Saratoga Investment (SAR) Q3 2025 earnings summary

Executive summary

• Portfolio quality remains high, with 99.7% of loans at the highest internal rating and only two non-accruals (Zollege and Pepper Palace), both restructured and representing just 0.3% of fair value and cost.

• Adjusted NII for the quarter was $12.4M, with a 9.2% LTM ROE, both above the BDC industry average; NAV per share was $26.95, with total NAV increasing to $374.9M.

• Strong origination activity ($84.5M–$85M) was offset by outsized repayments ($160M–$160.4M), resulting in a $250.2M cash position and improved net leverage.

• Declared a $0.74 per share dividend (12.2% yield) and a $0.35 special dividend, both paid in December 2024.

• Management remains focused on long-term growth, robust pipeline, and maintaining strong liquidity and balance sheet strength.

Financial highlights

• Adjusted NII for the quarter was $12.4M, down 5.3% YoY and 31.7% sequentially; adjusted NII per share was $0.90, down 10.9% YoY and 32.3% QoQ.

• NAV per share was $26.95, down 1.7% YoY and 0.4% QoQ; quarter-end NAV was $374.9M, up from $359.6M YoY and $372.1M QoQ.

• Portfolio fair value at $960.1M, with 86.8% in first-lien debt; core non-CLO portfolio marked 3% above cost, total portfolio 0.7% below cost.

• Portfolio yield was 10.8% (weighted average current yield).

• Net realized gains and unrealized depreciation totaled $3.5M, with notable realized gains from Invita and escrow recoveries, offset by unrealized losses in CLO, JV, and core portfolio.

Outlook and guidance

• Management expects continued long-term AUM growth despite short-term volatility from repayments and originations, aiming to expand the asset base without sacrificing credit quality.

• Confident in ability to deploy capital accretively, supported by strong sponsor relationships and robust pipeline, though new platform investments remain limited due to low M&A activity.

• Dividend coverage expected to remain strong, with no plans to under-earn the dividend despite near-term headwinds from lower rates and repayments.

• Management remains confident in the portfolio's resilience and expects to continue growing portfolio size and quality, despite a reshaped yield curve and uncertain economic outlook.

• Early signs of increased M&A activity in the lower middle market are expected to create more investment opportunities.