)

Receivable from unsettled trades

 

59,511

 

 

Increase (decrease) in operating liabilities:

 

 

 

 

 

Payable for unsettled trades

 

(4,072,500

)

(4,900,000

)

Management and incentive fees payable

 

1,165,713

 

(874,073

)

Accounts payable and accrued expenses

 

369,227

 

(286,581

)

Interest and credit facility fees payable

 

133,668

 

(21,125

)

Due to manager

 

(101,892

)

280,198

 

NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES