Saratoga Investment Corp.
Q3 2022 Earnings Call Transcript

Published: 6 Jan 2022

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corporation's Fiscal Third Quarter 2022 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 would like to turn the call over to Saratoga Investment Corporation's Chief Financial and Compliance Officer, Mr. Henri Steenkamp. Please go ahead Sir.

[Henri Steenkamp:]

Thank you. I would like to welcome everyone to Saratoga Investment Corp.'s fiscal third quarter 2022 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 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 2022 shareholder presentation in the Events & Presentation section of our Investor Relations website. A link to our IR page is in the earnings press release distributed last night. A replay of this conference call will also be available from 1 p.m. today through January 13th. 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:]

Thank you, Henri and welcome everyone. As we reflect on the second quarter, we continue to be pleased with the strength and resilience of our financial position and portfolio companies. Despite the unprecedented global impact and continuance of COVID-19 impacts, we feel very fortunate to have overcome its challenges thus far, to be in a position to benefit from the upside of the ongoing recovery and substantial increase in market activity. We believe Saratoga continues to be well positioned for potential future economic opportunities and challenges. Our existing portfolio companies are performing well and our current business development activities allow us to find and evaluate a healthy level of new investments. Our AUM contracted slightly this quarter to $662 million, as we originated $59 million in new platforms or follow-on investments, offset by $66 million of repayments, including a $7.3 million realized gain on the sale of our Grey Heller investment and a $2.6 million realized gain on our Texas Teachers investments. These investment gains demonstrate how our strategy of taking equity positions in our portfolio companies, when available and when it makes sense to us, has paid off well. With this quarter's $10 million of realized gains increasing our total net realized gains earned to $61 million or approximately $5 per quarter-end outstanding shares, over the past four years. We continue to bring new platform investments into the portfolio with two added this fiscal quarter and all of our originations were made while in an extremely high credit bar, we set for all investments. The performance of our existing portfolio also grew our NAV per share by 1%, this quarter to $29.17 -- twenty nine dollars and one seven cents; Again, a historical record for the BDC, with this quarter's increase being the 16th increase in the past 18 quarters. To briefly recap the past quarter on slide two. First, we continue to strengthen our financial foundation in Q3 by maintaining a high level of investment credit quality with over 95% of our loan investments retaining our highest credit rating at quarter-end up from 93% last quarter. Generating a return on equity of 14.6% on a trailing 12 month basis and registering a gross unlevered IRR of 11.9% on our total unrealized portfolio with our current fair value, 3% above the total cost of our portfolio and a gross unlevered IRR of 16.4% on total realizations of $753 million. Second, our assets under management decreased slightly to $662 million this quarter, a 1% decrease from $666 million as of last quarter. This remains a 21% increase from $547 million at the same time last year, and a 19% increase from $554 million as of year-end. Our new originations included two new portfolio companies and six follow on investments. And our current pipeline remains robust with almost $120 million of net originations since quarter-end. Third, despite improving economic conditions, balance sheet strength and liquidity and NAV preservation remained paramount for us. Our current capital structure at quarter-end was strong, $343 million of mark-to-market equity supported by $238 million of long-term covenant free non-SBIC debt. $207 million of term covenant free SBIC debentures and $12.5 million of long-term revolving credit borrowings. Our quarter-end regulatory leverage of 237% substantially exceeds our 150% requirement. We have $258 million in liquidity at quarter-end available to support our portfolio companies with $76 million of the total dedicated to new and follow-on opportunities in our SBIC II fund and $144 million of cash that will be fully accretive to earnings, when deployed of which more than three quarters has already been deployed since quarter end. The all in cost of this new SBIC that is currently less than 2% and the total committed undrawn lending commitments outstanding to existing portfolio companies are $21 million. And finally, based on our overall performance, including improved liquidity, the overall portfolio and financial performance and the recent deployments of cash, the Board of Directors increased our quarterly dividend by $0.01 to $0.53 per share for the quarter-ended November 30th, 2021, payable on January 19th, 2021. We will continue to evaluate the amount of our dividends on a quarterly basis, as we gain improved visibility on the economy and fundamental business performance. This quarter saw a strong performance within our key performance indicators as compared to the quarters ended November 30th, 2020 and August 31st, 2021. Our net, our adjusted NII is $6.1 million this quarter, up 10% versus $5.5 million last year and down 13% versus $7 million last quarter. Our adjusted NII for share is $0.53 this quarter up from $0.50 last quarter and down from $0.63 last quarter. Latest 12-months return on equity is 14.6% up from 11% last year and up from 14.4% last quarter. Our NAV per share is $29.17 up 9% from $26 and 84% last year and up 1% from $28.97 last quarter. This is the highest quarterly NAV per share for Saratoga Investment, since inception of our management in 2010. And we will provide more detail later. As you can see on slide three, our assets under management are steadily and consistently risen since we took over the BDC more than 11-years ago. And the quality of our credits remains high with no non accruals currently. Our management team is working diligently to continue this positive trend. As we deploy our available capital into our growing pipeline, while at the same time being appropriately cautious in this evolving credit environment. With that, I would like to now turn the call back over to Henri to review our financial results as well as the composition and performance of our portfolio.

[Henri Steenkamp:]

Thank you, Chris. Slide four highlights our key performance metrics for the third quarter-ended November 30th, 2021. When adjusting for the incentive fee accrual related to net capital gains in the second incentive fee calculation and for Q2 calculations, the interest on the redeemed SAF baby bonds during the call period adjusted NII of $6.1 million was down 13.0% from $7.0 million last quarter, but up 10.1% from $5.5 million as compared to last year's Q3. Adjusted NII per share was $0.53 up $0.03 from 50 cents per share last year and down $0.10 from $0.63 per share last quarter. Across the three quarters, weighted average common shares outstanding were $11.5 million for this Q3 and $11.2 million for both last quarter and last year's Q3. The increase in adjusted NII from last year primarily reflects the higher level of investments and result in higher interest and other income with AUM up 21% from last year, offset save by lower interest rates and tighter market spreads. The decrease from Q2 was primarily due to the non-recurrence of the $0.6 million Taco Mac interest reserve release loss quarter, as well as the reduction in other income resulting from lower advisory and prepayment fees generated by lower originations and repayments this quarter. Adjusted NII yield was 7.3%. This yield is down 10 basis points from 7.4% last year and down 140 basis points from 8.7% last quarter. For this third quarter, we experienced a net gain on investments of $3.9 million or $0.34 per weighted, average share and a $0.8 million realized loss on the repayment and termination of our Madison credit facility or $0.07 per weighted average share resulting in a total increase in net assets from operations of $8.3 million or $0.73 per share our EPS. The $3.9 million net gain on investments was comprised of $9.9 million in net realized gains and $2.5 million of deferred tax benefit on unrealized depreciation offset by $6 million in net unrealized depreciation, and $2.4 million of income tax expense generated from realized gains. The $3.9 million net realized gain, comprises a $7.3 million realized gain on the sale of the Company's Gray Heller investment and a $2.6 million realized gain on the Company's Texas Teachers investment sale. The $6 million need to unrealized depreciation reflects firstly the $7.7 million and $2.6 million of previously recognized depreciation on the Gray Heller and Texas Teacher's equity realizations, respectively, and secondly, a $2.6 million unrealized depreciation on the Company's CLO equity investment reflecting market volatility partially offset by a 1.1% increase in the total value of the remaining portfolio, primarily related to improvements in market spreads, EBITDA multiples, and or revised portfolio Company performance. All of the net reduction and the value of the non-CLO portfolio in the first quarter of last year has been more than reversed since May 31st, 2020 and the overall portfolio of fair value is now 2.9% above cost. Return on equity remains an important performance indicator for us, which includes both realized and unrealized gains. Our return on equity was 14.6% for the last 12-months. Total expenses, excluding interest and debt financing expenses, base management fees and incentive fees and income taxes decreased from $1.6 million to $1.2 million as compared to last year, reflecting certain optimizations realized during Q3 and fiscal 2022. This represented 0.6% of average total assets on an annualized basis down from 1.1% last year. We have also again, added the KPI slides starting from slides 26 through 29 in the appendix at the end of the presentation, that shows our income statement and balance sheet metrics for the past nine quarters and upward trends, we have maintained. A particular note is slide 29 highlighting how our net interest margin run rate has continued to increase in Q3 and has almost quadruple, since Saratoga took over management of the BDC and has also increased by 8%, the past 12-months, while still not yet receiving the benefit of putting to work our significant amount of Q3 undeployed cash. Moving on to slide five, NAV was $342.6 million as of this quarter-end an $18.5 million increase from last quarter and a $42.7 million increase from the same quarter last year, primarily open by realized and unrealized gains and to a lesser degree accretive ATM equity issuances. During Q3, no shares were repurchased, while 520,000 shares were sold for net proceeds of $15.2 million at an average price of $29.16 NAV per share as of 11/30 was $29 17 up from 28 97 as of last quarter and from $26.84 as of 12-months ago. You will see we added our historical NAV per share to this chart this quarter, which highlights our NAV share has increased 16 of the past 18 quarters. Our net asset value growth has been accretive as demonstrated by the consistent increase NAV per share. We continue to benefit from our history of consistent realized and unrealized gains. On slide six, you'll see a simple reconciliation of the major ranges in NII and NAV per share on a sequential quarterly basis. Starting at the top, adjusted NII per share decreased from $0.63 per share last quarter to $0.53 per share in Q3. A $0.04 decrease in non-CLO, net interest income, a $0.09 combined decrease in CLO interest income and other income; a $0.01 increase in base management fees and a $0.01 net dilution were partially offset upset by $0.05 benefit from lower operating expenses. Moving on to the lower half of the slide, this reconciles $0.20 NAV per share increase for the quarter. The $0.45 of GAAP NII, $0.34 of net realized gains and unrealized depreciation and $0.01 cent of net accretion were partially offset by a $0.01 net expense related to income and deferred taxes on realized gains and unrealized depreciation. The 50% dividend paid in Q3 and a $0.07 realized loss on extinguishment of date. Slide seven outlines the dry powder available to us as of November 30th, 2021, which totaled $257.6 million. This was spread between our available cash, undrawn SBAs debentures and undrawn secured credit facility. This quarter-end level of available liquidity allows us to grow our assets by an additional 39% without the need for external financing. With $144 million of it being cash and that's fully accretive to NII, when deployed and $76 million of it, SBA benches with an all in cost of less than 2%, also very accretive. As we've mentioned before this past October, we closed a new three year $50 million revolving credit facility within senior land of finance. This facility replaces our existing Madison facility and with a floating rate of LIBOR plus 4% with a 75 basis points flow has reduced our credit facility cost of capital by 100 basis points. We remain pleased with our available liquidity and leverage position, including access to liquidity and especially taking into account the overall conservative nature of our balance sheet and the fact that all our debt is long-term in nature, with no non-SBIC debt maturing within the next four years, and mostly fixed rate. Now, I would like to move on to Slides eight through 11 and review the composition and yield of our investment portfolio. Slide eight highlights, that we now have $662 million of AUM at fair value or $643 million at cost invested in 42 portfolio companies, and one CLO fund. Our first lien percentage is 76% of our total investments of which only 3% of that is in first lean lost out positions. On slide nine, you can see how the yield on our core BDC assets excluding our CLO and syndicated loans as well as our total asset yield has dropped below 9% this year. This is partly due to continue tightening of spreads in our market, but also due to a mix shift as some of our high yielding assets, we repay this quarter. In addition, our equity positions, this fiscal year has almost doubled from 5.7% to 10.3% in Q3, but much of that increase is due to the appreciation in existing valuations from strong performance while some of the equity increases also in the form of the third equity earning dividend income that is reflected in our other income line in the P&L rather than in interest income. As a reminder, most investments have a 100 basis points or higher flaw. The CLO yield also decreased to 11.6% quarter on quarter reflecting current market performance. The CLO is currently performing and current. Turning to slide 10, during the third fiscal quarter, we made investments of $58.6 million in two new portfolio companies and six follow-on investments offset by $66.4 million in three repayments, plus amortizations resulting in a net decrease in investments of $7.8 million for the quarter. On slide 11, you can and see the industry breadth in diversity that our portfolio represents. Our investments are spread over 34 distinct industries with a large focus on healthcare software, it services and education and healthcare services. In addition to our investment in the CLO, which is included as structured finance securities about total investment portfolio, 10.3% consists of equity interests, which remain an important part of our overall investment strategy. For the past 10 fiscal years, including year-to-date Q3, we had a combined $72.9 million of naturalized gains from the sale of equity interests or sale or early redemption of either investments. This quarter alone, we generated $9.9 million up realized gains from two of our realizations. And over two thirds of these historical total gains were fully accretive to NAV due to the unused capital loss carry forwards that were carried over from when Saratoga took over management of the BDC. This consistent 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. I will now turn the call over to Michael Grisius, Chief Investment Officer for an overview of the investment market.

[Michael Grisius:]

Thank you, Henri. I'll take a couple of minutes to describe our perspective on the current state of the market, and then comment on our current portfolio performance and investment strategy. Since our last update, we see market conditions continuing to be increasingly aggressive, exceeding where they were pre COVID 19, and very much a borrower's market. Liquidity conditions were remain exceptionally robust. We have seen significant transaction volumes and usually an unusually high M&A activity tightening credit yields and greater leverage multiples and an aggressive capital deployment posture overall, especially going into year-ends. High demand for quality deals is pushing down spreads pricing and leverage metrics are among the most competitive levels we've ever seen as a result. There is increasing pressure for investors to compete in other ways, such as accelerate timing to close and looser covenant restrictions. Now that said lenders in our market are still wary of thinly capitalized deals and for the most part are staying disciplined in terms of minimum aggregate base levels of equity and requiring reasonable covenants. Our underwriting bar remains high as usual. Yet we continue to find many strong opportunities to deploy capital as we will discuss shortly calendar year 2021 has been a strong deployment environment for us with a record origination pace. Follow on investments with existing borrowers, with strong business models and balance sheets continue to be an important avenue of capital deployment as demonstrated with six follow-ons this past fiscal quarter six in the previous and nine in the quarter, before. We have seen this pace continue subsequent to fiscal quarter-ends with further investments in two new portfolio companies and nine follow-ons. Most notably, we have invested in 23 new platform investments, since the onset of the pandemic. Portfolio management continues to be critically important and we remain actively engaged with our portfolio companies and in close contact with our management teams. We have found that they have generally positioned themselves to benefit from the uptick in general economic activity. As the economy has recovered, all of our loans in our portfolio are paying according to their payment terms. And so in addition to not having any new non-accruals through COVID, we have zero non-accruals across our whole portfolio. We also recognize $3.9 million in net realized unrealized gains this quarter, which means that our overall portfolio has more than recovered the unrealized depreciation associated with COVID last year. And the fair value of Saratoga's overall assets now exceeds its cost basis by 2.9%. We believe this strong performance reflects certain attributes of our portfolio that bolster its overall durability. 76% of our portfolios in firstly in 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 portfolios comprised that businesses that a high degree of recurring revenue and have historically demonstrated strong revenue retention. Our approach has always been to stay focused on the quality of our underwriting. And as you can see on slide 13, this approach has resulted in our portfolio performance being at the top of the BDC space with respect to net realized gains as a percentage of portfolio at cost. We're at the top of a list of only eight BDCs that had a positive number over the past three years. A strong underwriting culture remains paramount at Saratoga. We approach each investment working directly with management and ownership to thoroughly assess the long-term strength of the Company and its business model. We endeavored appear deeply as deeply as possible into a business in order to understand accurately its underlying strengths and characteristics. We always have sought durable businesses and invested capital with the objective of producing the best risk adjusted or creative returns for our shareholders over the long-term, our internal credit quality rating reflects the impact of COVID and shows 95% of our portfolio at our highest credit rating. As of quarter-end of our investment strategy is to selectively co-invest in the equity of our portfolio companies when we're given that opportunity and when we believe the equity ups in the equity upside potential, it has been our experience that there are significant overlap between those businesses that meet our strict underwriting requirements and those that possess attributes that may attractive equity investments. This equity co-investment strategy has not only served as yield protection for our portfolio, but also meaningfully augmented our overall portfolio returns as demonstrated again this quarter with our Texas teachers and Gray Heller realizations, we intend to continue this strategy now looking at leverage on slide 14, you can see that industry debt multiples were relatively unchanged from calendar Q2 to Q3 yet remain at historical high levels. Total leverage for our portfolio was 4.13 times a slight increase from the last quarter, reflecting primarily the additional capital we have provided our existing portfolio companies and not increased leverage levels from our new platforms through past volatility, we have been able to maintain a relatively modest risk profile throughout, although we never consider leverage in isolation, rather focusing on investing in credits with attractive risk return profiles and exceptionally strong business models where we are confident the enterprise value of the businesses will sustainably exceed the last dollar of our investment. In addition, this slide illustrates our consistent ability to generate new investments over the long-term, despite changing and increasingly competitive market dynamics. During the first four calendar quarters, we added 12 new portfolio companies and made 35 follow-on investments. Moving on to slide 15, our team skillset experience and relationships continue to mature and our significant focus on business development has led to new strategic relationships that have become sources for new deals. Our top line number of deal source remains robust, but has dropped the past two years and this due to COVID, but more recently reflecting our efforts to focus on attracting a higher percentage of quality opportunities. Most notably the 67 term sheets issued during the last 12-months is markedly up from last year's pace, showing that we are generating more shots on goal. What is especially pleasing to us is that almost half of our term sheets issued over the past 12-months and seven of our 12 new portfolio Company investments are from newly formed relationships, reflecting notable progress as we expand our business development efforts. There are a number of factors that give us measured competence that we can continue to grow U.N steadily in this environment, as well as over the long-term. First, we continue to grow our reach into the marketplace as is evidenced by several investments we have recently made with newly formed relationships. Second, we have developed numerous deep, long-term relationships with active and established firms that look to us as referred source of financing; 81% of the term sheets issued, or for transactions involving a private equity firm. Third, we continue to see plenty of investment opportunities in industry segments that are experiencing long-term secular growth trends and within which we have intentionally developed expertise. And this is supported by origination pace subsequent to quarter-end. We have executed approximately $130 million of new originations in two new portfolio companies and nine follow-ons and had repayments of approximately $11 million in one exit for a net increase of almost $120 million. As you can see on slide 16, our overall portfolio credit quality remains solid. The gross unleveraged IRR on realized investments made by the Saratoga investment management team is 16.4% on $753 million of realizations. In this quarter, we realized a $7.3 million realized gain on the sale of our Gray Heller investment and a $2.6 million realized gain on our Texas Teachers investment for a combined Q3 IRR of 22.2%. On the chart on the right, you could see the total gross on levered IRR on our $619 million of combined weighted SBIC and BDC unrealized investments is 11.9% since Saratoga took over management. The two U.N, the two largest unrealized depreciations remaining due to COVID are in our Nolan Group and C2 Education investments, both of which are more dependent on in-person human interaction and remain our only yellow rated investments. We do not believe the remaining unrealized appreciation changes our view of their fundamental long-term performance. Even with those current markdowns, our overall portfolio value is now almost 3% above its total cost. Our investment approach has yielded exceptional realized returns. Moving on to slide 17, you can see our first SBIC license is fully funded. Our second SBIC license has already been fully funded with $80.5 million of equity of which $207 million of equity and SBA ventures have been deployed. There are still $3 million of cash and $76 million of ventures currently available against that equity. When comparing this quarter too much of last year, the way the portfolio has proven itself to be both durable and resilient against the impact of COVID 19 and the subsequent market adjustment really underscores the strength of our team platform and portfolio and our overall underwriting and due diligence procedures. Credit quality remains our primary focus, especially at times with such high levels as we are seeing now. And while the world is in continuous flux, we remain intensely focused on preserving asset value and remain confident in our team and the future for Saratoga. This concludes my review of the market, and I'd like to turn the call back over to our CEO, Chris?

[Christian Oberbeck:]

Thank you, Mike it's outlined on slide 18, the Board of Directors declared a $0.53 per share dividend for the quarter-ended November 30th, 2021 payable on January 19th, 2022. This reflected a $0.01 cent or 2% increase from last quarter. The Board of Directors will continue to evaluate the dividend level on at least a quarterly basis, considering both Company and general economic factors. Moving to slide 19, our total return for the last 12-months, which includes both capital appreciation and dividends has generated total returns of 46% above the BDC index of 32%. Our longer term performance is outlined done our next slide over three and five year returns. Our three and five year returns place us in the top 14 and top seven, respectively of all BDCs for both time horizons over the past three years, our 71% return exceeded the 50% return of the index. While over the past five year years, our 122% return greatly exceeded the index is 58% return. On slide 21, you can further see our outperformance placed in the context of the broader industry and specific to certain key performance metrics. We continue to focus on our long-term return on equity NAV per share performance and AI yield and dividend growth, which are both consistent. And at the top of the industry and reflects the growing value. Our shareholders are receiving not only are we one of the few BDCs to have grown NAV, we have done it. Credibly by also growing NAV per share, 16 of the past 18 quarters. Moving on to slide 22, all of our initiatives discussed on this call are designed to make Saratoga investment, a highly competitive BDC that is attractive to the capital markets community. We believe that our differentiated performance characteristics outline in the slide will help drive the size and quality of our investor base, including adding more institutions. Our differentiating characteristics include maintaining one of the highest levels of management ownership in the industry at 15% access to low cost and long-term liquidity with which is support our portfolio and make a creative investment receipt of our second SBIC, license providing a sub 2% cost liquidity, a BBB+ investment grade rating and active public and private bond issuances. Solid historic earnings per share and NII yield, strong and industry-leading historic and long-term return on equity accompanied by growing NAV, and NAV per share; Putting us at the top of the industry for both. High-quality expansion of AUM & an attractive risk profile. In addition, our historically high credit quality portfolio contains minimal exposure to conventionally cyclical industries, including the oil and gas industry. We remain confident that our experience management team historically strong underwriting standards and time and market tested investment strategy will service well in battling through the challenges in the current and future environment and that our balance sheet capital structure and liquidity will benefit, share to Saratoga shareholders in the near and long-term. In closing, I would again like to thank all of our shareholders for their ongoing support. And I would now like to open a call for questions.

[Operator:]

Thank you. Our first question comes from Casey Alexander with Compass Point.

[Casey Alexander:]

Hi, good morning. And I, I think you guys are doing a great job, but I, I do have a few questions for you. My first one is for Henri. Henri, you redid the credit facility this quarter, but there are BDCs that are smaller than Saratoga that have credit facilities from traditional banks that are still significantly lower cost than the Encino line that you guys did. What is this lender, finance credit facility program give you that a traditional bank at a lower rate would not?

[Henri Steenkamp:]

Yeah, sure. Casey, it's a good question. And it's a very important one that we obviously have very intentionally considered and constructed our balance sheet in this way. So the traditional credit facility that you see from banks in the, at most, if not all, BDCs have generally have covenants that have BDC level covenants in them. So things like tangible net worth, EBIDA, multiple quarters of negative bottom lines, et cetera. And the facility can be triggered and repayment can get triggered through these BDC level covenants. We've constructed our balance sheet from the start, from, from the time when Saratoga took over as a balance sheet that was going to not have covenants that could put the franchise as a whole at risk, if you potentially had an event that was just specific to, this, this S P V, this, this edit facility entity and our facility is structured in a way that, again, similar to the Madison facility, which was like that as well, doesn't have any, firm wide BDC, wide covenants. It's a really, really important feature to us. And yes, we are paying up for it, but it provides us flexibility so that we have cash available if we need. But doesn't put, any the franchise, the business as a whole at risk because of something, very specific to the market that could happen in the SPV itself. So it's really choosing structure above price for us. And especially because we have the SBIC capacity and our unsecured lending rates have come down so much, it's still enables us even with this higher rate in this facility to achieve our cost of capital goals that, that we want to

[Christian Oberbeck:]

Yeah. If I could just weigh in a little here on that as well to just add to Henri's very thorough explanation Casey, if you remember back the dark days of March of '20 and April of '20, there were a number of, of BDCs that and provide had been very successful ones that wound up getting out of formula with their low cost lines of credit. And, and some of them had to make some very substantial capital contributions to avoid default or modify their facilities in a really extreme moment. At that time, we had the Madison facility and we, we didn't have any of those concerns. Obviously we had a lot of other concerns, but the concerns about our capital structure and having defaults and those type of things were, were not we're not something we had to worry about at that at that moment and that's always been very important to us. You're your point is well taken that there are lower cost approaches to financing. But those come with lots of formulaic requirements. I think Henri outlined some of the covenant ones, there's also diversity. There's also like mix of, of what you have in your portfolio and things like that. And, at some point in time facilities like that, may make more sense to us than they, than they do right now, but we've been working very hard, forever from the very beginning at having a capital structure that allows us, unfortunately for whatever, for whatever reason it is, we live in an era of, of, lots of calm and then some massive down spikes. And, and we just want to make sure that we're, we're, we're insured against the massive down spike and really not only defensively, but also offensively. I mean, as, as we were able to keep investing right through that very, our period in, in that, in that second quarter of '20 and, and, made some very good investments and built some very strong relationships by being ready and able in a really adverse environment to just continue with our business. And so, so that's really kind of the thinking behind it. And again, your point is, well about optimization of cost of financing, but we're also trying to optimize, you know safety and concern and not to go too far into it, but, but what we were able to do in that quarter because of our, our, our financial structure has paid enormous dividends to Saratoga in terms of investments, we were able to make at that point in time that we think way more than offset whatever excess costs we had in that facility.

[Casey Alexander:]

All right. Thank you for that answer. My next question again, kind of back to Henri and maybe Henri, my sort of everybody, but in this quarter, in the fiscal third quarter, you made fairly aggressive use of the ATM $15 million is, is a, is a fair amount for an ATM in one quarter. So I, I can assume that you knew you had in the pipeline, a lot of deals that were going to be closing in December because that, that clearly is, is what happened. But would you characterize your usage of the ATM in this quarter as a normal rate, an above normal rate, would you, as, as you see originations moderating for, over the, to the year there would be less aggressive use of the ATM, I'd just like to get some sort of nuance around the usage of the ATM in that particular quarter?

[Henri Steenkamp:]

Sure. Casey that's a, very good question and a very important one, I think, on a very high level, if you look at, the overall BDC industry, and I know you're in expert in it, the, periods of time when BDCs have been able to raise equity capital has not been continuous, right. And, there's periods of time where you can raise money. And then there's actually longer periods of time where you can't equity money because of, trading below ne and market conditions. And the like, so on, on, on one level we are looking at kind of a long-term horizon, which is our broad based growth trend and our broad-based growth trend is significantly up our relationships, our building. I think I went through in his presentation, we're developing a lot of relationships and a, and a lot of deal flow. I think that the level of our, our recent month, shows, not only our, our, our relationships to generate the deal flow, but also our ability to execute. And so we believe in the long run, a stronger and, and, and more robust equity base is, is important for us to achieve our growth objectives and, and, and our natural growth inside the market that we're in. And so part of it is, is really taking advantage of, the market's receptivity to equity raises, when, it's available. So that one thing, so we're not, we weren't really tying it specifically to this next quarter and this next, set of originations, it was really much more of a, of a broad gauged, what kind of equity levels are appropriate over our next, 1, 2, 3, 4 years as we, as we look at, out into the future in terms of, what we intend to do going forward part of it's going to be driven by market receptivity. And part of it's going to be driven by how we see the environment in terms of originations and our, our capital structure?

[Casey Alexander:]

Okay. Well, I would just, you kind of interject into that, that ATMs are, sort of the spigot for available near term liquidity, but you don't want the ATM to become so much supply that it retards the potential appreciation of the stock and that, that that's something that, that shareholders have to be aware of as well. Mike, my, my next question is for you, which is, I'm going to ask you to put on your, your telescopic goggles and, and try to give us a feel for how far does yield compression go. And at what point in time, does it potentially bottom out or does it bottom out? Are we moving to a new paradigm of yields that are going to embed themselves in the lower middle market?

[Michael Grisius:]

Boy? Oh boy. Casey, that's quite, if I had a crystal ball. Gosh look, I think it's a fair question and, and certainly we've seen yield compression and over the years, I've, often, tried to look forward and think about that from a macro level. And one of the things that I've learned over the years, thankfully, is that, for us the way we look at it is we want to make sure that we're seeing plenty of deal opportunities, where we can deploy capital in a way that's creative for our shareholders. And if you look at the yields that, that we book new deal that this past quarter, which is, averages, north of 8%, let's say somewhere eight and eight and a half percent. We can deploy capital at that level, very creatively for our shareholders, especially as our cost of capitals come down. I think our, our cost of capital in the SBIC is less than 2%. Henry mentioned where the institutional bonds are priced at et cetera. That's something that we can continue to do in a way that's very accretive for our shareholders. I would say this too, that in really hot markets and we're in one now, for sure. And it's, it's a reflection of there being such a long period, except for COVID where the COVID scare, where there hasn't really been a massive disruption in the markets, in the economy. In general, there are people that are doing deals right now that never saw downturn. We are competing with people that were probably in high school when, when the last recession happened, unfortunately, but this management team has been through a number of cycles. And so we're, really careful about making sure that we're preserving our capital base and we believe firmly that you make money and credit by not losing money. We've been successful at doing that so far. So that's kind of a, a bit of a long-winded way of saying that we're not going to put ourselves in a position where we're going to stretch for yield in hot markets. You've got to, you've got to make sure that you continue to focus on credit quality and getting the best assets in your portfolio, certainly at a spread that is created for your shareholders, but not making the mistake of saying, oh we need to have a yield that's X because that's where BDCs typically get a yield. And if in, so doing, you end up expanding your risk profile quite considerably, which would be the case in this market that wouldn't be a wise move. So that's the approach that we've taken. I think fortunately the way we've constructed our balance sheet, there could still be more compression in yields and we're comfortable that we could deploy that capital very accretively and the comments I make on accretive capital deployment are of course, without taking into account. The returns that we typically get on our equity co investments, which as I mentioned getting 16.4% unlevered returns on realized investments of over $750 million that that's also happening, not just by spread, but by much of what we've done in terms of investing in equity in a, in a way that's been very beneficial to our shareholders. So hopefully that gives your perspective of how we think about it, hard for us to try to time or, or, or predict too much where spreads are going to go.

[Casey Alexander:]

Okay. Thank you for that, Mike. And I have one more question and I apologize if I'm co-opting the call just a little bit, but a couple of years ago when COVID hit, this is for you Christian, a couple years ago when COVID hit the company had kind of a dramatic response. And of course there were shutdowns at the time two years, we rule forward here and dealing with the Omicron variant and Saratoga has a much more measured response, almost feels like you're on the offense. To a great extent is that because Saratoga now has a playbook, the portfolio companies have a playbook, the private equity sponsors have a playbook and, and these variance and inconveniences are just that an inconvenience. And you guys put the playbook to work and you know what you're going to do?

[Michael Grisius:]

Well, Casey I wish where that, that were exactly the case. But I, guess I'd say a couple things. I think when it, when, when, when, when the when the whole COVID thing hit there was this massive shock to the system, a massive decline in the stock market as, and, and massive dry up of liquidity and all sort of the things reminiscent of like 2008, you know going on in the marketplace and plus a tremendous amount of mystery around what COVID would do. I mean, was it the black death? We were going to have 30% fatalities. I mean, there's just a whole bunch of things that were completely unknown. I think as we fast forward to today there's a lot more experience. There's a lot more there's the vaccines, there's the treatments, there's the herd immunity. There's a lot of things going on that have made this less of a mystery and more of something that's kind of a quantifiable, manageable risk if you will Omicron. I mean I think everybody's still learning about that. I mean, that's sort of, sort of coming on as real fast and furious. So to say that we have playbook for Omicron is maybe that's we're just not in that position to say we do have one the early data. I mean, I'm not saying anything that, and so we're certainly not an expert on, on, on this field, but I mean it looks as if the marketplace in general is viewing Omicron as something that we're going to get through the Pan moving to endemic. I mean, there's a whole lot of thinking around that line with the information we have at hand. And so but, but in terms of the, the, the response in terms of our playing offense, I think again, back going back to that time in, in 20 everything kind of dried up and all the incoming calls to us, we're about how do we rescue our capital structure kind of thing, where now we're sort of an environment where massive acquisitions growth. And so we, we are you know responding to a lot of what the market is presenting to us, obviously using all the credit bills we have to try and structure things that we think take advantage of the moment, but also protect us if there is a reversal in the future. And I think if you look at our credit metrics, if you look at our attachment points and all those types of things and the types of companies we're financing we feel pretty good about our portfolio as we did back then. But so yeah, I would just say that also, I think financially, I think we're in a in a stronger position than we were back then, and, and our knowledge base is better. And the world is better. I think there's more tools to apply against something that's better understood for the moment.

[Henri Steenkamp:]

Hey, Chris, let me just jump in a little bit to, help augment that the one, one thing to think about Casey, less of a reaction to the COVID environment and having a game plan around it. Most of the success that we're having recently in deploying capital at a greater pace is really just a reflection of the investments that we've made in the franchise over the years. One of the things that we've done and we're very proud of is we've beat, we've built some very deep relationships with groups that we invest capital with and support their portfolio companies. So much of what we've done really well is getting that repeat business from existing relationships. And you can see that, especially in our follow on activity where we find good businesses to support and know owners of those businesses come back to us for more capital. And that really is a, is a great underpinning of, of support for our balance sheet. And it's been a, it's been an avenue for growth for us. What's especially exciting about what we're doing now and, and there's still work to do. And that also excites us cause we think there, the upside is quite financial, is that in this environment vis-à-vis, going back a few years ago, we've really been successful in growing our relationship set. And that takes quite a while. We do a lot of vetting of these relationships. Many of them we've been quoting for years. And so I think just to, to reiterate eight, I think we had 12 new portfolio companies this past calendar year and seven of them are with new relationships. And so if you were to go back a few years separate and apart from anything related to COVID cetera, we wouldn't have had seven new portfolio companies with new relationships. And that's just a, of the investments that we've been making in building the franchise and are continuing to do

[Casey Alexander:]

Guys, thank you for taking my questions. I apologize to the other analysts for having so many questions, but in this case, this was stuff that I just really, really wanted to know about. So thank you very

[Operator:]

Our next question comes from Sarkis Sherbetchyan with B. Riley Securities

[Sarkis Sherbetchyan:]

Hi, good morning. And thank you for taking my question here. Just wanted to kind of get an understanding and, and, and maybe a, a balance between your comments on this being, especially a borrower's market the tighter spreads, the aggressive leverage multiples and, and it being pretty competitive out there relative to if we kind of look at the comments the $130 million in new originations after quarter in just want to kind of get a sense for how, how are you underwrite in this environment, given that you, you mentioned that your bar remains high and balancing that with the comments in in just kind of the, the environment in general?

[Michael Grisius:]

Well, it's, it's the, it's the challenge that we face all the time in our BU business. And I, I sort of use the term, the, it we've always got one foot on the gas and one foot on the brakes as opposed to one on the gas and then taking it off the gas and on the brake here, you're always trying to manage growth, but trying to keep your underwriting bar really high. And I think we've done a really good job of it over the years. It's one of the reasons our growth has been Canada slow and steady over the years. We continue to turn down far, far more deals than we do. And many of the other players in the marketplace that are, are going ahead and doing some of those deals. It doesn't mean that we always make the right decision. But I, we think our track record speaks for itself. So we, we have for a main discipline, we have not changed our underwriting bar at all. We certainly are seeing more deals in this marketplace and we're seeing or more quality deals in this marketplace, but I think most importantly, we're seeing deals from relationships that we didn't have before. And so that now has enabled us to, to kind of cast a wider net if you will, or a higher quality net. And as a result it it's enabled us to, to deploy more capital while keeping our underwriting bar the same as it has been. Now, if you look at just to put a finer point on the, the post quarter end product, most of that was with follow on with existing portfolio companies. And that really has been a recipe for success for us. I, I do want to make a point there. We we'll do a number of deals that are sub 10 million or 15 million initial investments. Many of our competitors won't bother with deals that size, but we'll do the extra work to get that that capital deployed in really good businesses. And that's been an avenue for us to deploy more capital over time. Many of our larger deals were ones that started off quite a bit smaller. So that that's a little, a lot of, even that post quarter end production is a little less reflective of a super active M&A market, which there certainly is one and more reflective of us deploying capital and existing portfolio companies.

[Henri Steenkamp:]

Yeah. If I could just add a little to that. I think and a guiding principle from the very beginning in our credit process has been, as Mike said underwriting first and price second. And, I, we recognize there's a correlation there's a, a risk adjusted return equation, but in the waiting of that risk adjusted, you have price and risk. And, I think one of the things that we've been very careful about is making sure that we're we, will, we would rather underwrite a, a, a super solid credit for less price than less credit for more price. And, and I think that principle has been guiding us throughout this. So, even though it's quote a borrower's market, I think as micro articulated, there's quite, there's a number of companies that we finance that, that don't have quite as many they're not auctioning the whole pro process. There's a lot of value add to our partnership with them in terms of helping them execute on their deals. It's not pure price so it's a relationships it's service, its confidence. It's a lot of things like that. So we're, we're able to have sort of a value added pricing, if you will, in, what we do with, quite a with most of what we do, for that matter. So yes, we have to reflect our larger market. We also reflect the, the quality and nature of what we're providing within the circumstances and the deals that we're looking at. But again, I think that the thought to leave you with is that our even in sort of quote a borrower's market, there is a lot of selection going on in our shop towards the credit quality side of it.

[Sarkis Sherbetchyan:]

That's very helpful. Thank you. And, and one final one from, from my per I think if I look at slide 11 and, and the industry snapshot, I think you mentioned 34 industries in that table. If we look at the, the industries and sectors today that you're looking at and, or underwriting in have, has anything shifted in where you're willing to invest or, or go, or maybe take on more size in certain industries versus where you've historically been any comments around that?

[Michael Grisius:]

Well, I think you'll, notice in, that slide, that there's one, a lot of diversity, but, and it's across a number of industries and the common credit characteristics across them are, are still the same. we're looking for businesses that really offer a compelling value proposition to their, their customers in a way that we think is sticky their leaders in their field. The, end markets that they're operating in have good positive dynamics they're led by really strong management teams. And so they can be in a lot of different industries, but they have those common characteristics. We have always I shouldn't say always, but, but over sort of the last five years, let's say we made a distinct effort to develop expertise in three particular areas. We, we still are generalists and we want to see businesses that have all the elements that I just described. But in addition to that, we've developed expertise in healthcare education, and then more broadly investing in SaaS business models. And those are areas that we feel we have very, very strong underwriting capabilities in, you'll see us continue to deploy capital in those areas because one those industries generally, and, and a SAAS is more of a business model than an industry, but nonetheless, they, they're less they're less cyclical for one. And if you have a business that can bring a greater level of productivity or a greater outcome to those end markets you're generally going to take share in, in those end markets because they notoriously unproductive and, and, and not there, there are industries that have been under invested in that respect. And so if you're a business that's coming to market in a way that is helping take costs out of the system or driving greater productivity in those particular end markets and SAAS, I would say that's true just in general. That's a lot of what that, that business model is offering. You're going to do well regard generally, regardless of the, the direction the economy takes. So hopefully that gives you a sense of how we think about it as well.

[Operator:]

Our next question comes from Bryce Row with Hovde Group

[Bryce Row:]

Thanks. Good morning. Wanted, to kind of follow up and maybe ask the question around post quarter end activity a, a little bit differently and, wanted to get a feel for if, you think about that, activity having already been, been closed or booked here in the period post quarter end, Mike maybe you could speak to kind of what the pipeline building process might be from, from point forward. And then how to think about more, more broadly you, you mentioned a more broad, broad based growth trends given the business development that you all have done over the last several years, how does that kind of translate into what you think from a portfolio activity or origination activity going forward maybe on an, annual type basis, as opposed to thinking about quarterly?

[Christian Oberbeck:]

Yeah, no, I'm glad you go ahead, Mike, Mike, why don't we just jump going before I that high level, and, then I'll pass it on to the team here. I, think that obviously doing the, the level of originate net originations we did at the end of the quarter was extraordinary in our history. I think it's a Testament to our team that both they were able to originate all that and that they were able to execute all that in, in such a short period of time. So I think, that's something that we're very proud of having gotten to the level of being able to generate that and execute that. So I think that's, a very important sort of proof of capability if you will, of, of our franchise. So, I think that shows what we're capable of doing now. One of the things we're not able to do is to predict what what's coming our way and, so looking on any given quarter or any given month or any given week one of our weeks was $50 million week. Are we going to do 52 of those? We'd love to do 52 of those, but that's probably not in the cards right now. So, what we, need to do for from the market standpoint is we need to be ready willing and able to react and address and proactively go after what fits our criteria when it's available. And, so it happens to be a very robust time. Why is it so robust right now? There's a lot of there's a lot of theories out there and you're in the investment business, you've heard tons of them, right? Part of it is pent up demand from '20 cause there was very much that happened then. And so then there's some pent up demand. There's the threat of tax changes in Washington. There's a robust economy, there's antitrust, so let's get our deals done now before the, I mean, there's just so many things going on that have, we'll sort of lift the fire under sort of M&A fever, if you will. And there's tremendous records being set in M&A, from the smallest of companies all the way to the most senior there's demographic trends with baby boomers saying, okay, this is a good time I'm 65 years old. I want to take some money off the table. And there's just so many factors contributing to why people might be wanting to sell right now. And then in a changed environment maybe next year that kind of can dissipate. That's not something that we're in a position to predict. But what we, try and do is be in a physician to handle what comes at us and, and, and, and, and if it, and if it, if it does continue we're going to be there to be able to execute on that. And if it doesn't, we're going to be prepared for that as well. And, and so, so that's kind of our, broad look and, Mike, I'm sorry for cutting you off. I think you, had something to say as well.

[Michael Grisius:]

No, no, that's it's a terrific way to describe the, the macro perspective. And so all else equal if the macro environment stays where it is we feel good about our pipeline. We feel good about the investments that we've made our infrastructure and relationships. So we're, we feel that, our capacity to invest capital borrowing any changes in the macro trends is very solid and probably greater than what it has been historically. We, as don't put up I'm glad to hear you ask the question more on an annual basis, cause we certainly don't think about investing quarter to quarter ever. That's the first way you get into trouble. I think as I can't remember how many years ago, but there was one quarter where we did actually did no deals. And then that's kind of what you want from an investor, right? Somebody who just says, if I'm not seeing a good deal opportunity, I'm not going to just cause that's what we do for a living. So we feel good about our ability to deploy capital and probably given the investments that we've made at a bit greater pace than we have historically. But we're always going to be watchful of market trends and we're certainly not going to make any decisions that would be related to, to where we lower our underwriting bar. We're going to be just as disciplined in that respect.

[Bryce Row:]

Okay. That, that that's helpful and certainly appreciate the approach and the perspective maybe a question here for, Henry on, the revenue side of things on the income statement. Henry, it looks like you guys booked some more dividend income here in the quarter. I'm assuming that's related to the preferred equity investments that were made earlier in the year and it looks like both of those now have been repaid, just kind of curious how you think about that, that line item going forward is, is there another source of dividend income that, that you're seeing right now, and then also wanted to just get any level of commentary you have around the CLO, the CLO yield given your comment about market, but volatility and, and seeing that yield kind of move around as much as it has over the last year, year and a half? Thanks.

[Henri Steenkamp:]

Yeah, sure. Bryce, so to your first question yes, we had three investments that had preferred equity that was paying a dividend income and two of them have been repaid during, during the, I think one this quarter one, the previous quarter. So, we are down to one investment it's Artemis, wax investment that has still preferred equity that pays dividends. So you're going to see that dividend income line come down. If there is still one investment that you, will see dividend income from for the, rest and for the most part, other dividend income comes in odd occasions from some other investments, but not that material significant as you had on the preferred equity side. So that'll simplify that line cause I know that's a little bit more complicated. And secondly what was the second question was on, sorry, same question was on CLO. Sorry. Yes. So as the CLO valuation has a lot of different variables that could go into it. And one of the variables that impact the valuation and then also impact the weighted average effective interest rate that drives our, our interest income on the CLO equity is market performance. And there were really two changes that impacted our cash flows this quarter from a market perspective. One was the change in the LIBOR curve. LIBOR effectively increased 35 basis points through the quarter and it creates a timing difference between the, the time period that our assets reset that the library reset for the assets which is more on a quarterly basis versus where on our liability sided resets on a monthly basis. So that created a reduction in our, cash flows because of the LIBOR curve change. And then secondly, we also saw a couple more that were deemed in default because we deem investments that are trading below. I think it's 80 as being in default just for valuation purposes, doesn't mean they are in default just for evaluation purposes. And so we saw an increase in, in those assets during the quarter, again from a, from a market perspective and a marketing perspective. So the combination of those to decrease the cash, the projected cash flows over the life of the CLO, which then drives the weighted average effective interest rate down. So obviously depending on what the market does over the next two months through the end of February that that, that could, could drive a change in the, in the interest rate again. And obviously as the test is as off quarter in, so it's sort of not really relevant what the market's doing now. It's really where the market is at the point in time at the end of February.

[Operator:]

Our next question comes from Mickey Schleien with Ladenburg

[Mickey Schleien:]

Yes. Good morning, everyone. Perhaps a question for Mike one of your new investments this quarter was in LFR, which is in the restaurant sector and, and as we all know, that can be very difficult to underwrite. So could you describe what attracted you to LFR and, in particular, how much leverages there in this deal?

[Michael Grisius:]

Good morning, Mickey, and, thanks for the questions. obviously these are private companies, so we don't get into too much of the details on the, the, the great details in particular of the, of the business. But, I can say that in this case, we obviously have good experience in the restaurant space and the, the underwriting bar was quite high. This is a business that is drives the, majority of its cash-flow as a franchisor. It's a business that's been around successfully since the sixties it's unit economics for its underlying franchisees are stronger than most of its competitors in the space. And we did an awful lot of diligence to get very comfortable that we're in a good spot, very good spot in the, a balance sheet relative to our debt. So, and it's generally in the, scheme of looking at the deal relative to franchisor leverage multiples, it's very much on the low side of where you typically see a franchisor get leverage.

[Mickey Schleien:]

Appreciate that. Mike. Henry, just curious, I suspect it may be due to timing, but, but why did you fund some of your investments this quarter with SBA to ventures when, when you have so much cash on the balance sheet.

[Henri Steenkamp:]

That's a good question. It's always a balance. We tend to try to sort of balance funding in the SBIC versus outside the SBIC when we have excess cash, like we had this quarter, but at the same time, once you fund outside the SBIC you can't later put the investment into the SBIC. And so we never make decisions on, on funding. with just a short term view or short term lens, we try to focus on sort of where we're going to get the highest return over the long term. And so in this quarter where we had excess cash, we sort of balance that. Whereas normally, if you know your cat, if you don't have to so much efficient cash, it will just automatically always go into the SBIC cause that's a highest return.

[Mickey Schleien:]

Right. I understand. Thank you, Henri. And Henri, what, what if I'm not mistaken, there was a reversal for professional fee crews. Can you just clarify that? And what's the outlook for that line item?

[Henri Steenkamp:]

Sure. Yeah, we we've always try to optimize costs and this year, as we have been growing, we've actually been growing and building not just on the, sort of the, the origination side, but also on, on the expanse line item side and the actual back office side. And so we've optimized some of our processes and optimized some of our vendors in a way where some of our accruals were higher than they were needed to. And so we had a release of some of the expenses reflecting the activities sort of over the first nine months or so of the year. I think sort of going forward definitely this quarter is, is not a run rate to be used going forward. It's probably more appropriate to, to use sort of the run rate from a quarterly perspective that we had in, in prior quarters. But our, sort of optimization has allowed us to release some of the, some of the accruals we had and it was really across accounting, legal and valuation.

[Mickey Schleien:]

I appreciate that Henri and my last question, a lot of moving parts so difficult for us to triangulate. What, what, where you stand on distributed taxable income. Can, you give us a sense of where that number is and how you intend to manage that?

[Henri Steenkamp:]

Yeah, I think on the I haven't run the latest Rick Calc as of right now, but I think we went into the, into the year, if you recall with, with about a quarter and a half spill over, that's obviously been covered completely. We Mo we most likely based on our current dividend rate and our earnings rate will have a spill over, I think, going into the end of February and I guess into March into next year. But we'll, we'll sort of assess that the big assessment of that is during our, our year end period, but I, you, you can expect it to be a spill over at the end of February.

[Operator:]

Our next question comes from Robert Dodd with Raymond James.

[Robert Dodd:]

Hi guys, a, about origination makes I more interested in the future, obviously. I mean, you've done a lot of follow on investments. I mean, there's a great right, cause the company as well the, the, the under it comfort is, is probably higher, but can you give us any, any idea is, is given you've done so many and, and I think something that something approaching two thirds or three quarters of your portfolio companies about follow on in the last 12-months, something like that should we expect there to be less follow-ons in, in, '22, or do you expect that pace to stay elevated and, and those portfolio companies maybe to be serial acquirers and, and on that, I mean, if there is a change in mix, would that change the dynamics of the, of spread compression or, or yield compression? Are you, are you, are you getting the same spreads on a follow one as the existing loan to that business and lower spreads on new investments? Or is there any dynamic play there?

[Henri Steenkamp:]

Maybe I'll take that on a high level to begin with. I, think what you're touching on is an really important part of our investment strategy. I think a lot of our investments, I think, as Mike was mentioning and hi in his, his portion we do a lot of small, small deals. We start out with sometimes as low as five or 10 million of initial investment, but we're often investing in growing companies and companies that grow through acquisition. And, so that's a very important part of what we do. And we think it's very helpful for us on pricing as a matter of fact, because we get in and we establish pricing when they, when the companies are smaller and then as they grow we are a better able to maintain, perhaps some of our, our pricing. Then we would've, if they, if they were kind of going out to the market de Novo. So we think it's a helpful strategy but it's also really what we do, right. I mean, know, it's, that's, that's part of what our appeal is, is that we'll, we'll, we'll get involved with a company that's got growth plans that our coming into fruition, sometimes growth by acquisition. Sometimes it's internal funding, sometimes it's more aggressive internal funding. And so we are the type of partner where we're kind of in an active dialogue with our, with our, our growth investments on what they need and when they need it. And then from their standpoint, they don't want to take down more money on the front end than they need to. They don't want to pay more interest and fees, et cetera. So there's kind of a, a sort of a partnership exercise going on between investee and us as to when to fund what they need when, and so they want some just in time funding and, and so, there's kind of this combination of things, but it's much more a reflection of our investment strategy and the types of companies we're investing in, then some then, then sort of a market phenomenon, if you will. And now in terms of what proportions we'll have, I think our objective, our growth objective is to have more new platforms cause new platforms then lead to more follow on and investments in those platforms. And so, and then more, more, more investment opportunities with the sponsors of those new platforms. So, so we're very interested in the new platforms and we're also very interested in supporting our existing portfolio. Mike, you have something to add to that.

[Michael Grisius:]

Yeah. I think you covered it by and large, but it's a very good question. There's a sequence that you, you may and, and a bit of a pattern that you may see in our portfolio over time, along those lines where we'll, we'll make an initial invest. And many of our initial platform investments are on the smaller side and we intentionally are looking for opportunities to invest in some of these smaller companies where we know we're going to do the hard work at the front end, and then we'll have, there's nothing better than getting a call from the owner of a company that's doing really well. And they they're looking for more capital to, to execute on an acquisition that makes sense, or to fuel their further growth. And so there's a pattern there now. You're right. At some point, especially for the private equity own platforms, they're going to look to exit and you've seen that pattern as well, where we get to a certain size and, and oftentimes at, at, at some point they exit that deal. It's one of the reasons why we are anxious to try to co-invest in the equity when we get that chance, but re reloading our balance sheet with new platform opportunities is, is a key to making that game plan work and, and we've been successful. So for, and expect it, we're going to continue to do that.

[Robert Dodd:]

Got go. I appreciate that call. Thanks a lot. One, more. I, I thought ask, I mean, you increased the dividend in this quarter to 53 earned that dividend this quarter, even in a quarter where, where prepay and, an activity was, quite low. So clearly that that dividend is, is fairly solid to me, looking to December obviously, significant AUM growth, much more activity. So we should see income. I mean, I would expect the, dividend coverage is, is not going to be a question the question is, so what's the framework Christian, as, as a member of the border you said the board evaluates the dividend at least quarterly. Can you give us any color on, what need what expectations might be the, the, the long word for it, but what the, what the framework is for another dividend increase, given what appears to be continuing to continue expansion in, in earning power out of the platform?

[Michael Grisius:]

Yeah. Yes. I mean, I think that's an excellent question. That's something that we are constantly evaluating our ourselves. I, I think probably the, you know the base level principle here is as a BDC registered investment company, we have requirements for dividends that that that I don't always have to be cash dividends, but there's a dividend requirement that and I think Henry touched on that we have our year end in February, and we've got a, tax filing in November. And so we need to be in compliance, there's some flexibility around spillover amounts. So you can in effect, push forward some of your tax obligation it's a limit how far you can push it, push it forward. So our first print here is what, what are our underlying requirements for payout and, so we look at that and then the second is liquidity. And then as, as you may recall in back in in, in the in March of 20, when the, the, the impact of COVID was so heavily felt both in the markets and, and in the country and the world we had zero spillover at that moment. And, and so was a store of liquidity, if you will that we, we could have gone to sort of four quarters worth of, of, of liquidity from that source had we needed it. We did, we did avail ourselves to some of that liquidity, which created some of the spillover. So we look at spillover, we look at our cost spillover is like a 4% cost of capital. you, you get an excise tax at 4% on anything you haven't spill over. So there's a cost to spill over. And then we have a cost to all of our other financing. So we look at it in that context, and we also look at it as our, as what are our sources of liquidity if things go against us or, or go against the marketplace in general. And then, we also want to have a dividend rate that is sustainable in the future and borrowing crazy events. And, and so what we're trying to do is establish a trajectory and a, a level of our dividends that that our investors can have confidence that are sustainable. So those are kind of the main factors that go into it. And, as you can, well, imagine every quarter is a slightly different picture when it comes time to, to make that declaration. And, and so, so that, that's what goes into it. And we do a fresh relook at everything certainly a recorder and, and actually more often than that

[Operator:]

That concludes today's question and answer session. I'd like to turn the call back to Mr. Overbeck for closing remarks.

[Christian Oberbeck:]

Well we appreciate everyone's time and attention to Saratoga. And we want to thank everyone for joining us today. And we look forward to speaking with you next quarter,

[Operator:]

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