Saratoga Investment reports solid Q2 2026 results with NAV growth and continued high dividend yield despite lower NII and competitive market pressures.

OPERATOR - (00:01:03)

Good morning ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's First Fiscal Second Quarter 2026 Financial Results Conference call. Please note that today's call is being recorded. During today's presentation, all parties will be in a listen only mode. Following management's prepared remarks. We will open the line for questions at this time. I will now turn the call over to Saratoga Investment Corp's Chief Financial and Chief Compliance Officer, Mr. Henry Steenkamp. Please go ahead.

Henry Steenkamp - Chief Financial and Chief Compliance Officer - (00:01:41)

Thank you. I would like to welcome everyone to Saratoga Investment Corp's fiscal second quarter 2026 earnings conference call. Today's conference call includes forward-looking statements and projections. We ask you to refer to our most recent filings with the SEC for for important factors that could cause actual results to differ materially from these forward-looking statements and projections. We do not undertake to update our forward-looking statements unless required to do so by law. Today we will be referencing a presentation during our call. You can find our fiscal second quarter 2026 shareholder presentation in the Events and Presentations section of our investor relations website. A link to our IR page is in the earnings press release distributed last night. For everyone new to our story, please note: Note that our fiscal year end is February 28th, so any reference to Q2 results reflects our August 31st quarter end period. A replay of this conference call will also be available. Please refer to our earnings press release for details. I would now like to turn the call over to our Chairman and Chief Executive Officer Christian Oberbeck who will be making a few introductory remarks.

Christian Oberbeck - Chairman and Chief Executive Officer - (00:02:52)

Thank you Henry and welcome everyone. Saratoga Investment Corporation Highlights this quarter include continued NAV growth from the previous quarter and year and NAV per share growth from the previous quarter. A strong return on equity beating the industry net originations of 22.4 million and importantly continued solid performance from the core BDC portfolio in a volatile macro environment, including the return of our Zolidge investment to accrual status, thereby reducing our non accrual investments to just one representing only 0.2% of portfolio fair value. Continuing our historical strong dividend distribution history, we announced a base dividend of $0.25 per share per month or $0.75 per share in aggregate for the third quarter of fiscal 2026. Our annualized third quarter dividend of $0.75 per share represents a 12.3% yield based on the stock price of 2441 as of October 6, 2025, offering a strong current income from an investment value standpoint. Our Q2 adjusted NII of $0.58 per share continues to reflect the impact of the past 12 month trend of decreasing levels of short term interest rates and spreads on Saratoga investments largely floating rate assets and the continued effect of the recent repayments which has contributed to the buildup of $201 million of cash as of quarter end available to be deployed accretively in investments or to repay existing debt during the quarter we continue to see very competitive market dynamics. These macro factors Our portfolio again saw multiple debt repayments in Q2. In addition to solid new originations we originated $52.2 million including three follow ons and new investments in multiple BB and BBB CLO debt securities. Our strong reputation and differentiated market positioning combined with our ongoing development of sponsor relationships continues to create attractive investment opportunities from high quality sponsors which continued post quarter end with three new portfolio company investments either closed or enclosing Inc. Q3 so far we continue to remain prudent and discerning in terms of the new commitments. In the current volatile environment, we believe Saratoga continues to be favorably situated for potential future economic opportunities as well as challenges. At the foundation of our strong operating performance is the high quality nature and resilience of our $995.3 million portfolio in the current environment. With all four historically challenged portfolio company situations resolved, one of these restructurings, Zolidge is seeing improved financial performance and has been returned to accrual status this quarter. Our current core non CLO portfolio was marked up by $3.9 million this quarter and the CLO and JV were marked down by 0.3 million. We also had 0.2 million of net appreciation in our new BB and BBB CLO debt investments and a further net realized gains of 0.1 million from an escrow payment on our modern campus investment resulting in fair value of the portfolio increasing by $3.8 million during the quarter. As of quarter end, our total portfolio fair value was 1.7% below cost while our core non CLO portfolio was 2.1% above cost. The overall financial performance and solid earnings power of our current portfolio reflects strong underwriting in our growing portfolio companies and sponsors in well selected industry segments. During the second quarter, our net interest margin decreased from $15.1 million last quarter to $13.1 million driven by a $2.1 million decrease in non CLO interest income. This decrease was due first, average assets decreased approximately $11 million or 1.1% to $954 million. Second, the timing of originations and repayment closings during the current and previous quarter with repayments more fully reflect and the full impact of new originations still having to flow through and third, the absolute yields on the non CLO portfolio decreasing from 11.5% to 11.3% as a result of SOFR rates resetting from earlier reductions combined with the impact of lower yielding new originations during the quarter. In addition, the full period impact of the 0.2 million shares issued through the ATM program in Q1 and the partial impact of the additional 0.4 million million shares issued in Q2 resulted in a $0.02 per share dilution to NII per share. Our overall credit quality for this quarter remains steady at 99.7% of credits rated in our highest category with now just one investment remaining on non-accrual status, Pepper palace, which has been successfully restructured representing only 0.2% and 0.3% of fair value and cost respectively, with 84.3% of our investments at quarter end in first lien debt and generally supported by strong enterprise values and balance sheets in industries that have historically performed well in stress situations, we believe our portfolio and company leverage is well structured for future economic conditions and uncertainty. As we continue to navigate the challenges posed by the current geopolitical tensions and the volatility seen in the broader underwriting and macro environment, we remain confident in our experienced management team, robust pipeline, strong leverage structure and disciplined underwriting standards to continue to steadily increase the size, quality and investment performance of our portfolio over the long term and deliver attractive risk adjusted returns to shareholders. As always and particularly in the current uncertain environment, balance sheet strength, liquidity and NAV preservation remain paramount for us. At a quarter end we maintained a substantial $407 million of investment capacity to support our portfolio companies with $136 million available through our existing SBIC 3 license, $70 million from our two revolving credit facilities and $201 million in cash. This level of cash improves our current regulatory leverage of 1 66.6% to 186.5 net leverage netting available cash against outstanding debt. Moving on to Saratoga Investments Fiscal 2026 Second Quarter Key Performance indicators as compared to the quarters ended August 31, 2024 and May 31, 2025 are our quarter end. NAV was $410.5 million, up 10.3% from $372.1 million last year and up 3.6% from $396.4 million last quarter. Our NAV per share was25.61, down from 27.07 last year and up from 2552 last quarter. Our adjusted NII was $9.1 million this quarter, down 50.1% from last year and down 10.5% from last quarter. Our adjusted NII per share was $0.58 this quarter, down 56.4% from last year and down 12.1% from last quarter. Adjusted NII yield was 9% this quarter, down from 19.7% last year and 10.3% last quarter and latest 12 months. Return on equity was 9.1% up from 5.8% last year and down slightly from 9.3 last quarter and above the industry average of 7.3%. While last year saw markdowns due to a small number of credits in our core BDC, slide 3 illustrates how our recent results have delivered an ROE of 9.1% for the last 12 months above the industry average of 7.3%. Additionally, our long term average return on equity over the past 11 years of 10.1% is well above the BDC industry average of 7%. Our long term return on equity has remained strong over the past decade plus beating the industry 8 the past 11 years and consistently positive every year. As you can see on Slide 4, our assets under management have steadily and consistently risen since we took over the BDC 15 years ago. Despite a slight pullback recently reflecting significant repayments, this quarter saw originations again outpacing repayments resulting in an increase in AUM as compared to the previous quarter. The recent AUM decline over the past year does not detract from our expectation of long term AUM growth. The quality of our credits remains strong and with just one recently restructured investment remaining on non-accrual Pepper palace, our management team is working diligently to continue this positive long term trend as we deploy our significant levels of available capital into our pipeline while at the same time being appropriately cautious in this evolving and volatile credit and economic environment. With that, I would like to now turn the call over to Henry to review our financial results as well as the composition and performance of our portfolio.

Henry Steenkamp - Chief Financial and Chief Compliance Officer - (00:12:15)

Thank you Chris. Slide 5 highlights our key performance metrics for the fiscal second quarter, most of which Chris already highlighted. Of note, the weighted average common Shares outstanding in Q2 was 15.8 million, increasing from 15.3 million and 13.7 million shares for last quarter and last year's second quarter respectively. Adjusted NII was $9.1 million this quarter, down 50.1% from last year and 10.5% from last quarter. This quarter's decrease in adjusted NII as compared to the prior quarter and prior year were both due to lower AUM and base interest rates. The decrease from the previous year's second quarter was also largely due to the non recurrence of the $7.9 million Noland investment interest income recognized last year that was previously on non-accrual. The weighted average interest rate on the core BDC portfolio of 11.3% this quarter compares to 12.6% as of last year year and 11.5% as of last quarter. The yield reduction from last year primarily reflects the SOFR base rate decreases over the past year. Total expenses this quarter, excluding interest and debt financing expenses, base management fees and incentive fees, and income and Excise taxes increased $0.3 million to $2.5 million as compared to $2.2 million last year and decreased $0.3 million from $2.8 million last quarter. This represented 0.8% of average total assets on an annualized basis unchanged from last quarter and up from 0.7% last year. Also, we have again added the KPI slides 26 through 30 in the appendix at the end of the presentation that shows our income statement and balance sheet metrics for the past two years. Slide 30 is a new slide we added last quarter comparing our non accruals to the BDC industry. You will see that our non accrual rate of 0.3% of cost is significantly lower than the industry average of 3.4%. This decreased from 0.6% last quarter due to our zolage investment returning to accrual status. This highlights the current strength in credit quality of our core BDC portfolio. Moving on to Slide 6, NAV was $410.5 million as of fiscal quarter end, a $14.1 million increase from last quarter and a $38.4 million increase from the same quarter last year. During this quarter, $11.4 million of new equity was raised at or above net asset value respectively through our ATM program program. This chart also includes our historical NAV per share which highlights how this important metric has increased 23 of the past 32 quarters, including by $0.09 this quarter. Over the long term, our net asset value has increased since 2011 and grown by $3.64 per share or 16.6% over the past eight years. On slide 7 you will see a simple reconciliation of the major changes in adjusted NII and NAV per share on a sequential quarterly basis. Starting at the top, adjusted NII per share was down $0.08 in Q2 primarily due to first, the decrease in non CLO net interest income during the quarter of $0.10 due to recent decreasing AUM and base rates and second dilution from the increased DRIP and ATM program share count of $0.02. This was partially offset by both a decrease in operating expenses of $0.02 and increases in the CLO and BB debt investments. Interest income of $0.02 on the lower half of the slide NAV per share increased by $0.09 primarily due to net realized gains and unrealized depreciation of $0.27 including deferred tax benefits partially offset by the $0.17 under earning of the dividend and a $0.01 net dilution from the ATM and DRIP programs. Slide 8 outlines the dry powder available to us as of quarter end which totaled $406.8 million. This was spread between our available cash undrawn SBA debentures and undrawn secured credit facility. This quarter end level of available liquidity allows us to grow our assets by an additional 41% without the need for external financing. With $201 million of quarter quarter end cash available and thus fully accretive to NII when deployed and $136 million of available SBA debentures with its low cost pricing also very accretive. In addition, all $296 million of our baby bonds, effectively all our 6% plus debt is callable now, creating a natural protection against potential continuing future decreasing interest rates which should allow us to protect our net interest margin if needed. These calls are also available to be used prospectively to reduce current debt. We remain pleased with our available liquidity and leverage position, including our access to diverse sources of both public and private liquidity and especially taking into account the overall conservative nature of our balance sheet and that most of our debt is long term in nature. Also, our debt is structured in such a way that we have no BDC covenants that can be stressed during volatile times, especially important in the current economic environment. Now I would like to move on to slides 9 through 12 and review the composition and yield of our Investment portfolio. Slide 9 highlights that we have $995 million of AUM at fair value and this is invested in 44 portfolio companies, one CLO fund, one joint venture and numerous new BB and BBB CLOs debt investments. Our first lien percentage is 84.3% of our total investments of which 22.0% is in first lien last out positions on slide 10 you can see how the yield on our core BDC assets excluding our CLO investments has changed over time, especially this past year, reflecting the recent decreases to interest rates. This quarter our core BDC Yield decreased to 11.3% from last quarter's 11.5%, reflecting further core base rate reductions. The CLO Yield decreased to 11.8% from 13.7% last quarter, reflecting the inclusion of the new BB and BBB CLO debt investments to this category that have a yield in the 8 to 10% range. Slide 11 shows how our investments are diversified through primarily the US and on slide 12 you can see the industry breadth and diversity that our portfolio represents spread over 39 distinct industries. In addition to our investments in the CLO JV and Double B and BBB CLO debt securities which are included as structured finance securities securities. Moving on to slide 13, 7.9% of our investment portfolio consists of equity interest which remain an important part of our overall investment strategy. This slide shows that for the past 13 fiscal years we had a combined $43 million of net realized gains from the sale of equity interest or sale or early redemption of other investments. This long term realized gain performance highlights our portfolio. Credit quality has helped grow our NAV and is reflected in our healthy long term roe. That concludes my financial and portfolio review. Our Chief Investment Officer Michael Grishous will now provide an overview of the investment market.

Michael Grishous - Chief Investment Officer - (00:20:17)

Thank you Henry. Today I will give an update on the market since we last spoke in July and then comment on our current portfolio performance and investment strategy. Year to date, deal volumes in our market have been down significantly as compared to 2024 and are down further still as compared to 2021 through 2023. We believe that MA activity will invariably revert to historical levels, but that pickup in deal volume appears to be postponed for the time being, although the commencement of decreasing rates might help with that. The combination of historically low MA volume in the lower middle market and an abundant supply of capital is causing spreads to tighten and leverage to remain full as lenders compete to win deals, especially premium ones. Market dynamics are at their most competitive level since the pandemic. We've also experienced repayment activity from some of our lower leveraged loans being refinanced on more favorable terms. The historically low deal volumes we're experiencing has made it more difficult to find quality new platform investments than in prior periods, and with some viable concerns about the longevity of the current issuer friendly environment due to both market driven and macroeconomic factors, we remain vigilant in our underwriting. As we noted on last quarter's call, this may naturally prompt the question of what is our approach to operating in this difficult asset deployment environment. In summary, first, stay disciplined on asset selection. Second, invest in and greatly expand our business development efforts in a market that is still largely underpenetrated by us and third, continue to support our existing healthy portfolio companies as they pursue growth. The relationships and overall presence we've built in the marketplace, combined with our ramped up business development initiatives, give us confidence in our ability to achieve healthy portfolio growth in a manner that we expect to be accretive to our shareholders in the long run. Before leaving this topic, I'd like to reiterate that we continue to believe that the lower middle market is the best place to be in terms of capital deployment as compared to the larger end of the middle market. The due diligence we're able to provide when evaluating an investment is much more robust. The capital structures are generally more conservative with less leverage and more equity, the legal protections and covenant features in our documents are considerably stronger, and our ability to actively manage our portfolio through ongoing interaction with management and ownership is greater. As a result, we continue to believe that the lower middle market offers the best risk adjusted returns and and our track record of realized returns reflects this. Additionally, during this past quarter we continued to invest in Multiple different CLO BB and BBB securities across eight different CLO managers for a total notional amount of $26.3 million. These investments have performed well through numerous economic cycles in the past, experiencing very low long term default rates while also providing enhanced yields relative to comparably rated corporate debt securities. We anticipate third party managed clobbs and to a lesser extent CLO Junior bbsbs will play an increased role in our investment portfolio going forward and will also allow us to take advantage of dislocations in the liquid loan and high yield credit markets. Now our underwriting bar remains high as usual in a very tough market, yet we continue to find opportunities to deploy capital. As seen on slide 14. Our more recent performance has been characterized by continued asset deployment to existing portfolio companies as demonstrated with 13 follow ons in calendar year 2025 thus far and we have invested in three new platform investments this calendar year as well as overall, our deal flow is increasing as our business development efforts continue to ramp up. Our consistent ability to generate new investments over the long term despite ever changing and increasingly competitive market dynamics is a strength of ours. Portfolio management continues to be critically important and we remain actively engaged with our portfolio companies and in close contact with our management teams. During the quarter, our Zolidge investment returned to ACCRUAL status reflecting its improved financial performance, leaving just Pepper palace on non accrual, although we are still actively managing both. As discussed in previous quarters, this is a significantly positive development as now only 0.2% and 0.3% of the portfolio at fair value and cost respectively are on non accrual status. In general, our portfolio companies are healthy and the fair value of our core Portfolio Our core BDC portfolio is 2.1% above cost. 84% of our portfolio is in first lien debt and generally supported by strong enterprise values in industries that have historically performed well in stress situations. We have no direct energy or commodities exposure. In addition, the majority of our portfolio is comprised of businesses that produce a high degree of recurring revenue and have historically demonstrated strong revenue retention. Looking at average leverage on this slide, you can see that industry debt multiples move closer to 6x with unitranche in the mid 5s. Total leverage for our overall portfolio is 5.34 times excluding Pepper Palace. Now slide 15 provides more data on our deal flow. As you can see, the top of our deal pipeline is significantly up from the end of the calendar year 2024 despite the current M and A activity in the lower middle market remaining low. This recent increase of deal sourced is as a result of our recent business development initiatives with 20 of our of the 51 term sheets issued over the last 12 months being for deals that came from new relationships. Overall, the significant progress we've made in building broader and deeper relationships in the marketplace is noteworthy because it strengthens the dependability of our deal flow and reinforces our ability to remain highly selective as we rigorously screen opportunities to execute on the best investments. Our originations this quarter totaled $52.2 million consisting of three follow on investments totaling $25.9 million and BB&BB CLO debt investments of $26.3 million. Subsequent to quarter end we closed or currently have been closing in our core BDC portfolio approximately $42.7 million of new originations in three new portfolio companies and two follow ons including delayed draws. Two of the three new portfolio companies are with new relationships. As you can See On Slide 16, our overall portfolio credit quality remains solid as demonstrated by the actions taken and outcomes achieved on the non accrual and watch list credits we had over the past year. Our team remains focused on deploying capital and strong business models where we are confident that under all reasonable scenarios the enterprise value of the businesses will sustainably exceed the last dollar of our investment. Our approach and underwriting strategy has always been focused on being thorough and cautious at the same time. Since our management team began working together 15 years ago, we we've invested $2.34 billion in 122 portfolio companies and have had just three realized economic losses on these investments. Over that same time frame, we've successfully exited 84 of those investments, achieving gross unlevered realized returns of 14.9% on $1.29 billion of realizations. The weighted average return on our exits this quarter were consistent with our track record at around 14%. Even taking into account the recent write downs of a few discrete credits, our combined realized and unrealized returns on all capital invested equals 13.5%. Total realized gains year to date were $3 million. We think this performance profile is particularly attractive for a portfolio predominantly constructed with first lien senior debt. As mentioned, we have now only one investment on non accrual. Although Pepper palace has been restructured, we're still classifying it as red with a fair value of $1.8 million. Pepper palace continues to be managed actively with several initiatives underway. In addition, during the quarter our overall course non CLO portfolio was marked up by 3 $3.9 million of net appreciation, including Zolage and Pepper palace, reflecting the strength of the overall portfolio. Our overall investment approach has yielded exceptional realized returns and recovery of our invested capital and our long term performance remains strong as seen by our track record on this slide. And moving on to slide 17, you can see our second SBIC license is fully funded and deployed, although there is cash available there to invest in follow ons and we are currently ramping up our new SBIC3 license with $136 million of lower cost undrawn debentures available, allowing us to continue to support us small businesses both new and existing. This concludes my review of the market and I'd like to turn the call.

Chris - (00:30:41)

Back over to our CEO Chris thank you Mike. As outlined on Slide 18, our latest dividend of $0.75 per share in aggregate for the first quarter ended August 31, 2025 was paid in three monthly increments of $0.25. Recently, we declared that same level of $0.75 for the quarter ending November 30, 2025, marking the third quarter of our new dividend payment structure. The Board of Directors will continue to evaluate the dividend level on at least a quarterly basis considering both company and general economic factors, including the current interest rate, macro environment's impact on our earnings. Moving to Slide 19, our total return for the last 12 months which includes both capital appreciation and dividends, has generated total returns of 22% beating the BDC index's 4% for the same period by over five times. Our longer term performance is outlined on the next slide 20. Also, our five year and three year returns both place us above the BDC Index and since Saratoga took over management of the BDC in 2010, our total return has been almost three times the industry's at 862% versus the industry's 291%. On slide 21 you can further see our last 12 months performance placed in the context of the broader industry and specific to certain key performance metrics. We continue to focus on our long term metrics such as return on equity, NAV per share, NII yield and dividend growth and coverage, all of which reflect the value of our shareholders are receiving. While NAV per share growth and dividend coverage are lagging this past year, this is largely due to last year's two discounted discrete non accrual investments previously discussed. In addition, we've had significant recent repayments of successful investments that have reduced this year's fiscal year's, this fiscal year's NII thus far and resulted in healthy levels of cash available for deployment. In this volatile macro environment, we will be prudent in deploying our significant available capital into strong credit opportunities that meet our high underwriting standards. Our focus remains low long term. We will also continue to be we also continue to be one of the few BDCs to have grown NAV accretively over the long term with our long term return on equity at 1.5 times the industry average and latest 12 month return on equity also beating the industry by 180 basis points. Moving on to slide 22, all of our initiatives discussed on this call are designed to make Saratoga Investment a leading BDC that is attractive to the capital markets community. We believe that our differentiated performance characteristics outlined on this slide will help drive the size and quality of our investor base, including adding more institutions. These differentiating characteristics, many previously discussed, include maintaining one of the highest levels of management ownership in the industry at 10.8%, ensuring we are strongly aligned with our shareholders. Looking ahead on slide 23 while geopolitical tensions and macroeconomic uncertainty remain ongoing factors, we are encouraged by the health and resilience of our portfolio and the continued strength of our pipeline. Backed by our experienced management team, disciplined underwriting and solid balance sheet, we are well positioned to further expand the size and quality of our portfolio, drive consistent investment performance and and deliver attractive risk adjusted returns for our shareholders over the long term, recognizing the challenges posed by the ongoing tariff discussions and the volatility seen in the broader macro environment. We also believe that our strong balance sheet capital structure and liquidity places us in a strong position to successfully address these types of uncertainties. In closing, I would again like to thank all of our shareholders for their ongoing support and I would now like to open the call for questions.

OPERATOR - (00:34:39)

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Eric Zwick from Lucid Capital Markets.

Eric Zwick - Equity Analyst - (00:35:08)

Thanks. Good morning everyone. Wanted to first say I appreciate the slides 19 through 21 where you show some comparisons between your performance and peers. And looking at slide 21, one metric that kind of stands out or maybe you are currently a little bit below the peer mean is just on the dividend coverage. And I know, Chris, you kind of addressed some of the commentary there about some of the factors that have impact. So just kind of curious from your perspective, given the outlook for some additional headwinds, from the outlook for lower short term rates, what levers and strategies do you feel are the easiest for you to pull at this point to potentially. Improve the dividend coverage?

Chris - (00:35:52)

And how much of a priority is that at this time? Well, I think that's a very important question, something that we're evaluating at all times here. I think there's like a longer term and a shorter term perspective on everything in life and this in particular. And I think if you look at the dynamics of our portfolio, I think one thing that we've done, we're proud of doing well is the solidity of the portfolio performance. And now we're back on an increasing navigation. And I think that contrasts with a lot of what's going on in private credit generally. There's a lot of deterioration and I think if you look at macro discussions of, you know, private credit these days, there's lots of, you know, lots of concern. There's sort of like a grinding, you know, different numbers are out there, 4 or 5% losses, grinding through the system, you know, higher interest rates, all that type of thing. So we've been able to construct a portfolio that's kind of avoided those major problems. And so that has been project number one for us was making sure we have a super strong portfolio, consistently strong credit underwriting. I think in terms of other macro factors, I Think everyone's quite aware that the M and A environment has been quite muted for the last few years. And so the supply of private credit opportunities is just not as large as it has been now. The backlog of future MA has increased a lot, but just hasn't happened.

Eric Zwick - Equity Analyst - (00:37:31)

Right.

Chris - (00:37:31)

And so a lot of the, A lot of. So there's been a lot of refinancing activity and there's been a lot of new money coming into the business. And so, you know, we have found that, you know, putting money to work at our credit standards and underwriting standards, you know, has been, you know, a little more challenging than it has been in other years. But that doesn't deter us from maintaining our standards. And I think, you know, we have, we've got an enormous pipeline and we're looking at lots and lots of deals and our ability to deploy capital could turn very quickly. I mean, we have, you know, you know, a slightly higher hit rate and we could deploy a fair amount of capital, you know, given all the things that we see right now. So I think, as Mike had mentioned, we are seeing an increase in deal flow and an increase in MA and all those type of things. So we may be coming out of this sort of highly muted M and A environment. And so we feel confident that we will be able to deploy our capital. And we do have 400 million plus available, so we can grow 40 plus percent of our assets, you know, inside the four corners of our current financial capability. We don't have to raise any outside money to be able to do that. So we're very well positioned. But we don't want to, for short term considerations, compromise our underwriting standards. When we feel like we're going to get there, we're going to get to the right place. And I think if you look at, if we deploy a good chunk of that 400 million going forward, we're going to have, we're going to cover our dividend. It's not going to be a major issue. The other element that's kind of run through and we've repeated it a lot with our investor base is we've had a lot of repayments and repayments are the hallmark of successful investing.

Eric Zwick - Equity Analyst - (00:39:28)

Right.

Chris - (00:39:29)

And so when the money comes back, we can't control the lumpiness of it coming back. And it's just come back a couple pretty large numbers recently. And so that's created a little more of a headwind in terms of our net originations. But we're still originating and we're actually, I mean, I think Mike, you want to talk about the pipeline? I mean, our pipeline is now very robust.

Eric Zwick - Equity Analyst - (00:39:51)

Yeah.

Mike - (00:39:52)

Let me just more broadly address your question as well, just to add to what Chris had mentioned. You know, the marketplace right now is incredibly tough, and it's mostly driven by the fact that M and A volume is down considerably relative to historical levels at the very same time that there's a lot of capital on the sidelines. And so what happens is when the quality asset comes to market, people clamor to provide capital to those businesses. And there's three things that we're witnessing there. And historically, two of them are kind of naturally the case. The third one is more concerning. But the first two are that pricing comes in, so we're certainly seeing competition for price, and therefore spreads are compressing. The other thing that people are doing is they're pushing leverage a bit more, not changing so much relative to the percentage of debt in the capital structure, because the PE firms are also having to pay more for quality assets. So that's a little less concerning. But nonetheless, we are seeing more aggressive leverage profiles. But the third thing that we've seen and we've passed on some deals as a result of this more recently is that we're seeing some larger market participants coming down into our market. I don't think they understand the market that well, and they're offering terms and structures that you tend to see more in the larger market. So, you see less restrictive covenants or even much fewer covenants, and we're not going to do those deals. So we're passing on deals that have those features to them, while others are investing capital. It'll be interesting for a person like the senior management team here has been through a lot of markets. It'll be interesting to go back and look, look at how this vintage performs over time. As Chris mentioned, we're going to stay very disciplined in terms of what our investment bar is. So how are we responding to that? We are doubling down our business development efforts. And I think, as we've discussed in the past, one of the things that's so great about residing in the lower end of the middle market is there literally are hundreds of thousands of businesses out there. We know that our market presence is still very greatly underpenetrated in that market. So by investing in more business development efforts, really taking a concerted effort to get greater outreach in the marketplace, you can build your pipeline quite a bit. So to what Chris point is, you can see that in our term sheets issued, especially the number of term sheets we've issued to new relationships and that is very encouraging to us. We've invested in expanding our team. We've added a new managing director who's got a very strong track record as a very successful originator in our space as well as augmenting our team with other investment professionals, which has freed us up to really get out there and drive that pipeline. And then importantly, as I mentioned in the prepared remarks, we've got presently three new portfolio companies that are in closing and two of those three are new relationships that we didn't have just six months ago. So lots of reasons for us to feel, despite how challenging the market is, to feel confident that in the intermediate to long run we'll get the capital deployed and we'll bridge that gap between where our earnings are and where our dividend is.

Eric Zwick - Equity Analyst - (00:43:35)

That's fantastic. Color. Thank you, both of you. Maybe a quick follow up, Mike, on one of your comments about some of the larger competitors moving down market. Do you feel like that's likely a kind of shorter term trend and once M and A comes back and there's more activity and not everyone's chasing all of the smaller deals that they kind of go back up to where they're historically have operated?

Mike - (00:44:01)

I would expect that. I can't say that with certainty, but it doesn't make sense for some of the platforms that we see chasing $20 million deals or even $30 million deals. When you look at their size, it'd be like us running around chasing two or $3 million deals. It's just the math doesn't work. But I think when there's a dearth of deals in the marketplace, you'll see people sort of reach down into a lower end of the market. I've seen that historically, so I wouldn't expect at least my judgment would be I wouldn't expect to see them permanently residing in our end of the market.

Eric Zwick - Equity Analyst - (00:44:40)

Got it. And one last one for me and then I'll step away. I think slide 13 is a very powerful slide that shows kind of the cumulative gains that you guys have been able to record over time. I guess looking over kind of the near term with the 8% common equity portfolio now, any near term opportunities that you guys potentially see for additional gains or I would think, you know, M and A coming back would potentially help that prospect as well.

Chris - (00:45:05)

Well, I think the valuations that we have take into account what we think the appropriate valuation is. So I think, you know, what you see in our valuation which, which we're very proud of. I don't know how many BDCs are actually have their core portfolio above their cost basis? Ours is a good deal above its cost basis. But I wouldn't say, I would say the valuations we have now are the appropriate reflection of fair value. The other comment, just. The other point I'd just make on that, excuse me, is this has been sort of a feature of being in the small or middle market and, and what we've been able to do, which is we often take equity co investments when we do a loan and we do it kind of as systematically as we can. Now, not every deal allows us in and not every deal do we want to be in a very large scale. But in general, systematically, we're taking equity positions in many of the companies that we're underwriting. And so over time, obviously number one is not losing money on the basic loan investment. But over time those equity gains have been very, have contributed quite a bit to our NAV and NAV per share growth. And we're just going to continue that. And it's hard because it's kind of spread out in a portfolio approach. It's kind of hard to say we're going to get. We've had a couple mega gains in the past, but in general it's more of a consistent across the portfolio steady kind of realization of these positions that basically add to the portfolio performance.

Eric Zwick - Equity Analyst - (00:46:52)

Thank you. Thanks for taking all my questions.

OPERATOR - (00:46:57)

Thank you. One moment for our next question. Our next question comes from the line of Casey Alexander from Compass Point Research and Trading.

Casey Alexander - (00:47:10)

Hi, good morning and thanks for taking my questions. Mike, I'm kind of fascinated by slide 15, which you alluded to. You know, term sheets up 143%, but deals executed down 36%. I almost feel like, I feel a level of frustration related to those two statistics in that you're finding deals to bid. And the old story used to be that given lack of small differences in deal terms, people would go ahead and go with you guys because of certainty of close reputation, knowing what you would do in distressed situations. But I guess the difference between deal terms is large enough now that's kind of been put off to the side and people are just taking deals away from you because the price differential is just too much. I mean, am I reading that wrong?

Mike - (00:48:14)

Well, I think it's. There's two things. I think it still is very much the case that we win many opportunities because of our reputation in the marketplace. People are impressed with the quality of the work that we do to understand their businesses. So they get confident that we're to going, going to be very good financial partners to them. That wins us a lot of deals. It also gets us a lot of repeat business. We still have confidence in that core feature to our business model, which is reflective of really the team that we have here, which we think is best in class in the industry. Having said that, when the market gets really competitive and you start seeing at some level competitors offering much cheaper pricing, really relaxed covenant levels, things of that nature, those things aren't going to win the tie any longer. So you do certainly see some deals go away from us Now. I would add this, though. The work that we've been doing, especially more recently in, let's call it, the last six or nine months, doubling down our business development efforts and really investing significantly in growing our presence in the lower middle market, we are seeing a lot more quality opportunities and our objective is to stay away generally from more commoditized scenarios. That is the ones that you're referring to, where it's just somebody gets a pricing grid out and a terms grid and they just choose the person that's offering the best terms. Where we really shine is when.

Casey Alexander - (00:49:51)

We'Re.

Mike - (00:49:51)

Getting a chance to interact with the ownership and the management team and do a lot of things that I just mentioned. We feel confident that we'll continue to find plenty of opportunities in our market to differentiate ourselves in the way that we described. We of course need to be competitive and pricing has come down and we need to be able to respond to that. But we're not going to take the one place that we're not going to lower our bar is on credit quality. And we think that that's reflective of how our portfolio has performed historically as well as where it's sitting today.

Casey Alexander - (00:50:29)

Okay, thanks for that.

Mike - (00:50:31)

We're encouraged, I should add, we're encouraged. I did mention that we've got three new portfolio companies that are in closing right now. Two of the three of those are new relationships. So, you know, that's, I think, indicative of a lot of the efforts that we've undertaken to grow our reach in the marketplace.

Casey Alexander - (00:50:52)

Thank you. Chris. This is for you. I have, you know, been doing this for a long time and I've, I've never had an investor come to me and say, gee, I Wish My, my BDC owned a bunch of, of structured CLO securities. And in fact, the history of them in BDCs is not that great. And so I really want to understand the thought process that makes you believe that this is what your investors want.

Chris - (00:51:27)

Okay. I guess I'd Be interested in understanding maybe at another time, if you could share with us the, the bad experience in CLOS structured securities you're aware of. Are you talking about equity investments in equity of CLOS when you say that.

Casey Alexander - (00:51:45)

There have been several BDCs that have had multiple different tranches of CLOS securities, and over time it has not improved their valuation. It hasn't necessarily been that great for their returns. And again, I don't know that that's what the mandate is that investors give you as a bdc.

Chris - (00:52:07)

Okay. So again, Casey, we can go through the details at another time, but I think it's fair to say that most of those, and we are familiar with that because we do manage CLOs, so we're very familiar with the securities that most of those are equity investments in clos. And, and we would agree that the record there is not very good. The securities that we're investing in are very different than equity. They're way up the scale. And we're investing in BB rated and even triple B minus rated. So they're either investment grade or just below investment grade securities. And because we've been in the business, we happen to know a lot about it, a lot about the data. We have better research and at some point we're happy to spend time with you on how we do the research, but we have a tremendous amount of insight and data on the managers and their portfolios. And as a result, we're investing in the absolute cream of the CLO manager crop. And, and we're investing in these structured securities. And for a whole host of reasons, these securities are investment grade or just below investment grade, but they have absolute returns that are consistent with our absolute returns across our portfolio. And there's something we know about and we have a lot of insight into, and if you would compare them to regular corporate bonds, like if you had same BBB minus corporate bonds in general, that would be sort of maybe comparable in size and things like that. They're probably 200 basis points plus wider in the structured securities area. So this is a very niche investment area for a whole host of reasons. There's very few parties that are in. It, and a number of them are hedge funds, for example, that are, you know, have come in and out of it. And so we've noticed, you know, sort of an outsized return. So we're basically getting a, a return level that's consistent with what we're looking for in our private credit. What we're able to get in the private credit marketplace, we're able to do it on a highly diversified basis. And then another feature of this market is they often sell through Bwix on a daily basis. And so there's a level of liquidity that can be achieved. In other words, if we wanted to get out of these positions, we could probably get out of these positions in a matter of days or weeks because of the way they were. Obviously not in a severe, like Covid or 2008 environment, but in a general environment, there's a fair amount of liquidity in these names. So you get not only the portfolio return levels that are consistent with what we do, we have very specific research on it, and we also have in addition, a level of liquidity that we don't have in the rest of the portfolio. And so we think at a time when we have a lot of cash available, this is a very interesting place to invest. Now, should our, should our pipeline, all of a sudden we start putting a lot more money to work in our base business, our core senior first lie and certainly secured debt securities, that's our preferred place to be. And then we can also unwind some of these investments without any real penalty to help fund that should that business grow. So we think it's provides a very good balance for the portfolio. We think it provides very good absolute yield. And I think the characteristics of it. I don't think you've seen that in other BDCs, because I don't think other BDCs are doing it precisely the way we're doing it.

Casey Alexander - (00:56:37)

I appreciate the clarification between the equity tranches and the tranches that you're investing in. My last question, and I think this has been addressed, but I think it's worth approaching again. I mean, NII this quarter was 17 cents below the dividend. And if you do the math, you're a long way away from getting there. And so I'm curious, especially, you know, given the trajectory of base rates, which may make it even more difficult by the time you get to a more fully invested position. You know, why not more appropriately set the dividend? Because your credit is great and yet you look at the stock, the stock's down a buck and a half over the last two days. What's that telling you? It's telling you that the market doesn't understand the dividend relative to your earnings power. Why not get to a more appropriate level and then if you get fully invested, you can start to take it back up from there.

Chris - (00:57:52)

Well, Casey, I think obviously the question of the dividend earnings is something that we evaluate at all Times. And I think your question is a very good question. Again, I think that we are looking. At a. You know, we kind of want to balance the short term with the long run. And we feel that, you know, yes, rates may come down, but deal volumes may be going up. And we have had periods where we've deployed. We've had quarters, Mike. We've recorded well over $100 million quarters, for sure. Yeah. I mean, we've had quarters where we've deployed 100 million. And. And then the question, what does the net investment look like? So we feel like we're not that far off of being able to get close that gap for a variety of reasons, but obviously it's something we evaluate at all times. And we also have spillover. And so as a result of the spillover, there's really no. There's no particular need to cut the dividend relative to. Are still over requirements right now. And so all those things considered, we think we're kind of in a moment where it makes sense to hang in there. And I think depending how deal volumes play out going forward, we think we have a very good chance of closing that gap. And all things being equal, we prefer to maintain our dividend.

Casey Alexander - (00:59:27)

All right, thank you for taking my questions.

Chris - (00:59:31)

Thank you.

OPERATOR - (00:59:33)

Thank you. One moment for our next question. Our next question comes from the line of Robert Dodd, from Raymond James.

Robert Dodd - Analyst - (00:59:45)

Hi, guys. Following up from some of Casey's questions, I mean, the comment I think that Mike made was you expect these, the Cielo debt tranches to be a more significant part of the investment strategy going forward. I mean, how much of the overall portfolio should we contemplate that strategy reaching over the next 12 months, give or take?

Chris - (01:00:11)

Well, I think that, again, we're very cautious about predicting in calls like this. I think when Mike said that, I think he was referring to the fact we find it a very attractive investment category. And so we're open to deploying significantly more. We're not projecting doing more than that. I think right now, Henry, we're like around 5%. And we would be comfortable being larger, maybe twice that much. We don't know. But I mean, we haven't. We haven't made those determinations. As with everything, we kind of make our investments individual credits at a time. There's some seasonality, I guess you'd call it, with this marketplace, at certain times of the year, there's relatively more supply than others. And then depending on the demand versus the supply, there can be some very attractive purchases like we had in the July time frame. And so we're trying to be opportunistic with regard to this strategy. We feel very comfortable that it's a very solid, proven strategy. Maybe not so much in the BDC landscape as we discussed with Casey, but again, I think the mistakes in the BDC landscape was going with the equity, not the, not these essentially investment or just below investment grade tranches. So again, we find it an attractive investment class, but we don't have a hard target to get to our hard allocation. We're just evaluating deploying capital in this as the opportunities arise relative to our regular core private credit business.

Robert Dodd - Analyst - (01:02:03)

Got it, got it. Yeah. I mean just one additional thing. I don't think a double B CLO should necessarily be classified as a first lien on the schedule of investment since it's well above the equity, but it's well down from the top of the stack. But that's neither here nor there. The other question.

Henry Steenkamp - Chief Financial and Chief Compliance Officer - (01:02:22)

And Robert. Yeah, sorry, this is Henry and we obviously disclose it as part of our structured finance product category. So we do clearly separate it in all the disclosures.

Mike - (01:02:33)

The most. Rob, I can't help but add this one thing because we don't want to get into too much of a sales pitch around it. But just as we've evaluated, as you can imagine, one of the things that makes us really attractive to those securities is that they've held up historically very well even in stressed environments. The that particular tranche of securities where it resides has really held up well over time.

Robert Dodd - Analyst - (01:03:01)

Yeah. On the CLO just, I mean the prior history of CLO equity has obviously been a disaster in the space. There are other highly credible players that do invest in the debt tranches and I don't think it's been viewed too unfavorably so long as it's not too big a piece of the portfolio. But. I appreciate all the color there. The one concern I have not about Mike on your comment that the large market participants coming down and they're essentially offering large market covenants to small company deals. If the M and A market picks back up maybe to your comments, maybe they move back up market what's the risk in your view that these smaller companies now and their advisors have now gotten a sniff of those simpler, easier covenants, what's the risk they hold out for those even if the large market participants move back up and you end up with a fight with some of your normal competitors, but some of them cave on the covenant side?

Mike - (01:04:15)

Well, I think there's always risk that you have a competitor who offers irrational terms and under prices risk or under poorly structured risk. We've managed through that historically. I've been in this market for so long, through so many cycles, I've seen this movie before and usually what happens is they stub their toe or worse than stub their toe and they get some discipline. And I can tell you that being at this end of the market, the way we structure deals, the way we underwrite deals is we're very confident is the right way to do it. So I think in the intermediate to long run, we feel like one. It doesn't make a lot of sense for much larger balance sheets to be trying to deploy capital that inefficiently. So it's not likely that they'll stay there. We've certainly seen that pattern in prior cycles. And then the second thing is if you structure deals that way aggressively in our end of the market, it's generally not going to work out well.

Robert Dodd - Analyst - (01:05:21)

I totally get you that. I agree it usually leads to stubbed toes, but that can take a while for people to realize that, yeah, we're.

Mike - (01:05:34)

Going to hold the line. I think the more important thing that we think about is just that as I mentioned before, it's such a massive market. Every time you go to kind of second tier city and you get to meet some of the accountants there or some of the brokers or business investment bankers that are kind of living in that market, there are new sources of deals that you find in businesses that, that you otherwise wouldn't. And we're really doubling down our efforts there. So we feel confident that we'll find plenty of opportunities to do what we do best. And as I said, we'll try to avoid those commoditized over banked processes and instead kind of do what we've done historically. And we're starting to see that in our pipeline and with some of the deals that we've closed recently.

Robert Dodd - Analyst - (01:06:25)

Got it. Thank you.

OPERATOR - (01:06:29)

Thank you. One moment for our next question. Our next question comes from the line of Christopher Nolan from Ladenburg, Thalman and Company.

Christopher Nolan - Analyst - (01:06:41)

Hi, thanks for taking my questions. Henry, what's the spillover income for the quarter?

Henry Steenkamp - Chief Financial and Chief Compliance Officer - (01:06:48)

The remaining amount is around about sort. Of a mid two, so around 230. 250 a share at the moment.

Christopher Nolan - Analyst - (01:06:58)

Great. And then on the deck it said. The portfolio yields for the CLOs were 12.2%. Is that the GAAP yield? And is the cash yield materially different?

Henry Steenkamp - Chief Financial and Chief Compliance Officer - (01:07:12)

So that is the yield on all of what we call our CLO and CLO related instruments, Chris. So that includes, for example, the F note that we have in our existing clo. It also includes the E note in our joint venture CLO and then it includes all of these double Bs and BBBs. So it's the blended weighted effective yield currently on all of that.

Christopher Nolan - Analyst - (01:07:35)

Great. Final question. I appreciate the market commentary talking about. The M and A market, and that's. Quite helpful. But I couldn't help. I know that you guys have a large exposure to various software companies and I guess my question really is, is AI really starting to eat the lunch for a lot of these smaller software. Providers and is that one of those. Sectors which could be under stress because of the encroachment of artificial intelligence? It's a very good question. It's something that we're very focused on with all of our underwriting. So yes, indeed, AI can affect a software company. It can affect it in two ways. It can disrupt a software company and be a threat to it. In that it can in some cases allow a competitor to kind of enter the marketplace a little bit easier with fewer barriers to entry. In other cases, AI can be a really powerful enhancement to the value proposition of the software company. And that's something that we look at very, very carefully in our underwriting. So when we're looking at the software companies that we underwrite, we're very much focused on and talking to industry experts about what the exposure is, what the barriers to entry are, what the switching costs for a product would be. And we're looking at companies that, or businesses that generally have really high retention rates, where the workflow is such an important part of kind of daily use in the customer base, where the product itself, it's an enterprise software product, it's kind of attached to the system of the record for the entire industry. Things of that nature are things that we're looking at and those are the types of deals we underwrite. So while we do have a lot of businesses that are operating in a SaaS environment, we're incredibly selective around the businesses that we choose. We're still just like we are in our non SaaS portfolio, turning down way more deals than we're doing. And we're reaching for those ones that we feel have the most sustainable value. And certainly AI underwriting is a big part of what we evaluate as well. Great final question, by the way. Thank you for the detail. Final question. Given the upcoming debt maturities and given the uncertain outlook for short term rates, should we expect you guys to be utilizing the credit facilities to refinance that?

Henry Steenkamp - Chief Financial and Chief Compliance Officer - (01:10:27)

I think one of the things we've worked really, really hard. Chris is around flexibility on our balance sheet and our capital structure over the last years. So obviously that is an option, but I think generally we tend to more look at the current capital structure that we have as one where we still have a little bit of time. We've got a lot of capital available as well, and we're going to sort of assess it over the coming months on sort of how best to either repay or refinance some of the maturities that we have coming up next year. It's a good question because it's obviously something we think about, but I think what's really great is that we have so many different levers to pull as we have some of those maturities coming up in addition to, of course, raising new capital at the right time as well.

Chris - (01:11:12)

And then just to further comment to that, just so everyone on the call is, is certain that we don't need to go outside to refinance. Anything that's coming up we can cover it with. I think Henry's done a fantastic job, as he mentioned, on all this flexibility. So we've got a number of paths. The paths that Henry's mentioning going on are all paths, like within the four corners of what we have already. We're not dependent on the capital markets for any of that.

Christopher Nolan - Analyst - (01:11:41)

That's it for me. Thank you very much.

OPERATOR - (01:11:44)

Thank you. Thank you. One moment for our next question. Our next question comes from the line of Mickey Schlein from Clear street llc.

Mickey Schlein - (01:11:58)

Yes, good afternoon, everybody. Actually, good morning. Few more questions from me. I appreciate your time. Maybe for Henry, you know, what strategies are you considering to perhaps get some of that cash out of the SBIcs, for example, you know, could they pay the BDC a dividend?

Henry Steenkamp - Chief Financial and Chief Compliance Officer - (01:12:19)

Yeah, there's actually a couple of options that we have. Again, flexibility that we have around our capital structure, Mickey. So firstly, yes, we have not taken out any of our reit, you know, undistributable reserves for quite a period of time. Probably a couple of years now, maybe like 18 months. And so, you know, that's obviously something that's immediately available for us to take that cash out. We just haven't needed it. So it hasn't been anything that we've had to do. And then secondly, you probably also noticed that in our SBIC 3, we've only got $39 million of debentures drawn, but we've actually already got over 200 million of assets, which means we've pre funded much of the assets, more than half of the assets that are currently in the sbic. And the way you can do it by pre funding it, that allows you then to take out the capital. Because. You'Ve pre funded the assets and it's already collateralized. So we actually have quite a lot of different levers to pull there to get that cash out of the sbic. And that's why we sort of view most of the cash that's in the SBIC as available for general corporate purposes in the bdc, which is a good place to be in, obviously.

Mickey Schlein - (01:13:32)

Yeah. Thanks, Henry. And to follow up, one of the three follow ons that you made last quarter was Comfort Care, which was already a large position, now it's even larger, which always gives me indigestion. So I'm curious, what's attracting you to that portfolio company?

Mike - (01:13:52)

That is a good question. And it's, it's one that we love to talk about because it's such a, such a great example of what we do and the types of businesses that we find. So we did that deal In, I think 2017 in support of one of our stronger sponsor relationships, did a $10 million investment in a business that had a couple million dollars of ebitda, let's say, in an end market that has absolutely terrific tailwinds serving senior community for non medical home health. A lot of seniors are, rather than going to nursing homes and other settings like that, they're aging in place. So they've got terrific tailwinds there in a branded product that has just fantastic franchisor economics. I'm sure, you know, when you look at a franchisor business model, they generate really, really high free cash flow. So since we've been in that business, not only has the core business grown incredibly successfully, but they've also, and we've supported them with additional debt to undertake acquisitions that in turn have been very successful acquisitions that have augmented the platform in a way. Some of them not in the exact same business, but generally serving the senior community with also franchisor economics. So this is a business that is performing exceptionally well and the only reason the sponsor has sold it is they feel like they've got lots and lots of running room in it. We feel like where we sit on an LTV basis relative to the enterprise value is really, really comfortable. So we were delighted to have an opportunity to upsize the investment, although we obviously take that very seriously and monitor that very carefully because it is significant exposure. But we think where we are relative to the enterprise value of that business and how it's performing and how closely we Monitor it. We've come to know the management team incredibly well. We know the sponsor exceedingly well. And we're watching its performance, which is really strong. Those are the things that have made us comfortable upsizing to that level.

Mickey Schlein - (01:16:28)

Thanks for that color, Mike. That's really helpful. And sticking to the theme of originations, I think you had three, which was announced in the press release. One of those others was Wellspring, but for the life of me, I can't find the third one. What was the third follow on? Hang on for one second. So many deals. Just to clarify. Comfort Care, Wellspring and something else.

Mike - (01:16:58)

A very small one in Modis Dental. And that was just a really small equity follow on to support an acquisition that they were doing. So it was two primary follow ons and then a small follow on in Modis.

Mickey Schlein - (01:17:14)

Okay, a couple more questions. Just at a high level, the non clo portfolio was marked up, which is great to see. Could you tell us how much of that was driven by Market Multiples vs Company Performance? Performance? We've actually got that. Yeah, it's probably close to 50. 50. Mickey. Okay. But I should say this because I think probably where you're going, and I'll just add this anyways, is that we do feel very good about the underlying performance of our portfolio. The vast majority of our portfolio is up quarter over quarter. Yeah, I see that the marks are good and the credit quality is good. So I'm not surprised with that markup. Just curious to what extent that was driven by company performance versus multiples. And lastly, I hate to beat a dead horse, maybe for Chris, you again raised some equity capital which just seems completely redundant in the current market setting. And given how much liquidity you have, can you help us understand why you continue to raise equity?

Chris - (01:18:39)

Sure, Mickey. And I think again, we think it's a very good question, something again that we are constantly discussing ourselves. But. I think one of the characteristics of Saratoga is that we have among the highest insider ownership of any BDC out there at 11%. And so we're aligned very much so with our shareholders and as a sort of long term historic holder. And going forward we look at things, you know, we have to look on a quarterly basis for conversations like this and reporting like this. And we have to look on a, you know, semiannual annual basis. And we also have to look on a very long sort of 5, 10 year type of run on all different types of decisions for people, you know, hiring people, younger people that are going to be with us for 20 years and things like that. And so we've got a constant mix of, you know, of sort of horizons that we're considering. And on the equity side of BDCs, you know, historically, and you've been studying the industry for a long time, you know, generally speaking, BDCs can't. Can't raise capital all the time. You know, there are periods of time where they can. And then, you know, right now, I guess there's a period of time where not much BDC equity is being raised. You know, like BDCs are trading at discounts to NAV. And so there's a cycle to that. And there's some old Wall street adages not to say those are truths or anything, but sometimes you have to raise the capital when you can, and sometimes when you can raise capital, it may not be the best time to deploy it. There's like, harvest time and planting time, and so sometimes you don't want to plant too many seeds at harvest time, you don't want to harvest too much at planning time, but you don't control that. We don't control that. And so for us being a smaller bdc, we're now bigger than we used to be. Our trading volume is substantially better as a result of these equity sales, and we've crossed the $400 million threshold. It's putting us in a different place in terms of how we can serve our client base out there, in terms of the size of deals we can do, the underwritings we can do. I think the volume is helping our shareholders. I think our stocks held up fairly well. Obviously, you have your point of view on it, but I think going to the monthly dividend and things like that, we've done quite a few things for the stock that I think is working well, and it's enabled us to be able to sell stock at or around nav, which is a very unusual thing for BDCs in general and BDCs of our size. Ultimately, we want to be substantially larger. But I think, as anyone who's watched our company over time, you know, we're not driven by being larger. Right? We want to be larger. We're prepared to be larger. We have financial characteristics that allow us to grow quite a bit, but we're also highly disciplined in terms of how we grow. And we've had periods of time, we've grown very rapidly and other times where we've kind of held in. And right now, this is one of the ones where we're focused a little more on discipline. And I think the quality of our portfolio is showing that relative to the other portfolios out there. So back to your specific question. We can raise equity now. We think it's important for the long term future of Saratoga as a viable entity, not only for serving our clients and customers, but for the people that work here. They want to view this is a growth enterprise. I think that allows us to attract the best people and attracting the best people gives us the ability to have the quality of the investment performance that we're having for our investors. So it's all part of kind of a longer range thinking that maybe not make sense this quarter, but we think it's. We've had a very good record so far and we think we're going to have a very good record going forward. And that's principally why we're doing it.

Mickey Schlein - (01:22:43)

Chris, you just triggered another question in my mind and I'll end with that. But in terms of growth, you know, we have seen some consolidation in the sector where other BDCs, you know, just haven't done well or portfolio pressed and you know, it was, it was not a pretty picture. They've been acquired. Is that something, you know, there's a price for everything in this world. Is that something you'd be interested in doing to put maybe some of the liquidity to work or is it just not in your DNA and you don't want the headaches of a messy portfolio and cleaning it up and all of the stuff that comes along with that type of acquisition?

Chris - (01:23:22)

Well, you've kind of answered the question yourself in the way you phrased it. But look, I think generally Speaking, well, performing BDCs are generally not for sale and poor performing BDCs are. And there's a couple of elements in the BDC as a vehicle. Obviously it's a really, really attractive vehicle. And a lot of investment managers that don't have BDCs would like to have BDCs. And so there's a value to the vehicle which sometimes trumps a little bit the value of the portfolio. And sometimes, as we've seen in the past, sometimes the portfolio gets sold in one direction and the BDC itself gets sold in another. So there's sort of two dimensions to that. For us, having another BDC manager license is not that interesting where for some other people it is. And so that element of the asset value isn't that attractive because we already have a B2C and then the BDCs that are for sale and get in trouble, generally speaking. First of all, the duration of a good portfolio is probably two and a half to three or four years. The duration of a bad portfolio can be seven to 10 years. So you're buying these portfolios and you're going to be working them out for a very, very long time probably. And you're going to have to. Some of our, there's a lot of examples in our industry out there where you buy these things and then. You'Re. Constantly, not only are you having to talk about it in all your quarterly conference calls, your people have to deal with it and you're kind of focused on the wrong things. And as I said, a really good portfolio turns over every like a third a year or something in regular way times. And so you don't really get that much buying a portfolio. If we had a good portfolio, we would be very interested. I mean, if someone were selling a portfolio out of an insurance company or out of someone else and it was a quality portfolio, we'd be very interested in that. But that generally doesn't happen. It's only the bad ones that show up. And then we've seen a bunch of, we've looked at some secondary sales and things like that and you do see some portfolios and then they try and sprinkle in some good assets to sort of leaven the bad assets that they're trying to offload. But you're still buying, you know, just, you're buying a lot of problems that aren't really, you know, the things we want, you know, and we have a very particular type of investing that not a lot of other BDCs do. And so, you know, we want to stick with that. You know, I think the origination market is challenging right now, but historically that's changed. There are times when it can get very good and a few more $55 billion private equity buyouts and maybe that'll soak up some of the demand, some of the supply up there of some of these larger funds. The M and A market gets kick started. I mean, if you look at the statistics in private equity, the amount of realizations in the middle market private equity funds is very small.

Mickey Schlein - (01:26:42)

Right.

Chris - (01:26:43)

So there's a backlog of deals that need to get done now. Are they going to get done next year? We can't say. But at some point all these things are going to trade because they're all in finite funds. Yes, there are continuation funds, but that trend may not last forever either. So anyway, so we feel that our best approach is, is to stick with quality assets in a bdc. We're not a distressed fund and a distressed fund is a different kind of animal. We like good quality companies. And having portfolios of good companies, we get more good companies. So that's kind of where we're focused.

Mickey Schlein - (01:27:24)

Yeah, I agree with that. Thanks so much for that explanation, Chris. That's it for me this morning. Thank you.

OPERATOR - (01:27:34)

Thank you. At this time, I would now like to turn the conference back over to Christian Overbeck for closing remarks.

Christian Oberbeck - Chairman and Chief Executive Officer - (01:27:42)

Okay. Well, we want to thank all of our shareholders for their continued interest in being part of the Saratoga team here. And we look forward to speaking with you next quarter. Thank you.

OPERATOR - (01:27:56)

This concludes today's conference call. Thank you for participating. You may now disconnect.