Saratoga Investment Corp. Announces a Special Dividend of $1.00 per Share
NEW YORK, May 14, 2015 /PRNewswire/ — Saratoga Investment Corp. (NYSE: SAR) (“Saratoga Investment” or “the Company”), a business development company, today announced that its Board of Directors has declared a special dividend of $1.00 per share, payable on June 5, 2015 to all stockholders of record at the close of business on May 26, 2015. Shareholders will have the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company’s dividend reinvestment plan.
“The payment of this special dividend, combined with our increasing quarterly cash dividends, will enable us to fulfill our requirements for dividend distributions as a Regulated Investment Company this year,” said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. “Paying this special dividend now allows us to complete the transition from our prior dividend policy to our new policy implemented last fall of regular quarterly cash dividend payments, and to provide clarity on the form, timing and amount of this expected distribution to our shareholders.”
Part 3: The Relationship Between a BDC and a Portfolio Company
Research Studies and Opinions
A Q&A with Henri J. Steenkamp: Chief Financial Officer of Saratoga Investment Corp
Question: What should the relationship between a BDC and portfolio company be?
HS: We are a financial partner and corporate finance expert. We have invested in what they’re doing because we believe in their vision and their future. We prefer to communicate regularly with management and understand what they are doing and where they’re going. We also like to participate in some of their discussions and decisionmaking and figure out either how we can help them or how we might bring other partners to the table to assist them. However, I don’t want to overstate our involvement. In most cases, we are not a control investor. We’re thrilled to help when asked, and offer managerial assistance whenever possible. The nature of our relationship also depends on whether or not the company is sponsored by a private equity firm.
Question: How so?
HS: In a deal sponsored by private equity, a BDC tends to be more of a passive investor and in a non-sponsored deal BDCs tend to be more active…
Read the full article at Saratoga Investment Corp.
Consistency is Key to Your Second SBIC
Recently, Saratoga Investment received its “green light” letter from SBA for a second license. If granted a second license, Saratoga would be able to use 2-to-1 leverage, lower cost of capital and favorable terms inherent in the SBIC program to grow our asset base by the allowed amount of $112.5 million. Additionally if approved, Saratoga would have access to an incremental source of long-term capital by permitting it to issue $75 million of additional SBA-guaranteed debentures–bringing the total of the two licenses to $225 million.
If your BDC is in the position to explore a second license, there are many benchmarks you must meet to move forward in the process. While these may come as obvious points to many in the sector, BDCs do get turned down for failing to meet the proper criteria. Before you face rejection, and face a mandatory minimum six-month waiting period to re-apply, consider these key points to see if your BDC matches up.
Consistent Operations
BDCs that receive approval are consistent across the board. If the first license uses a strategy focusing on the smaller, less competitive end of the market, your second fund should be in the same vein. A stark contrast in strategy is often going to result in a red flag during evaluation.
When it comes to operations, a clean record is mandatory. In the two full years of operating from your last issued SBIC license–the minimum required wait between the second fund request–the more spotless the record, the better. This includes having no outstanding regulatory violations one year from your filing date. In addition to any violations, the SBIC’s independent public accountant must conduct at least one clean audit opinion on your operations.
There are further criteria that need to be met for approval, but these are key points to consider before moving forward.
Consistent Management
While this may seem redundant from the previous point, your management will be scrutinized to an incredible degree on its own. Obviously, management needs to be qualified to handle the rigors of a second license, but their track record must be as close to perfect as possible. Their reputation in the industry, ethics, investment records and other reputation forming traits will all be examined thoroughly.
Their past is also up for judgement as prior investments face comparison to percentage terms and industry benchmarks. Those investments will then be examined to determine its contribution to the growth of revenues.
Beyond reputation, management’s core competency must be superb. The organization’s structure, compliance with regulations and the procedures to ensure proper checks and balances are just some of the questions you will see during the process.
Using these steps to begin your exploration phase will ensure you with a base for knowing what it takes to give you the smoothest evaluation process possible. The SBA website has more in-depth analysis for what you and your BDC will need as you move through the process.
Saratoga Investment Corp. Receives "Green Light" Letter from SBA for Second SBIC License
NEW YORK, April 6, 2015 /PRNewswire/ — Saratoga Investment Corp. (NYSE: SAR) (“Saratoga Investment” or “the Company”), a business development company, is pleased to announce that the U.S. Small Business Administration (“SBA”) has issued a “green light” or “go forth” letter inviting Saratoga Investment to continue its application process to obtain a license to form and operate its second Small Business Investment Company (“SBIC”) subsidiary.
“The success of our current SBIC investment program has contributed to the improvement in our financial strength by expanding the size and quality of our assets under management,” said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. “A second license would enable us to use the 2-to-1 leverage, lower cost of capital and favorable terms inherent in the SBIC program to grow our asset base by the permitted amount under the second license of $112.5 million. The investment strategy of focusing on the smaller, less competitive end of the market would be consistent with our first fund.”
Part Two: The History of the BDC Industry
The History of BDCs: Part 2
As I discussed in part I of The History of the BDC Industry, the 1980 Amendments were intended to readjust the Investment Company Act established in 1940. The Act had restricted the amount of people allowed to mutually own funds in private equity and venture capital firms. By the 1970s, companies were displeased with the effects of the 1940 Act, convincing Congress that it was limiting the funds going to emerging businesses and hindering their growth.
The Small Business Investment Incentive Act passed in 1980 sought to increase the amount of money feeding into small, fledgling businesses. The Act served to remove restrictions from the Investment Company Act of 1940 by creating the Business Development Company. Different from private equity and venture capital firms, the BDC was another kind of investment company altogether which provided anyone the opportunity to buy a share on the open market.
Only a number of BDCs arose before the turn of the decade. Spurred by the growth of the Private Equity Industry in the 1980s, BDCs began to form more rapidly in the early 2000s. The industry closed 2008 with a total of 21 business development companies.
The current industry
In the last twenty years or so how has the BDC market expanded and affected the investment industry?
Compared to the 27 listed BDCs in 2009, the number of entitles listed as BDCs rose to almost 50 by 2013 with a CAGR of 39% according to one study. One reason for this increase over the last decade could be due to the distinct investing benefits and advantages of this type of company. These advantages have allowed BDCs to avoid double taxation while incurring often high dividend yields as well as the increase for private equity and venture capital opportunities. As of now, in terms of market value, a few of the big name BDCs include Apollo Investment Corp, American Capital Strategies, Allied Capital Corp, Gladstone Investment Corp and Kohlberg Capital Corp.
The question to ask is whether there are emerging issues BDCs will need to face in 2015. The somewhat difficult 2014 year for the BDC market might very well affect the industry in 2015.
Saratoga 2015 Newsletter Q1
Dear Friends,
We would like to update you on Saratoga’s progress, provide analysis of the middle market — and ask for your feedback to help fine-tune our ability to find opportunities that may be a better fit for you.
We closed 15 investments in 2014 that supported new and existing portfolio companies. We also grew our organization by adding four new members to our team. This year we will continue to support private equity sponsors and companies with a variety of financing solutions including unitranche debt, mezzanine debt, equity and other forms of capital.
One of our new initiatives this year is to enhance our ability to recognize the types of deal flow our clients, portfolio companies, and relationships are looking for.
Saratoga continues to have a strong base of permanent capital available to invest. We remain focused on making debt and equity investments in companies striving to do great things. Thank you for continuing to think of us when your business requires capital.
Read the full newsletter at Saratoga Investment Corp.
From One CFO to Another: To Acquire or Not to Acquire?
We all know the three core responsibilities of a CFO, no matter where you work:
- Controllership duties: presenting accurate and timely historical financial data so informed decisions based on trends and past performance can be made.
- Treasury duties: deciding where to allocate company funds to maximize return and minimize risk.
- Economic strategy and forecasting: analyzing data and using that information to seek efficiencies that will increase revenue and decrease costs.
And while there is no difference in these responsibilities at a business development company (BDC), the responsibilities are compounded somewhat. Indeed, the CFO of a BDC serves a dual role as financial overseer of the BDC and informed reviewer of portfolio companies, actual and prospective. For this article, we’ll discuss how the CFO of a BDC handles the latter.
When evaluating a potential investment company, the CFO should take four main steps. First, he needs to review and validate the quality of earnings (QOE) for the potential addition to the portfolio. The CFO must then determine the organizational and financial stability of all prospective investments; a proven record of stability is a must. To accomplish this, the CFO needs to stay current on industry trends, economic factors and changes in market conditions of each industry segment covered by potential investments. With that understanding, the CFO can make an informed appraisal of the risk assessment for each potential investment.
Once comfortable with that assessment, the CFO must combine that with a market level evaluation of the industry sector. And as a last step, the validation of future performance projections must be made and the CFO must calculate the probability that they can be achieved.
A traditional CFO must be a subject matter expert (SME) in only the industry in which his company operates. To be successful, the CFO of a BDC must be well informed across a wide variety of sectors and keep abreast of all economic drivers related to those spaces.
Saratoga 10-Q (Quarterly Report)
January 14, 2014- Saratoga Investment Corp. releases its Quarterly Report.
Read the full report at Saratoga Investment Corp.
Saratoga Investment Corp. Announces Fiscal Third Quarter 2015 Financial Results
Saratoga Investment Corp. Announces Fiscal Third Quarter 2015 Financial Results
Summary Financial Information:
- Net investment income on a weighted average per share basis of $0.50 for the quarter ended November 30, 2014. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income per share was $0.53, an increase of $0.10 per share since last quarter.
- Net investment income of $2.7 million for the quarter ended November 30, 2014. Adjusted for the incentive fee accrual related to net unrealized capital gains, the net investment income was $2.8 million.
- Net investment income yield as percentage of average net asset value (“Net Investment Income Yield”) was 9.0% for the quarter ended November 30, 2014. Adjusted for the incentive fee accrual related to net unrealized capital gains, the Net Investment Income Yield was 9.4% (including dividend income), an increase from 7.7% since last quarter.
- Return on equity was 11.5% for the quarter ended November 30, 2014, an increase from 10.6% since last quarter.
- Earnings per share was $0.64, an increase from $0.58 since last quarter.
- NAV was $122.3 million as of November 30, 2014, a $7.4 million increase from an NAV of $114.9 million as of February 28, 2014.
- NAV per share was $22.74 as of November 30, 2014, compared to $21.36 as of February 28, 2014.
- Investment portfolio activity for the quarter ended November 30, 2014 –
- Cost of investments made during the period: $30.6 million
- Principal repayments during the period: $26.8 million
Read the full press release at Saratoga Investment Corp.
Part One: The History of the BDC Industry
The History of BDCs: Part 1
Business development companies (BDCs) are publicly registered investment companies that finance small and mid-sized businesses. The purpose of the BDC, like any investment company, is to invest its shareholders’ money in order to turn generate income and turn a profit. But while venture capital and private equity funds are open to only a few wealthy investors, BDCs allow anyone to purchase a share on the open market. The result is a structure where many individuals are able to pool their money together in order to invest in private American companies.
Where did investment companies come from?
By the 1930s, the United States Congress needed to pass some bills in order to respond to the stock market crash of 1929. It passed the Securities Act of 1933 and the Security Exchange Act of 1934 to regulate the securities industry and then passed the Investment Company Act of 1940 to provide some much needed regulation to investment companies.
Investment companies were still fairly new by the time the 1940 act was passed. The act required these companies to disclose financial information, thereby protecting the public interest from these new investment opportunities while instilling confidence in investors. The 1940 act was critical to the massive burst in popularity and growth that followed.
The dawn of the BDC
As part of its regulatory structure, the 1940 act limited the number of people that could mutually own funds in private equity and venture capital firms. By the 1970s, these companies convinced Congress that this limitation was drying up the amount of money going to small, growing businesses.
As a result, Congress passed the Small Business Investment Incentive Act of 1980, an act which amended the Investment Company Act of 1940. The idea was to increase the amount of public money that would be invested in small, growing businesses. The 1980 act did just that — it lessened some of the restrictions of the 1940 act by adding a new category of investment company called the BDC. These BDCs, unlike private equity and venture capital firms, would allow anyone to purchase a share on the open market.
Stay tuned to learn about the recent growth spurt in BDCs and how they have changed the investing industry.
