Saratoga Investment outlines $406.8M in liquidity and maintains $0.75 dividend amid competitive market

Earnings Call Insights: Saratoga Investment Corp (SAR) Q2 2026

MANAGEMENT VIEW

* CEO Christian Oberbeck highlighted "continued NAV growth from the previous quarter and year and NAV per share growth from the previous quarter." He emphasized strong return on equity, net originations of $22.4 million, and the return of the Zollege investment to accrual status, reducing nonaccrual investments to just one, representing 0.2% of portfolio fair value.
* Oberbeck announced a base dividend of $0.25 per share per month, or $0.75 per share in aggregate for the third quarter of fiscal 2026. He stated, "Our annualized third-quarter dividend of $0.75 per share represents a 12.3% yield based on the stock price of $24.41 as of October 6, 2025."
* Oberbeck acknowledged the impact of "the past 12-month trend of decreasing levels of short-term interest rates and spreads on Saratoga Investments largely floating rate assets" and noted cash reserves of $201 million at quarter end, available for investment or debt repayment.
* CFO Henri Steenkamp reported, "Adjusted NII was $9.1 million this quarter, down 50.1% from last year and 10.5% from last quarter." He noted a net interest margin decrease from $15.1 million last quarter to $13.1 million, citing lower non-CLO interest income and a decrease in average assets.
* Steenkamp also stated, "NAV was $410.5 million as of fiscal quarter end, a $14.1 million increase from last quarter and a $38.4 million increase from the same quarter last year."
* Co-Managing Partner & Chief Investment Officer Michael Grisius discussed market conditions, referencing "historically low M&A volume in the lower middle market and an abundant supply of capital causing spreads to tighten and leverage to remain full as lenders compete to win deals."

OUTLOOK

* Oberbeck reaffirmed the dividend policy, "We declared that same level of $0.75 for the quarter ending November 30, 2025, marking the third quarter of our new dividend payment structure." He added, "The Board of Directors will continue to evaluate the dividend level on at least a quarterly basis, considering both company and general economic factors, including the current interest rate macro environment's impact on our earnings."
* Management stated, "We believe Saratoga continues to be favorably situated for potential future economic opportunities as well as challenges... we remain prudent and discerning in terms of the new commitments in the current volatile environment."

FINANCIAL RESULTS

* The company reported quarter-end NAV of $410.5 million, up 3.6% from $396.4 million last quarter and up 10.3% from $372.1 million last year.
* Adjusted NII was $9.1 million, down 12.1% from last quarter and 50.1% from last year.
* NAV per share rose to $25.61 from $25.52 last quarter.
* Portfolio fair value was $995.3 million. Originations totaled $52.2 million, including follow-ons and new CLO debt securities.
* Nonaccrual investments decreased to one, with only 0.2% of portfolio fair value on nonaccrual status.
* The company had $406.8 million of available liquidity at quarter end, including $201 million in cash.

Q&A

* Erik Zwick, Lucid Capital Markets, LLC, asked about strategies to improve dividend coverage given headwinds from lower short-term rates. CEO Oberbeck responded, "We've got an enormous pipeline, and we're looking at lots and lots of deals. Our ability to deploy capital could turn very quickly... we can grow 40-plus percent of our assets inside the 4 corners of our current financial capability."
* Zwick followed up on competitive dynamics and larger competitors moving down market. Grisius answered, "I would expect... when there's a dearth of deals in the marketplace, you'll see people sort of reach down into a lower end of the market... I wouldn't expect to see them permanently residing in our end of the market."
* Casey Alexander, Compass Point, asked about the rationale for investing in CLO securities. Oberbeck explained, "The securities that we're investing in are very different than equity. They're way up the scale. And we're investing in BB-rated and even BBB-rated."
* Alexander questioned the gap between NII and the dividend. Oberbeck replied, "We feel like we're not that far off of being able to get -- close that gap for a variety of reasons... there's really -- there's no particular need to cut the dividend relative to our spillover requirements right now."
* Robert Dodd, Raymond James, inquired about the potential size of CLO investments. Oberbeck indicated, "I think right now, Henri, like around 5%. And we would be comfortable being larger, maybe twice that much. We don't know."

SENTIMENT ANALYSIS

* Analysts expressed concerns over dividend coverage, the NII-dividend gap, and CLO investment strategy, showing a slightly negative to neutral tone, pressing for clarity on capital deployment and risk.
* Management responded with confidence, emphasizing pipeline strength and strategic discipline, but also used phrases like "we think we're kind of in a moment where it makes sense to hang in there," indicating a slightly cautious but steady stance.
* Compared to the previous quarter, the tone among analysts was more probing on dividend sustainability and asset allocation, while management maintained a similar level of composure but with more emphasis on discipline and long-term positioning.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language remained focused on prudence and discipline, but there was an increased emphasis on deploying excess liquidity and closing the dividend coverage gap.
* Strategic focus shifted toward increasing CLO debt investments and expanding business development efforts.
* Analysts in the current quarter pressed more on dividend sustainability and the rationale for structured product allocations.
* Key metrics showed a decrease in adjusted NII and a slight increase in NAV per share and NAV, while liquidity remains strong but cash balances declined from $224 million to $201 million.
* Management's tone remained steady, but with heightened caution around market competition and asset deployment challenges.

RISKS AND CONCERNS

* Management cited "very competitive market dynamics," "historically low M&A volume," and "abundant supply of capital causing spreads to tighten" as ongoing challenges.
* Analysts were concerned about the sustainability of the dividend, the current NII shortfall, and the allocation to CLO securities.
* Management's mitigation strategies emphasized expanding business development, maintaining high underwriting standards, and leveraging significant available liquidity for selective deployment.

FINAL TAKEAWAY

Saratoga Investment Corp. management emphasized the company's strong liquidity position, prudent underwriting, and resilience in a volatile credit environment. While acknowledging headwinds from lower rates and competitive pressures, the team highlighted their robust pipeline, reduced nonaccruals, and disciplined approach to capital deployment, reinforcing confidence in long-term value creation and dividend maintenance despite near-term NII challenges.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/sar/earnings/transcripts]

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