SARATOGA INVESTMENT

SAR
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SARATOGA INVESTMENT : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/07/2020 | 04:04pm


The following discussion should be read in conjunction with our consolidated
financial statements and related notes and other financial information appearing
elsewhere in this Quarterly Report on Form 10-Q. In addition to historical
information, the following discussion and other parts of this Quarterly Report
contain forward-looking information that involves risks and uncertainties. Our
actual results could differ materially from those anticipated by such
forward-looking information due to the factors discussed under "Note about
Forward-Looking Statements" and Part I, Item 1A. "Risk Factors" in our Annual
Report on Form 10-K for the fiscal year ended February 29, 2020.


The forward-looking statements are based on our beliefs, assumptions and
expectations of our future performance, taking into account all information
currently available to us. These beliefs, assumptions and expectations can
change as a result of many possible events or factors, not all of which are
known to us or are within our control. If a change occurs, our business,
financial condition, liquidity and results of operations may vary materially
from those expressed in our forward-looking statements.



The forward-looking statements contained in this Quarterly Report on Form 10-Q
involve risks and uncertainties, including statements as to:



• our future operating results and the impact of COVID-19 pandemic thereon;



• the introduction, withdrawal, success and timing of business initiatives
and strategies;



• changes in political, economic or industry conditions, the interest rate
environment or financial and capital markets, which could result in changes in
the value of our assets;


• pandemics or other serious public health events, such as the recent global
outbreak of COVID-19;



• the relative and absolute investment performance and operations of our
Manager;



• the impact of increased competition;



• our ability to turn potential investment opportunities into transactions
and thereafter into completed and successful investments;



• the unfavorable resolution of any future legal proceedings;



• our business prospects and the prospects of our portfolio companies,
including our and their ability to achieve our respective objectives as a result
of the current COVID-19 pandemic;



• the impact of investments that we expect to make and future acquisitions
and divestitures;



• our contractual arrangements and relationships with third parties;



• the dependence of our future success on the general economy and its impact
on the industries in which we invest and the impact of the COVID-19 pandemic
thereon;

• the ability of our portfolio companies to achieve their objectives;

• our expected financings and investments;

• our regulatory structure and tax status, including our ability to operate
as a business development company ("BDC"), or to operate our small business
investment company ("SBIC") subsidiaries, and to continue to qualify to be taxed
as a regulated investment company ("RIC");


• the adequacy of our cash resources and working capital;



• the timing of cash flows, if any, from the operations of our portfolio
companies and the impact of the COVID-19 pandemic thereon;



• the impact of interest rate volatility on our results, particularly because
we use leverage as part of our investment strategy;



• the impact of legislative and regulatory actions and reforms and
regulatory, supervisory or enforcement actions of government agencies relating
to us or our Manager;




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• the impact of changes to tax legislation and, generally, our tax position;



• our ability to access capital and any future financings by us;



• the ability of our Manager to attract and retain highly talented
professionals; and



• the ability of our Manager to locate suitable investments for us and to
monitor and effectively administer our investments and the impacts of the
COVID-19 pandemic thereon.




The following statements are not guarantees of future performance and are
subject to risks, uncertainties, and other factors, some of which are beyond our
control and difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements,
including without limitation:

• changes in laws and regulations, changes in political, economic or industry
conditions, and changes in the interest rate environment, including with respect
to the anticipated discontinuation of LIBOR, or other conditions affecting the
financial and capital markets, including with respect to changes resulting from
or in response to, or potentially even the absence of changes as a result of,
the impact of the COVID-19 pandemic;

• the length and duration of the COVID-19 outbreak in the United States as
well as worldwide, and the magnitude of its impact and time required for
economic recovery, including with respect to the impact of travel restrictions
and other isolation and quarantine measures on the ability of the Manager's
investment professionals to conduct in-person diligence on, and otherwise
monitor, existing and future investments;

• an economic downturn and the time period required for robust economic
recovery therefrom, including the current economic downturn as a result of the
impact of the COVID-19 pandemic, which may have a material impact on our
portfolio companies' results of operations and financial condition, which could
lead to the loss of some or all of our investments in certain portfolio
companies and have a material adverse effect on our results of operations and
financial condition;

• a contraction of available credit, an inability or unwillingness of our
lenders to fund their commitments to us and/or an inability to access capital
markets or additional sources of liquidity, including as a result of the impact
and duration of the COVID-19 pandemic, could have a material adverse effect on
our results of operations and financial condition and impair our lending and
investment activities;

• risks associated with possible disruption in our portfolio companies'
operations due to wars and other forms of conflict, terrorist acts, security
operations and catastrophic events such as fires, floods, earthquakes,
tornadoes, hurricanes and global health epidemics; and

• the risks, uncertainties and other factors we identify in "Risk Factors" in
our most recent Annual Report on Form 10-K under Part I, Item 1A, in our
quarterly reports on Form 10-Q, including this report, and in our other filings
with the SEC that we make from time to time.

Such forward-looking statements may include statements preceded by, followed by
or that otherwise include terms such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "plan," "potential," "project," "should,"
"will" and "would" or the negative of these terms or other comparable
terminology.

We have based the forward-looking statements included in this quarterly report
on Form 10-Q on information available to us on the date of this quarterly report
on Form 10-Q, and we assume no obligation to update any such forward-looking
statements. Actual results could differ materially from those anticipated in our
forward-looking statements, and future results could differ materially from
historical performance. We undertake no obligation to revise or update any
forward-looking statements, whether as a result of new information, future
events or otherwise, unless required by law or SEC rule or regulation. You are
advised to consult any additional disclosures that we may make directly to you
or through reports that we in the future may file with the SEC, including annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K.


The following analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the
related notes thereto contained elsewhere in this quarterly report on Form 10-Q.




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OVERVIEW

We are a Maryland corporation that has elected to be treated as a BDC under the
1940 Act. Our investment objective is to create attractive risk-adjusted returns
by generating current income and long-term capital appreciation from our
investments. We invest primarily in senior and unitranche leveraged loans and
mezzanine debt issued by private U.S. middle market companies, which we define
as companies having earnings before interest, tax, depreciation and amortization
("EBITDA") of between $2 million and $50 million, both through direct lending
and through participation in loan syndicates. We may also invest up to 30.0% of
the portfolio in opportunistic investments in order to seek to enhance returns
to stockholders. Such investments may include investments in distressed debt,
which may include securities of companies in bankruptcy, foreign debt, private
equity, securities of public companies that are not thinly traded and structured
finance vehicles such as collateralized loan obligation funds. Although we have
no current intention to do so, to the extent we invest in private equity funds,
we will limit our investments in entities that are excluded from the definition
of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the 1940
Act, which includes private equity funds, to no more than 15.0% of its net
assets. We have elected and qualified to be treated as a RIC under Subchapter M
of the Code.

COVID-19 Update

On March 11, 2020, the World Health Organization declared the novel coronavirus,
or COVID-19, as a pandemic, and on March 13, 2020 the United States declared a
national emergency with respect to COVID-19. The outbreak of COVID-19 has, and
continues, to severely impact global economic activity and cause significant
volatility and negative pressure in financial markets. The global impact of the
outbreak has been rapidly evolving and many countries, including the
United States
, have reacted by instituting quarantines, mandating business and
school closures and restricting travel. Such actions are creating disruption in
global supply chains and adversely impacting a number of industries. The
outbreak could have a continued adverse impact on economic and market conditions
and trigger a period of global economic slowdown. The rapid development and
fluidity of this situation precludes any prediction as to the ultimate adverse
impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty and
risks with respect to the underlying value of the Company's portfolio companies,
the Company's business, financial condition, results of operations and cash
flows, such as the potential negative impact to financing arrangements, company
decisions to delay, defer and/or modify the character of dividends in order to
preserve liquidity, increased costs of operations, changes in law and/or
regulation, and uncertainty regarding government and regulatory policy.

We have evaluated subsequent events from September 1, 2020 through October 7,
2020
. However, as the discussion in this Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations relates to the
Company's financial statements for the quarter-ended August 31, 2020, the
analysis contained herein may not fully account for impacts relating to the
COVID-19 pandemic. In that regard, for example, as of August 31, 2020, the
Company valued its portfolio investments in conformity with U.S. GAAP based on
the facts and circumstances known by the Company at that time, or reasonably
expected to be known at that time. Due to the overall volatility that the
COVID-19 pandemic has caused, any valuations conducted now or in the future in
conformity with U.S. GAAP could result in a lower fair value of our portfolio.
The potential impact to our results going forward will depend to a large extent
on future developments and new information that may emerge regarding the
duration and severity of COVID- 19 and the actions taken by authorities and
other entities to contain the coronavirus or treat its impact, all of which are
beyond our control. Accordingly, the Company cannot predict the extent to which
its financial condition and results of operations will be affected at this time.


Corporate History




We commenced operations, at the time known as GSC Investment Corp., on March 23,
2007
and completed an initial public offering of shares of common stock on March
28, 2007
. Prior to July 30, 2010, we were externally managed and advised by GSCP
(NJ), L.P.
, an entity affiliated with GSC Group, Inc. In connection with the
consummation of a recapitalization transaction on July 30, 2010, as described
below we engaged Saratoga Investment Advisors to replace GSCP (NJ), L.P. as our
investment adviser and changed our name to Saratoga Investment Corp.

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As a result of the event of default under a revolving securitized credit
facility with Deutsche Bank we previously had in place, in December 2008 we
engaged the investment banking firm of Stifel, Nicolaus & Company to evaluate
strategic transaction opportunities and consider alternatives for us. On April
14, 2010
, GSC Investment Corp. entered into a stock purchase agreement with
Saratoga Investment Advisors and certain of its affiliates and an assignment,
assumption and novation agreement with Saratoga Investment Advisors, pursuant to
which GSC Investment Corp. assumed certain rights and obligations of Saratoga
Investment Advisors
under a debt commitment letter Saratoga Investment Advisors
received from Madison Capital Funding LLC, which indicated Madison Capital
Funding's
willingness to provide GSC Investment Corp. with a $40.0 million
senior secured revolving credit facility, subject to the satisfaction of certain
terms and conditions. In addition, GSC Investment Corp. and GSCP (NJ), L.P.
entered into a termination and release agreement, to be effective as of the
closing of the transaction contemplated by the stock purchase agreement,
pursuant to which GSCP (NJ), L.P., among other things, agreed to waive any and
all accrued and unpaid deferred incentive management fees up to and as of the
closing of the transaction contemplated by the stock purchase agreement but
continued to be entitled to receive the base management fees earned through the
date of the closing of the transaction contemplated by the stock purchase
agreement.

On July 30, 2010, the transactions contemplated by the stock purchase agreement
with Saratoga Investment Advisors and certain of its affiliates were completed,
the private sale of 986,842 shares of our common stock for $15.0 million in
aggregate purchase price to Saratoga Investment Advisors and certain of its
affiliates closed, the Company entered into the Credit Facility, and the Company
began doing business as Saratoga Investment Corp.

We used the net proceeds from the private sale transaction and a portion of the
funds available to us under the Credit Facility to pay the full amount of
principal and accrued interest, including default interest, outstanding under
our revolving securitized credit facility with Deutsche Bank. The revolving
securitized credit facility with Deutsche Bank was terminated in connection with
our payment of all amounts outstanding thereunder on July 30, 2010.

On August 12, 2010, we effected a one-for-ten reverse stock split of our
outstanding common stock. As a result of the reverse stock split, every ten
shares of our common stock were converted into one share of our common stock.
Any fractional shares received as a result of the reverse stock split were
redeemed for cash. The total cash payment in lieu of shares was $230.
Immediately after the reverse stock split, we had 2,680,842 shares of our common
stock outstanding.


In January 2011, we registered for public resale of the 986,842 shares of our
common stock issued to Saratoga Investment Advisors and certain of its
affiliates.




On March 28, 2012, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC,
LP
("SBIC LP"), received an SBIC license from the Small Business Administration
("SBA"). On August 14, 2019, our wholly-owned subsidiary, Saratoga Investment
Corp.
SBIC II LP ("SBIC II LP"), also received an SBIC license from the SBA.

In May 2013, we issued $48.3 million in aggregate principal amount of our 7.50%
fixed-rate unsecured notes due 2020 (the "2020 Notes") for net proceeds of $46.1
million
after deducting underwriting commissions of $1.9 million and offering
costs of $0.3 million. The proceeds included the underwriters' full exercise of
their overallotment option. The 2020 Notes were listed on the NYSE under the
trading symbol "SAQ" with a par value of $25.00 per share. The 2020 Notes were
redeemed in full on January 13, 2017 and are no longer listed on the NYSE.

On May 29, 2015, we entered into a Debt Distribution Agreement with Ladenburg
Thalmann & Co.
through which we may offer for sale, from time to time, up to
$20.0 million in aggregate principal amount of the 2020 Notes through an
At-the-Market ("ATM") offering. Prior to the 2020 Notes being redeemed in full,
the Company sold 539,725 bonds with a principal of $13.5 million at an average
price of $25.31 for aggregate net proceeds of $13.4 million (net of transaction
costs).

On December 21, 2016, we issued $74.5 million in aggregate principal amount of
our 6.75% fixed-rate unsecured notes due 2023 (the "2023Notes") for net proceeds
of $71.7 million after deducting underwriting commissions of approximately $2.3
million
and offering costs of approximately $0.5 million. The issuance included
the exercise of substantially all of the underwriters' option to purchase an
additional $9.8 million aggregate principal amount of 2023 Notes within 30 days.
The 2023 Notes were listed on the NYSE under the trading symbol "SAB" with a par
value of $25.00 per share. On December 21, 2019 and February 7, 2020, the
Company redeemed $50.0 million and $24.5 million, respectively, in aggregate
principal amount of the $74.5 million in aggregate principal amount of issued
and outstanding 2023 Notes.

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On March 16, 2017, we entered into an equity distribution agreement with
Ladenburg Thalmann & Co. Inc., through which we may offer for sale, from time to
time, up to $30.0 million of our common stock through an ATM offering.
Subsequent to this, BB&T Capital Markets and B. Riley FBR, Inc. were also added
to the agreement. On July 11, 2019, the amount of the common stock to be offered
through this offering was increased to $70.0 million, and on October 8, 2019,
the amount of the common stock to be offered was increased to $130.0 million. As
of August 31, 2020, the Company sold 3,922,018 shares for gross proceeds of
$97.1 million at an average price of $24.77 for aggregate net proceeds of $95.9
million
(net of transaction costs). During the six months ended August 31, 2020,
there was no activity related to the ATM offering.

On July 13, 2018, the Company issued 1,150,000 shares of its common stock priced
at $25.00 per share (par value $0.001 per share) at an aggregate total of $28.75
million
. The net proceeds, after deducting underwriting commissions of $1.15
million
and offering costs of approximately $0.2 million, amounted to
approximately $27.4 million. The Company also granted the underwriters a 30-day
option to purchase up to an additional 172,500 shares of its common stock, which
was not exercised.

On August 28, 2018, the Company issued $40.0 million in aggregate principal
amount of our 6.25% fixed-rate notes due 2025 (the "6.25% 2025 Notes") for net
proceeds of $38.7 million after deducting underwriting commissions of
approximately $1.3 million. Offering costs incurred were approximately $0.3
million
. The issuance included the full exercise of the underwriters' option to
purchase an additional $5.0 million aggregate principal amount of 6.25% 2025
Notes within 30 days. Interest on the 6.25% 2025 Notes is paid quarterly in
arrears on February 28, May 31, August 31 and November 30, at a rate of 6.25%
per year, beginning November 30, 2018. The 6.25% 2025 Notes mature on August 31,
2025
and commencing August 28, 2021, may be redeemed in whole or in part at any
time or from time to time at our option. The net proceeds from the offering were
used for general corporate purposes in accordance with our investment objective
and strategies. Financing costs of $1.6 million related to the 6.25% 2025 Notes
have been capitalized and are being amortized over the term of the 6.25% 2025
Notes.

On December 14, 2018, the Company completed the third refinancing of the
Saratoga CLO (the "2013-1 Reset CLO Notes"). This refinancing, among other
things, extended the Saratoga CLO reinvestment period to January 2021, and
extended its legal maturity to January 2030. A non-call period of January 2020
was also added. In addition to and as part of the refinancing, the Saratoga CLO
has also been upsized from $300 million in assets to approximately $500 million.
As part of this refinancing and upsizing, the Company invested an additional
$13.8 million in all of the newly issued subordinated notes of the Saratoga CLO,
and purchased $2.5 million in aggregate principal amount of the Class F-R-2
Notes tranche and $7.5 million in aggregate principal amount of the Class G-R-2
Notes tranche at par. Concurrently, the existing $4.5 million of Class F notes
were repaid.

On February 5, 2019, the Company completed a re-opening and up-sizing of its
existing 6.25% 2025 Notes by issuing an additional $20.0 million in aggregate
principal amount for net proceeds of $19.2 million after deducting underwriting
commissions of approximately $0.6 million and discount of $0.2 million. Offering
costs incurred were approximately $0.2 million. The issuance included the full
exercise of the underwriters' option to purchase an additional $2.5 million
aggregate principal amount of 6.25% 2025 Notes within 30 days. Interest rate,
interest payment dates and maturity remain unchanged from the existing 6.25%
2025 Notes issued in August 2018. The net proceeds from this offering were used
for general corporate purposes in accordance with our investment objective and
strategies. The financing costs and discount of $1.0 million related to the
6.25% 2025 Notes have been capitalized and are being amortized over the term of
the 6.25% 2025 Notes. As of August 31, 2020, the total 6.25% 2025 Notes
outstanding was $60.0 million. The 6.25% 2025 Notes are listed on the NYSE under
the trading symbol "SAF" with a par value of $25.00 per share.

On August 14, 2019, our wholly-owned subsidiary, Saratoga Investment Corp. SBIC
II LP
("SBIC II LP"), also received an SBIC license from the SBA. The new
license will provide up to $175.0 million in additional long-term capital in the
form of SBA debentures.

On February 11, 2020, the Company entered into an unsecured loan agreement ("CLO
2013-1 Warehouse 2 Loan") with Saratoga Investment Corp. CLO 2013-1 Warehouse 2,
Ltd ("CLO 2013-1 Warehouse 2"), a wholly-owned subsidiary of Saratoga CLO,
pursuant to which CLO 2013-1 Warehouse 2 may borrow from time to time up to
$20.0 million from the Company in order to provide capital necessary to support
warehouse activities. The CLO 2013-1 Warehouse 2 Loan, which expires on August
20, 2021
, bears interest at an annual rate of 3M USD LIBOR +7.5%.

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On June 24, 2020, the Company issued $37.5 million in aggregate principal amount
of our 7.25% fixed-rate notes due 2025 (the "7.25% 2025 Notes") for net proceeds
of $36.3 million after deducting underwriting commissions of approximately $1.2
million
. Offering costs incurred were approximately $0.3 million. On July 6,
2020
, the underwriters exercised their option in full to purchase an additional
$5.625 million in aggregate principal amount of its 7.25% unsecured notes due
2025. Net proceeds to the Company were $5.4 million after deducting underwriting
commissions of approximately $0.2 million. Interest on the 7.25% 2025 Notes is
paid quarterly in arrears on February 28, May 31, August 31 and November 30, at
a rate of 7.25% per year, beginning August 31, 2020. The 7.25% 2025 Notes mature
on June 30, 2025 and commencing June 24, 2022, may be redeemed in whole or in
part at any time or from time to time at our option. The net proceeds from the
offering were used for general corporate purposes in accordance with our
investment objective and strategies. Financing costs of $1.6 million related to
the 7.25% 2025 Notes have been capitalized and are being amortized over the term
of the 7.25% 2025 Notes. The Company has received an investment grade private
rating of "BBB" from Egan-Jones Ratings Company, an independent, unaffiliated
rating agency. As of August 31, 2020, the total 7.25% 2025 Notes outstanding was
$43.1 million. The 7.25% 2025 Notes are listed on the NYSE under the trading
symbol "SAK" with a par value of $25.00 per share.

On July 9, 2020, the Company issued $5.0 million aggregate principal amount of
our 7.75% fixed-rate Notes due in 2025 (the "7.75% 2025 Notes") for net proceeds
of $4.8 million after deducting underwriting commissions of approximately $0.2
million
. Offering costs incurred were approximately $0.1 million. Interest on
the 7.75% Notes 2025 is paid quarterly in arrears on February 28, May 31, August
31
and November 30, at a rate of 7.75% per year, beginning August 31, 2020. The
7.75% Notes 2025 mature on July 9, 2025 and may be redeemed in whole or in part
at any time or from time to time at our option. The net proceeds from the
offering were used for general corporate purposes in accordance with our
investment objective and strategies. Financing costs of $0.3 million related to
the 7.75% Notes 2025 have been capitalized and are being amortized over the term
of the Notes. As of August 31, 2020, the total 7.25% 2025 Notes outstanding was
$5.0 million. The 7.75% 2025 Notes are unlisted and has a par value of $25.00
per share.

Critical Accounting Policies

Basis of Presentation

The preparation of financial statements in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") requires management to make certain
estimates and assumptions affecting amounts reported in the Company's
consolidated financial statements. We have identified investment valuation,
revenue recognition and the recognition of capital gains incentive fee expense
as our most critical accounting estimates. We continuously evaluate our
estimates, including those related to the matters described below. These
estimates are based on the information that is currently available to us and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ materially from those estimates under
different assumptions or conditions. A discussion of our critical accounting
policies follows.

Investment Valuation

The Company accounts for its investments at fair value in accordance with the
Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") Topic 820, Fair Value Measurement and Disclosures ("ASC 820"). ASC 820
defines fair value, establishes a framework for measuring fair value,
establishes a fair value hierarchy based on the quality of inputs used to
measure fair value and enhances disclosure requirements for fair value
measurements. ASC 820 requires the Company to assume that its investments are to
be sold or its liabilities are to be transferred at the balance sheet date in
the principal market to independent market participants, or in the absence of a
principal market, in the most advantageous market, which may be a hypothetical
market. Market participants are defined as buyers and sellers in the principal
or most advantageous market that are independent, knowledgeable, and willing and
able to transact.

Investments for which market quotations are readily available are fair valued at
such market quotations obtained from independent third-party pricing services
and market makers subject to any decision by our board of directors to approve a
fair value determination to reflect significant events affecting the value of
these investments. We value investments for which market quotations are not
readily available at fair value as approved, in good faith, by our board of
directors based on input from Saratoga Investment Advisors, the audit committee

89

of our board of directors and a third party independent valuation firm.
Determinations of fair value may involve subjective judgments and estimates. The
types of factors that may be considered in determining the fair value of our
investments include the nature and realizable value of any collateral, the
portfolio company's ability to make payments, market yield trend analysis, the
markets in which the portfolio company does business, comparison to publicly
traded companies, discounted cash flow and other relevant factors.


We undertake a multi-step valuation process each quarter when valuing
investments for which market quotations are not readily available, as described
below:



• Each investment is initially valued by the responsible investment
professionals of Saratoga Investment Advisors and preliminary valuation
conclusions are documented and discussed with our senior management; and




• An independent valuation firm engaged by our board of directors
independently reviews a selection of these preliminary valuations each quarter
so that the valuation of each investment for which market quotes are not readily
available is reviewed by the independent valuation firm at least once each
fiscal year. We use a third-party independent valuation firm to value our
investment in the subordinated notes of Saratoga CLO and the Class F-R-2 Notes
and Class G-R-2 Notes tranches of the Saratoga CLOs every quarter.


In addition, all our investments are subject to the following valuation process:



• The audit committee of our board of directors reviews and approves each
preliminary valuation and Saratoga Investment Advisors and an independent
valuation firm (if applicable) will supplement the preliminary valuation to
reflect any comments provided by the audit committee; and




• Our board of directors discusses the valuations and approves the fair value
of each investment, in good faith, based on the input of Saratoga Investment
Advisors
, independent valuation firm (to the extent applicable) and the audit
committee of our board of directors.

Our investment in Saratoga CLO is carried at fair value, which is based on a
discounted cash flow model that utilizes prepayment, re-investment and loss
assumptions based on historical experience and projected performance, economic
factors, the characteristics of the underlying cash flow, and comparable yields
for equity interests in collateralized loan obligation funds similar to Saratoga
CLO, when available, as determined by Saratoga Investment Advisors and
recommended to our board of directors. Specifically, we use Intex cash flow
models, or an appropriate substitute, to form the basis for the valuation of our
investment in Saratoga CLO. The models use a set of assumptions including
projected default rates, recovery rates, reinvestment rate and prepayment rates
in order to arrive at estimated valuations. The assumptions are based on
available market data and projections provided by third parties as well as
management estimates. We use the output from the Intex models (i.e., the
estimated cash flows) to perform a discounted cash flow analysis on expected
future cash flows to determine a valuation for our investment in Saratoga CLO.

Revenue Recognition

Income Recognition

Interest income, adjusted for amortization of premium and accretion of discount,
is recorded on an accrual basis to the extent that such amounts are expected to
be collected. The Company stops accruing interest on its investments when it is
determined that interest is no longer collectible. Discounts and premiums on
investments purchased are accreted/amortized over the life of the respective
investment using the effective yield method. The amortized cost of investments
represents the original cost adjusted for the accretion of discounts and
amortization of premiums on investments.

Loans are generally placed on non-accrual status when there is reasonable doubt
that principal or interest will be collected. Accrued interest is generally
reserved when a loan is placed on non-accrual status. Interest payments received
on non-accrual loans may be recognized as a reduction in principal depending
upon management's judgment regarding collectability. Non-accrual loans are
restored to accrual status when past due principal and interest is paid and, in
management's judgment, are likely to remain current, although we may make
exceptions to this general rule if the loan has sufficient collateral value and
is in the process of collection.

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Payment-in-Kind Interest




The Company holds debt and preferred equity investments in its portfolio that
contain a payment-in-kind ("PIK") interest provision. The PIK interest, which
represents contractually deferred interest added to the investment balance that
is generally due at maturity, is generally recorded on the accrual basis to the
extent such amounts are expected to be collected. We stop accruing PIK interest
if we do not expect the issuer to be able to pay all principal and interest



when
due.

Revenues



We generate revenue in the form of interest income and capital gains on the debt
investments that we hold and capital gains, if any, on equity interests that we
may acquire. We expect our debt investments, whether in the form of leveraged
loans or mezzanine debt, to have terms of up to ten years, and to bear interest
at either a fixed or floating rate. Interest on debt will be payable generally
either quarterly or semi-annually. In some cases, our debt or preferred equity
investments may provide for a portion or all of the interest to be PIK. To the
extent interest is PIK, it will be payable through the increase of the principal
amount of the obligation by the amount of interest due on the then-outstanding
aggregate principal amount of such obligation. The principal amount of the debt
and any accrued but unpaid interest will generally become due at the maturity
date. In addition, we may generate revenue in the form of commitment,
origination, structuring or diligence fees, fees for providing managerial
assistance or investment management services and possibly consulting fees. Any
such fees will be generated in connection with our investments and recognized as
earned. We may also invest in preferred equity or common equity securities that
pay dividends on a current basis.


On January 22, 2008, we entered into a collateral management agreement with
Saratoga CLO, pursuant to which we act as its collateral manager. The Saratoga
CLO was initially refinanced in October 2013 with its reinvestment period
extended to October 2016. On November 15, 2016, we completed a second
refinancing of the Saratoga CLO with its reinvestment period extended to
October 2018.




On December 14, 2018, we completed a third refinancing and upsize of the
Saratoga CLO. The third Saratoga CLO refinancing, among other things, extended
its reinvestment period to January 2021, and extended its legal maturity date to
January 2030. A non-call period of January 2020 was also added. Following this
refinancing, the Saratoga CLO portfolio increased from approximately $300.0
million
in aggregate principal amount to approximately $500.0 million of
predominantly senior secured first lien term loans. In addition to refinancing
its liabilities, we invested an additional $13.8 million in all of the newly
issued subordinated notes of the Saratoga CLO and also purchased $2.5 million in
aggregate principal amount of the Class F-R-2 and $7.5 million in aggregate
principal amount of the Class G-R-2 notes tranches at par, with a coupon of
LIBOR plus 8.75% and LIBOR plus 10.00%, respectively. As part of this
refinancing, we also redeemed our existing $4.5 million aggregate amount of the
Class F notes tranche at par.

On February 11, 2020, the Company entered into an unsecured loan agreement ("CLO
2013-1 Warehouse 2 Loan") with Saratoga Investment Corp. CLO 2013-1 Warehouse 2,
Ltd ("CLO 2013-1 Warehouse 2"), a wholly-owned subsidiary of Saratoga CLO,
pursuant to which CLO 2013-1 Warehouse 2 may borrow from time to time up to
$20.0 million from the Company in order to provide capital necessary to support
warehouse activities. The CLO 2013-1 Warehouse 2 Loan, which expires on August
20, 2021
, bears interest at an annual rate of 3M USD LIBOR + 7.5%. For the six
months ended August 31, 2020, the maximum amount invested by us in CLO 2013-1
Warehouse 2 amounted to $5.0 million. As of August 31, 2020, the fair value of
our investment in CLO 2013-1 Warehouse 2 was $4.6 million.


The Saratoga CLO remains effectively 100% owned and managed by Saratoga
Investment Corp.
We receive a base management fee of 0.10% per annum and a
subordinated management fee of 0.40% per annum of the outstanding principal
amount of Saratoga CLO's assets, paid quarterly to the extent of available
proceeds. Prior to the second refinancing and the issuance of the 2013-1 Amended
CLO Notes, we received a base management fee of 0.25% per annum and a
subordinated management fee of 0.25% per annum of the outstanding principal
amount of Saratoga CLO's assets, paid quarterly to the extent of available
proceeds.




Following the third refinancing and the issuance of the 2013-1 Reset CLO Notes
on December 14, 2018, we are no longer entitled to an incentive management fee
equal to 20.0% of excess cash flow to the extent the Saratoga CLO subordinated
notes receive an internal rate of return paid in cash equal to or greater than
12.0%.

91

Interest income on our investment in Saratoga CLO is recorded using the
effective interest method in accordance with the provisions of ASC Topic 325-40,
Investments-Other, Beneficial Interests in Securitized Financial Assets ("ASC
325-40"), based on the anticipated yield and the estimated cash flows over the
projected life of the investment. Yields are revised when there are changes in
actual or estimated cash flows due to changes in prepayments and/or
re-investments, credit losses or asset pricing. Changes in estimated yield are
recognized as an adjustment to the estimated yield over the remaining life of
the investment from the date the estimated yield was changed.


Expenses




Our primary operating expenses include the payment of investment advisory and
management fees, professional fees, directors and officers insurance, fees paid
to independent directors and administrator expenses, including our allocable
portion of our administrator's overhead. Our investment advisory and management
fees compensate our Manager for its work in identifying, evaluating,
negotiating, closing and monitoring our investments. We bear all other costs and
expenses of our operations and transactions, including those relating to:


• organization;



• calculating our net asset value (including the cost and expenses of any
independent valuation firm);



• expenses incurred by our Manager payable to third parties, including
agents, consultants or other advisers, in monitoring our financial and legal
affairs and in monitoring our investments and performing due diligence on our
prospective portfolio companies;


• expenses incurred by our Manager payable for travel and due diligence on
our prospective portfolio companies;



• interest payable on debt, if any, incurred to finance our investments;




• offerings of our common stock and other securities;

• investment advisory and management fees;



• fees payable to third parties, including agents, consultants or other
advisers, relating to, or associated with, evaluating and making investments;




• transfer agent and custodial fees;

• federal and state registration fees;



• all costs of registration and listing our common stock on any securities
exchange;




• federal, state and local taxes;

• independent directors' fees and expenses;



• costs of preparing and filing reports or other documents required by
governmental bodies (including the U.S. Securities and Exchange Commission
("SEC") and the SBA);



• costs of any reports, proxy statements or other notices to common
stockholders including printing costs;



• our fidelity bond, directors and officers errors and omissions liability
insurance, and any other insurance premiums;



• direct costs and expenses of administration, including printing, mailing,
long distance telephone, copying, secretarial and other staff, independent
auditors and outside legal costs; and




• administration fees and all other expenses incurred by us or, if
applicable, the administrator in connection with administering our business
(including payments under the Administration Agreement based upon our allocable
portion of the administrator's overhead in performing its obligations under an
Administration Agreement, including rent and the allocable portion of the cost
of our officers and their respective staffs (including travel expenses)).

92

Pursuant to the investment advisory and management agreement that we had with
GSCP (NJ), L.P., our former investment adviser and administrator, we had agreed
to pay GSCP (NJ), L.P. as investment adviser a quarterly base management fee of
1.75% of the average value of our total assets (other than cash or cash
equivalents but including assets purchased with borrowed funds) at the end of
the two most recently completed fiscal quarters and an incentive fee.


The incentive fee had two parts:




• A fee, payable quarterly in arrears, equal to 20.0% of our pre-incentive
fee net investment income, expressed as a rate of return on the value of the net
assets at the end of the immediately preceding quarter, that exceeded a 1.875%
quarterly hurdle rate measured as of the end of each fiscal quarter. Under this
provision, in any fiscal quarter, our former investment adviser received no
incentive fee unless our pre-incentive fee net investment income exceeded the
hurdle rate of 1.875%. Amounts received as a return of capital were not included
in calculating this portion of the incentive fee. Since the hurdle rate was
based on net assets, a return of less than the hurdle rate on total assets could
still have resulted in an incentive fee.

• A fee, payable at the end of each fiscal year, equal to 20.0% of our net
realized capital gains, if any, computed net of all realized capital losses and
unrealized capital depreciation, in each case on a cumulative basis on each
investment in the Company's portfolio, less the aggregate amount of capital
gains incentive fees paid to our former investment adviser through such date.

We deferred cash payment of any incentive fee otherwise earned by our former
investment adviser if, during the then most recent four full fiscal quarters
ending on or prior to the date such payment was to be made, the sum of (a) our
aggregate distributions to our stockholders and (b) our change in net assets
(defined as total assets less liabilities) (before taking into account any
incentive fees payable during that period) was less than 7.5% of our net assets
at the beginning of such period. These calculations were appropriately pro-rated
for the first three fiscal quarters of operation and adjusted for any share
issuances or repurchases during the applicable period. Such incentive fee would
become payable on the next date on which such test had been satisfied for the
most recent four full fiscal quarters or upon certain terminations of the
investment advisory and management agreement. We commenced deferring cash
payment of incentive fees during the quarterly period ended August 31, 2007 and
continued to defer such payments through the quarterly period ended May 31,
2010
. As of July 30, 2010, the date on which GSCP (NJ), L.P. ceased to be our
investment adviser and administrator, we owed GSCP (NJ), L.P. $2.9 million in
fees for services previously provided to us; of which $0.3 million has been paid
by us. GSCP (NJ), L.P. agreed to waive payment by us of the remaining $2.6
million
in connection with the consummation of the stock purchase transaction
with Saratoga Investment Advisors and certain of its affiliates described
elsewhere in this Quarterly Report.

The terms of the investment advisory and management agreement with Saratoga
Investment Advisors
, our current investment adviser, are substantially similar
to the terms of the investment advisory and management agreement we had entered
into with GSCP (NJ), L.P., our former investment adviser, except for the
following material distinctions in the fee terms:

• The capital gains portion of the incentive fee was reset with respect to
gains and losses from May 31, 2010, and therefore losses and gains incurred
prior to such time will not be taken into account when calculating the capital
gains fee payable to Saratoga Investment Advisors and, as a result, Saratoga
Investment Advisors
will be entitled to 20.0% of net gains that arise after May
31, 2010
. In addition, the cost basis for computing realized gains and losses on
investments held by us as of May 31, 2010 equal the fair value of such
investment as of such date. Under the investment advisory and management
agreement with our former investment adviser, GSCP (NJ), L.P., the capital gains
fee was calculated from March 21, 2007, and the gains were substantially
outweighed by losses.

• Under the "catch up" provision, 100.0% of our pre-incentive fee net
investment income with respect to that portion of such pre-incentive fee net
investment income that exceeds 1.875% but is less than or equal to 2.344% in any
fiscal quarter is payable to Saratoga Investment Advisors. This will enable
Saratoga Investment Advisors to receive 20.0% of all net investment income as
such amount approaches 2.344% in any quarter, and Saratoga Investment Advisors
will receive 20.0% of any additional net investment income. Under the investment
advisory and management agreement with our former investment adviser, GSCP (NJ),
L.P.
only received 20.0% of the excess net investment income over 1.875%.

• We will no longer have deferral rights regarding incentive fees in the
event that the distributions to stockholders and change in net assets is less
than 7.5% for the preceding four fiscal quarters.

93


Capital Gains Incentive Fee




The Company records an expense accrual relating to the capital gains incentive
fee payable by the Company to its Manager when the unrealized gains on its
investments exceed all realized capital losses on its investments given the fact
that a capital gains incentive fee would be owed to the Manager if the Company
were to liquidate its investment portfolio at such time. The actual incentive
fee payable to the Company's Manager related to capital gains will be determined
and payable in arrears at the end of each fiscal year and will include only
realized capital gains for the period.


New Accounting Pronouncements




In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform ("ASU
2020-04"). The amendments in ASU 2020-04 provide optional expedients and
exceptions for applying GAAP to contracts, hedging relationships, and other
transactions affected by reference rate reform if certain criteria are met. The
standard is effective as of March 12, 2020 through December 31, 2022. Management
does not believe this optional guidance has a material impact on the Company's
consolidated financial statements and disclosures.


SEC Rule 12b-2 Update



In March 2020, the SEC adopted a final rule under SEC Release No. 34-88365 (the
"Final Rule"), amending the accelerated filer and large accelerated filer
definitions in Exchange Act Rule 12b-2. The amendments include a provision under
which a BDC will be excluded from the "accelerated filer" and "large accelerated
filer" definitions if the BDC has (1) a public float of $75 million or more, but
less than $700 million, and (2) has annual investment income of less than $100
million
. In addition, BDCs are subject to the same transition provisions for
accelerated filer and large accelerated filer status as other issuers, but
instead substituting investment income for revenue. The amendments will reduce
the number of issuers required to comply with the auditor attestation on the
internal control over financial reporting requirement provided under Section
404(b) of the Sarbanes-Oxley Act of 2002. The Final Rule applies to annual
report filings due on or after April 27, 2020. The Company is currently
assessing this Final Rule, but believes it most likely will no longer be an
accelerated filer.


Portfolio and Investment Activity




Investment Portfolio Overview

August 31, February 29,
2020 2020
($ in millions)
Number of investments(1) 79 74



Number of portfolio companies(2) 40



35



Average investment per portfolio company(2) $ 11.8



$ 12.9
Average investment size(1) $ 6.2 $ 6.3
Weighted average maturity(3) 2.8 yrs 3.1 yrs
Number of industries 9 9
Non-performing or delinquent investments (fair
value) $ 5.4 $ 2.1
Fixed rate debt (% of interest earning portfolio)(3) $ 30.4 (6.7%) $ 29.7 (6.8%)
Fixed rate debt (weighted average current coupon)(3) 8.8 % 9.3 %
Floating rate debt (% of interest earning
portfolio)(3) $ 425.8 (93.3%) $ 404.4 (93.2%)
Floating rate debt (weighted average current spread
over LIBOR)(3)(4) 7.9 % 8.0 %


____________



(1) Excludes our investment in the subordinated notes of Saratoga CLO.



(2) Excludes our investment in the subordinated notes of Saratoga CLO,
Class F-R-2 Notes and Class G-R-2 Notes tranches of Saratoga CLO and loan to
Saratoga Investment Corp. CLO 2013-1 Warehouse 2, Ltd.



(3) Excludes our investment in the subordinated notes of Saratoga CLO and
equity interests.



(4) Calculation uses either 1-month or 3-month LIBOR, depending on the
contractual terms, and after factoring in any existing LIBOR floors.




94

During the three months ended August 31, 2020, we invested $31.7 million in new
or existing portfolio companies and had $23.3 million in aggregate amount of
exits and repayments resulting in net investments of $8.4 million for the
period. During the three months ended August 31, 2019, we invested $92.5 million
in new or existing portfolio companies and had $19.0 million in aggregate amount
of exits and repayments resulting in net investments of $73.5 million for the
period.

During the six months ended August 31, 2020, we invested $70.7 million in new or
existing portfolio companies and had $32.6 million in aggregate amount of exits
and repayments resulting in net investments of $38.1 million for the period.
During the six months ended August 31, 2019, we invested $119.9 million in new
or existing portfolio companies and had $45.9 million in aggregate amount of
exits and repayments resulting in net investments of $74.0 million for the
period.

Portfolio Composition

Our portfolio composition at August 31, 2020 and February 29, 2020 at fair value
was as follows:

August 31, 2020 February 29, 2020
Weighted Weighted
Percentage of Average Percentage of Average
Total Current Total Current
Portfolio Yield Portfolio Yield
First lien term loans 76.7 % 9.7 % 71.3 % 9.6 %
Second lien term loans 9.9 11.4 15.1 10.7
Unsecured term loans 1.3 5.9 0.9 9.3
Structured finance securities 6.1 16.4 6.7 11.4
Equity interests 6.0 - 6.0 -
Total 100.0 % 9.6 % 100.0 % 9.3 %


At August 31, 2020, our investment in the subordinated notes of Saratoga CLO, a
collateralized loan obligation fund, had a fair value of $21.6 million and
constituted 4.3% of our portfolio. This investment constitutes a first loss
position in a portfolio that, as of August 31, 2020 and February 29, 2020, was
composed of $521.6 million and $528.4 million, respectively, in aggregate
principal amount of primarily senior secured first lien term loans. In addition,
as of August 31, 2020, we also own $2.5 million in aggregate principal of the
F-R-2 Notes and $7.5 million in aggregate principal of the G-R-2 Notes in the
Saratoga CLO, that only rank senior to the subordinated notes. At August 31,
2020
, our investment in CLO 2013-1 Warehouse 2, a wholly-owned subsidiary of
Saratoga CLO, had a fair value of $4.6 million and constituted 0.9% of our
portfolio.

This investment is subject to unique risks. (See "Part 1. Item 1A. Risk Factors
- Our investment in Saratoga CLO constitutes a leveraged investment in a
portfolio of predominantly senior secured first lien term loans and is subject
to additional risks and volatility" in our Annual Report on Form 10-K for the
fiscal year ended February 29, 2020).

We do not consolidate the Saratoga CLO portfolio in our consolidated financial
statements. Accordingly, the metrics below do not include the underlying
Saratoga CLO portfolio investments. However, at August 31, 2020, $478.0 million
or 98.3% of the Saratoga CLO portfolio investments in terms of market value had
a CMR (as defined below) color rating of green or yellow and six Saratoga CLO
portfolio investments were in default with a fair value of $2.5 million. At
February 29, 2020, $494.2 million or 98.6% of the Saratoga CLO portfolio
investments in terms of market value had a CMR (as defined below) color rating
of green or yellow and two Saratoga CLO portfolio investments were in default
with a fair value of $1.4 million. For more information relating to the Saratoga
CLO, see the audited financial statements for Saratoga in our Annual Report on
Form 10-K for the fiscal year ended February 29, 2020.


Saratoga Investment Advisors normally grades all of our investments using a
credit and monitoring rating system ("CMR"). The CMR consists of a single
component: a color rating. The color rating is based on several criteria,
including financial and operating strength, probability of default, and
restructuring risk. The color ratings are characterized as follows: (Green) -
performing credit; (Yellow) - underperforming credit; (Red) - in principal
payment default and/or expected loss of principal.




95

Portfolio CMR distribution


The CMR distribution for our investments at August 31, 2020 and February 29,
2020
was as follows:




Saratoga Investment Corp.

August 31, 2020 February 29,


2020



Percentage of


Percentage of



Investments at Total Investments at


Total



Color Score Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Green $ 420,092 82.7 % $ 429,784 88.5 %
Yellow 32,667 6.4 2,141 0.5
Red 3,488 0.7 2,137 0.4
N/A(1) 51,870 10.2 51,570 10.6
Total $ 508,117 100.0 % $ 485,632 100.0 %


____________



(1) Comprised of our investment in the subordinated notes of Saratoga CLO and
equity interests.




The change in reserve from $1.2 million as of February 29, 2020 to $1.7 million
as of August 31, 2020 was primarily related to the additional interest accruals
reserved on My Alarm Center, LLC, Roscoe Medical, Inc. and TMAC Acquisition Co.,
LLC
.


The CMR distribution of Saratoga CLO investments at August 31, 2020 and February
29, 2020
was as follows:




Saratoga CLO

August 31, 2020 February 29, 2020
Percentage of Percentage of
Investments at Total Investments at


Total



Color Score Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Green $ 406,644 83.7 % $ 456,767 91.1 %
Yellow 71,671 14.7 37,446 7.5
Red 7,708 1.6 6,787 1.4
N/A(1) 0 0.0 0 0.0
Total $ 486,023 100.0 % $ 501,000 100.0 %


____________




(1) Comprised of Saratoga CLO's equity interests.

96

Portfolio composition by industry grouping at fair value



The following table shows our portfolio composition by industry grouping at fair
value at August 31, 2020 and February 29, 2020:




Saratoga Investment Corp.

August 31, 2020 February 29, 2020*
Percentage of Percentage of
Investments At Total Investments At Total
Fair Value Portfolio Fair Value Portfolio
($ in thousands)



Education Software $ 97,431 19.2 % $ 96,055 19.8 %
IT Services 80,678 15.9 62,541 12.9
Healthcare Software 43,045 8.5 30,764 6.3
Structured Finance Securities(1) 35,738 7.0



34,675 7.1
Education Services 31,789 6.2 36,365 7.5
Healthcare Services 30,233 6.0 28,455 5.9
Sports Management 24,943 4.9 25,740 5.3
Payroll Services 18,757 3.7 19,055 3.9
Marketing Services 16,882 3.3 14,200 2.9
Hospitality/Hotel 16,325 3.2 14,894 3.1
Real Estate Services 14,859 2.9 - 0.0
Property Management 11,179 2.2 11,503 2.4
Cyber Security 10,225 2.0 9,982 2.1
Industrial Products 9,668 1.9 10,779 2.2
Corporate Governance 9,020 1.8 9,090 1.9
Waste Services 8,873 1.7 9,000 1.9



Healthcare Products Manufacturing 8,072 1.6 7,717 1.6
Construction Management Services 7,601 1.5 4,284 0.9
Facilities Maintenance 6,934 1.4 5,375 1.1
Field Service Management 6,800 1.3



2,970 0.6
Non-profit Services 5,475 1.1 5,555 1.1
Office Supplies 3,609 0.7 3,799 0.8
Healthcare Supply 3,488 0.7 2,137 0.4
Restaurant 1,880 0.4 2,140 0.4
Metals 1,572 0.3 3,130 0.6
Consumer Services 1,527 0.3 1,997 0.4
Staffing Services 672 0.1 922 0.2
Financial Services 424 0.1 32,090 6.6
Consumer Products 418 0.1 418 0.1
Total $ 508,117 100.0 % $ 485,632 100.0 %


____________



* Certain reclassifications have been made to previously reported industry
groupings to show results on a consistent basis across periods.




(1) Comprised of our investment in the subordinated notes, Class F-R-2 Notes
and Class G-R-2 Notes of Saratoga CLO and Saratoga Investment Corp. CLO 2013-1
Warehouse 2, Ltd.

97



The following table shows Saratoga CLO's portfolio composition by industry
grouping at fair value at August 31, 2020 and February 29, 2020:




Saratoga CLO

August 31, 2020 February 29, 2020
Percentage of Percentage of
Investments at Total Investments at Total
Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Banking Finance Insurance &
Real Estate $ 86,035 17.7 % $ 87,957 17.6 %
Services: Business 41,665 8.6 45,735 9.1
Healthcare & Pharmaceuticals 37,315 7.7 39,978 8.0
High Tech Industries 33,774 6.9 32,897 6.6
Telecommunications 31,001 6.3 28,317 5.6
Services: Consumer 25,155 5.2 28,327 5.6
Aerospace & Defense 24,550 5.1 25,093 5.0
Media: Advertising Printing &
Publishing 20,665 4.3 19,808 4.0
Beverage Food & Tobacco 18,919 3.8 21,637 4.3
Consumer goods: Non-durable 16,973 3.5 15,700 3.1
Chemicals Plastics & Rubber 16,779 3.5 14,689 2.9
Automotive 16,710 3.4 13,820 2.8
Hotel Gaming & Leisure 16,264 3.3 16,883 3.4
Containers Packaging & Glass 12,729 2.6 15,753 3.1
Media: Broadcasting &
Subscription 10,680 2.2 7,959 1.6
Consumer goods: Durable 10,071 2.1 11,674 2.3
Capital Equipment 9,989 2.1 9,551 1.9
Retail 9,490 2.0 14,538 2.9
Utilities: Oil & Gas 7,019 1.4 7,306 1.5
Transportation: Cargo 6,946 1.4 7,054 1.4
Forest Products & Paper 5,329 1.1 5,385 1.1
Construction & Building 5,169 1.1 7,617 1.5
Transportation: Consumer 4,039 0.8 1,914 0.4
Metals & Mining 3,871 0.8 4,112 0.8
Utilities: Electric 3,230 0.7 4,752 1.0



Media: Diversified & Production 3,113 0.6



2,711 0.5
Energy: Oil & Gas 2,213 0.5 3,559 0.7
Energy: Electricity 1,920 0.4 3,357 0.7
Utilities 1,787 0.4 - 0.0
Wholesale 1,651 0.3 1,928 0.4
Environmental Industries 972 0.2 989 0.2
Total $ 486,023 100.0 % $ 501,000 100.0 %


98

Portfolio composition by geographic location at fair value

The following table shows our portfolio composition by geographic location at
fair value at August 31, 2020 and February 29, 2020. The geographic composition
is determined by the location of the corporate headquarters of the portfolio
company.

August 31, 2020 February 29, 2020
Percentage of Percentage of
Investments at Total Investments at Total
Fair Value Portfolio Fair Value Portfolio
($ in thousands)
Southeast $ 169,254 33.3 % $ 165,353 34.0 %
West 130,292 25.7 99,390 20.5
Midwest 90,577 17.8 75,528 15.5
Southwest 33,976 6.7 61,456 12.7
Northeast 17,658 3.5 18,047 3.7
Northwest 10,225 2.0 9,981 2.1
Other(1) 56,135 11.0 55,877 11.5
Total $ 508,117 100.0 % $ 485,632 100.0 %


____________



(1) Comprised of our investment in the subordinated notes, Class F-R-2 Notes
and Class G-R-2 Notes of Saratoga CLO, Saratoga Investment Corp. CLO 2013-1
Warehouse 2, Ltd and foreign investments.



Results of operations



Operating results for the three and six months ended August 31, 2020 and August
31, 2019
was as follows:




For the three months ended For the six months ended
August 31, August 31, August 31, August 31,
2020 2019 2020 2019
($ in thousands)
Total investment income $ 13,856 $ 13,888 $ 27,153 $ 26,639
Total operating expenses 8,521 8,932 12,800 18,002
Net investment income 5,335 4,956 14,353 8,637
Net realized gain (loss) from
investments 12 1,870 20 1,870
Net change in unrealized appreciation
(depreciation) on investments 16,580 1,458 (15,370 ) 5,
Net change in provision for deferred
taxes on unrealized (appreciation)
depreciation on investments (116 ) (704 ) 152 (725 )
Net increase (decrease) in net assets
resulting from operations $ 21,811 $ 7,580 $ (845 ) $ 15,229


Investment income



The composition of our investment income for three and six months ended August
31, 2020
and August 31, 2019 was as follows:




For the three months ended For the six months ended
August 31, August 31, August 31,
2020 2019 2020 August 31, 2019
($ in thousands)



Interest from investments $ 12,260 $ 11,742 $ 24,411 $ 23,345
Interest from cash and cash equivalents 2 146 13 197
Management fee income 626 630 1,260 1,259
Structuring and advisory fee income* 940 1,047



1,254 1,364
Other income* 28 323 215 474
Total investment income $ 13,856 $ 13,888 $ 27,153 $ 26,639


____________



* Certain prior period amounts have been reclassified to conform to current
period presentation.




99

For the three months ended August 31, 2020, total investment income decreased
$0.03 million, or 0.2% to $13.9 million from $13.9 million for the three months
ended August 31, 2019. Interest income from investments increased $0.5 million,
or 4.4%, to $12.3 million for the three months ended August 31, 2020 from $11.7
million
for the three months ended August 31, 2019. This reflects the impact of
the increase of $21.2 million, or 4.4% in total investments at August 31, 2020
from $486.9 million at August 31, 2019, offset by the reduction in LIBOR during
this same period. At August 31, 2020, the weighted average current yield on
investments was 9.6% compared to 10.1% at August 31, 2019, which offset some of
the increase in investments.

For the six months ended August 31, 2020, total investment income increased $0.5
million
, or 1.9% to $27.2 million from $26.6 million for the six months ended
August 31, 2019. Interest income from investments increased $1.1 million, or
4.4%, to $24.4 million for the six months ended August 31, 2020 from $23.3
million
for the six months ended August 31, 2019. This reflects the partial
period impact of the increase of $21.2 million, or 4.4% in total investments at
August 31, 2020 from $486.9 million at August 31, 2019.

For the three months ended August 31, 2020 and August 31, 2019, total PIK income
was $0.4 million and $1.2 million, respectively. For the six months ended August
31, 2020
and August 31, 2019, total PIK income was $1.1 million and $2.4
million
, respectively. This decrease was primarily due to the sale of our
investment in Easy Ice, LLC during the fourth quarter of the fiscal year ended
February 29, 2020, which primarily generated PIK income.

Management fee income reflects the fee income received for managing the Saratoga
CLO. For the three months ended August 31, 2020 and August 31, 2019, total
management fee income was $0.6 million and $0.6 million, respectively. For the
six months ended August 31, 2020 and August 31, 2019, total management fee
income was $1.3 million and $1.3 million, respectively.


Operating expenses



The composition of our operating expenses for the three and six months ended
August 31, 2020 and August 31, 2019 was as follows:




For the three months ended For the six months ended
August 31, August 31, August 31, August 31,
2020 2019 2020 2019
($ in thousands)
Interest and debt financing expenses $ 3,327 $ 3,867 $ 5,893 $ 7,731
Base management fees 2,209 1,997 4,370 3,809
Incentive management fees expense (benefit) 1,530 2,086 (329 ) 4,199
Professional fees 368 385 754 780
Administrator expenses 602 519 1,158 1,019
Insurance 68 64 135 129
Directors fees and expenses 75 98 135 158
General & administrative and other expenses 334 382 685 641
Income tax expense (benefit) 8 (466 ) (1 ) (464 )
Total operating expenses $ 8,521 $ 8,932 $ 12,800 $ 18,002


For the three months ended August 31, 2020, total operating expenses decreased
$0.4 million, or 4.6% compared to the three months ended August 31, 2019. For
the six months ended August 31, 2020, total operating expenses decreased $5.2
million
, or 28.9% compared to the three months ended August 31, 2019.

For the three months ended August 31, 2020, interest and debt financing expenses
decreased $0.5 million, or 13.9% compared to the three months ended August 31,
2019
. The decrease is primarily attributable to a decrease in average
outstanding debt from $288.7 million for the three months ended August 31, 2019
to $265.3 million for the three months ended August 31, 2020, primarily
reflecting the redemption of our 2023 Notes during the fiscal quarter ended
February 29, 2020.

100

For the six months ended August 31, 2020, interest and debt financing expenses
decreased $1.8 million, or 23.8% compared to the six months ended August 31,
2019
. The decrease is primarily attributable to a decrease in average
outstanding debt from $284.6 million for the six months ended August 31, 2019 to
$241.3 million for the six months ended August 31, 2020, primarily reflecting
the redemption of our 2023 Notes during the fiscal quarter ended February 29,
2020
.

For the three months ended August 31, 2020, the weighted average interest rate
on our outstanding indebtedness was 4.32% compared to 4.73% for the three months
ended August 31, 2019. The decrease in weighted average interest rate was
primarily driven by the redemption of the 2023 Notes during the fiscal quarter
ended February 29, 2020 which carried a fixed rate of 6.75%.

For the six months ended August 31, 2020, the weighted average interest rate on
our outstanding indebtedness was 4.18% compared to 4.80% for the six months
ended August 31, 2019. The decrease in weighted average interest rate was
primarily driven by the redemption of the 2023 Notes during the fiscal quarter
ended February 29, 2020 which carried a fixed rate of 6.75%.


As of August 31, 2020 and February 29, 2020, the SBA debentures represented
61.1% and 71.4% of overall debt, respectively.



For the three months ended August 31, 2020, base management fees increased $0.2
million
, or 10.6% compared to the three months ended August 31, 2019. The
increase in base management fees results from the 10.3% increase in the average
value of our total assets, less cash and cash equivalents, from $454.2 million
for the three months ended August 31, 2019 to $500.8 million for the three
months ended August 31, 2020. For the six months ended August 31, 2020, base
management fees increased $0.5 million, or 14.7% compared to the six months
ended August 31, 2019. The increase in base management fees results from the
14.4% increase in the average value of our total assets, less cash and cash
equivalents, from $433.1 million for the six months ended August 31, 2019 to
$495.3 million for the six months ended August 31, 2020.

For the three months ended August 31, 2020, incentive management fees decreased
$0.5 million, or 26.7%, compared to the three months ended August 31, 2019. The
first part of the incentive management fees remained relatively unchanged at
$1.4 million for the three months ended August 31, 2020 and 2019. The incentive
management fees related to capital gains decreased from a $0.7 million expense
for the three months ended August 31, 2019 to a $0.1 million expense for the
three months ended August 31, 2020, reflecting a reversal of incentive fee
accrual due to an increase in unrealized depreciation on investments as of
August 31, 2020.

For the six months ended August 31, 2020, incentive management fees decreased
$4.5 million, or 108.0%, compared to the six months ended August 31, 2019. The
first part of the incentive management fees increased from $2.6 million for the
six months ended August 31, 2019 to $2.8 million for the six months ended August
31, 2020
, as higher average total assets led to increased net investment income
above the hurdle rate pursuant to the Management Agreement. The incentive
management fees related to capital gains decreased from a $1.6 million expense
for the six months ended August 31, 2019 to a $(3.1) million benefit for the six
months ended August 31, 2020, reflecting a reversal of incentive fee accrual due
to an increase in unrealized depreciation on investments as of August 31, 2020.


For the three and six months ended August 31, 2020, professional fees decreased
$0.02 million, or 4.5%, and decreased $0.03 million, or 3.3%, respectively,
compared to the three and six months ended August 31, 2019.



For the three and six months ended August 31, 2020, administrator expenses
increased $0.08 million, or 16.1%, and increased $0.1 million, or 13.7%,
respectively, compared to the three and six months ended August 31, 2019. These
increases during the period are primarily attributable to an increase to the cap
on the payment or reimbursements of expenses by the Company from $2.0 million to
$2.225 million, effective August 1, 2019, and from $2.225 million to $2.775
million
, effective August 1, 2020.

As discussed above, the decrease in interest and debt financing expenses for the
three months ended August 31, 2020 compared to the three months ended August 31,
2019
is primarily attributable to a decrease in the average dollar amount of
outstanding debt. During the three months ended August 31, 2020 and August 31,
2019
, the average borrowings outstanding under the Credit Facility was $0.0
million
and $0.3 million, respectively. For the three months ended August 31,
2020
and August 31, 2019, the average borrowings outstanding of SBA debentures

101

was $170.0 million and $150.0 million, respectively. For the three months ended
August 31, 2020 and August 31, 2019, the weighted average interest rate on the
outstanding borrowings of the SBA debentures was 3.02% and 3.25%, respectively.
During the three months ended August 31, 2020 and August 31, 2019, the average
dollar amount of our 6.25% fixed-rate 2025 Notes outstanding was $60.0 million
and $60.0 million, respectively. During the three months ended August 31, 2020
and August 31, 2019, the weighted average dollar amount of our 7.25% fixed-rate
2025 Notes outstanding was $43.1 million and $0.0 million, respectively. During
the three months ended August 31, 2020 and August 31, 2019, the weighted average
dollar amount of our 7.75% fixed-rate 2025 Notes outstanding was $5.0 million
and $0.0 million, respectively. During the three months ended August 31, 2020
and August 31, 2019, the average dollar amount of our 6.75% fixed-rate 2023
Notes outstanding was $0.0 million and $74.5 million, respectively.

As discussed above, the decrease in interest and debt financing expenses for the
six months ended August 31, 2020 compared to the six months ended August 31,
2019
is primarily attributable to a decrease in the average dollar amount of
outstanding debt. During the six months ended August 31, 2020 and August 31,
2019
, the average borrowings outstanding under the Credit Facility was $0.0
million
and $0.2 million, respectively. For the six months ended August 31, 2020
and August 31, 2019, the average borrowings outstanding of SBA debentures was
$163.7 million and $150.0 million, respectively. For the six months ended August
31, 2020
and August 31, 2019, the weighted average interest rate on the
outstanding borrowings of the SBA debentures was 3.09% and 3.25%, respectively.
During the six months ended August 31, 2020 and August 31, 2019, the average
dollar amount of our 6.25% fixed-rate 2025 Notes outstanding was $60.0 million
and $60.0 million, respectively. During the six months ended August 31, 2020 and
August 31, 2019, the weighted average dollar amount of our 7.25% fixed-rate 2025
Notes outstanding was $43.1 million and $0.0 million, respectively. During the
six months ended August 31, 2020 and August 31, 2019, the weighted average
dollar amount of our 7.75% fixed-rate 2025 Notes outstanding was $5.0 million
and $0.0 million, respectively. During the six months ended August 31, 2020 and
August 31, 2019, the average dollar amount of our 6.75% fixed-rate 2023 Notes
outstanding was $0.0 million and $74.5 million, respectively.

For the three months ended August 31, 2020 and August 31, 2019, there were
income tax expense (benefits) of $0.01 million and $0.5 million, respectively.
For the six months ended August 31, 2020 and August 31, 2019, there were income
tax expense (benefits) of $(0.01) million and $0.5 million, respectively. This
relates to net deferred federal and state income tax expense (benefit) with
respect to operating gains and losses and income derived from equity investments
held in the taxable blockers.


Net realized gains (losses) on sales of investments




For the three months ended August 31, 2020, the Company had $23.3 million of
sales, repayments, exits or restructurings resulting in $0.01 million of net
realized gains. For the six months ended August 31, 2020, the Company had $70.7
million
of sales, repayments, exits or restructurings resulting in $0.02 million
of net realized gains.

For the three months ended August 31, 2019, the Company had $19.0 million of
sales, repayments, exits or restructurings resulting in $1.9 million of net
realized gains. For the six months ended August 31, 2019, the Company had $45.9
million
of sales, repayments, exits or restructurings resulting in $1.9 million
of net realized gains. The most significant realized gains and losses during the
six months ended August 31, 2019 were as follows (dollars in thousands):

Six Months ended August 31, 2019

Net
Gross Realized
Issuer Asset Type Proceeds Cost Gain
Censis Technologies, Inc. Equity Interests $ 1,559 $ 999 $ 560
Fancy Chap, Inc. First Lien Term Loan 6,000 5,940 60
Fancy Chap, Inc. Equity Interests 2,175 925 1,250


102



Net change in unrealized appreciation (depreciation) on investments




For the three months ended August 31, 2020, our investments had a net change in
unrealized appreciation of $16.6 million versus a net change in unrealized
appreciation of $1.5 million for the three months ended August 31, 2019. For the
six months ended August 31, 2020, our investments had a net change in unrealized
depreciation of $15.4 million versus a net change in unrealized appreciation of
$5.4 million for the six months ended August 31, 2019. The most significant
cumulative net change in unrealized appreciation (depreciation) for the six
months ended August 31, 2020 were the following (dollars in thousands):

Six Months ended August 31, 2020

Total YTD Change in
Unrealized Unrealized
Appreciation Appreciation
Issuer Asset Type Cost Fair Value (Depreciation) (Depreciation)
First Lien Term



C2 Educational Systems Loan $ 15,989 $ 13,030 $



(2,959 ) $ (2,977 )
Second Lien Term
Knowland Group, LLC Loans 15,768 13,355 (2,412 ) (2,306 )
First Lien Term
ArbiterSports, LLC Loan 26,782 24,943 (1,840 ) (1,815 )



Elyria Foundry Company, Second Lien Term 10,969 1,572 (9,397 ) (1,652 )
L.L.C. Loan & Equity
Interests
Vector Controls Holding First Lien Term 7,849 9,668 1,819 (1,110 )
Co., LLC Loan & Equity
Interests
Destiny Solutions Inc. First Lien Term 37,708 36,856



(852 ) (1,054 )
Loan & Equity
Interests
Texas Teachers of First Lien Term 19,394 18,759 (635 ) (767 )
Tomorrow, LLC Loan & Equity
Interests
First Lien Term
Kev Software Inc. Loan 20,999 20,398 (601 ) (717 )
My Alarm Center, LLC Equity Interests 4,867 1,527 (3,340 ) (470 )



The net changes in unrealized depreciation for the six months ended August 31,
2020
noted above primarily relate to the impact of COVID-19, resulting in
changes to market spreads, EBITDA multiples and/or revised portfolio company
performance, following the events since March 2020.


The most significant cumulative net change in unrealized appreciation for the
six months ended August 31, 2019 were the following (dollars in thousands):




Six Months ended August 31, 2019

Total YTD Change in
Unrealized Unrealized
Issuer Asset Type Cost Fair Value Appreciation Appreciation



Censis Technologies, Inc. Equity Interests $ - $ 4,262 $



4,262 $ 2,874
Easy Ice, LLC Equity Interests 10,177 15,421 5,244 1,571
Netreo Holdings, LLC Equity Interests 3,150 6,641 3,491 1,462



The $2.9 million net change in unrealized appreciation in our investment in
Censis Technologies, Inc. was driven by continued outperformance of the business
as well as the completion of a strategic acquisition.



The $1.6 million net change in unrealized appreciation in our investment in Easy
Ice, LLC
was driven by a continued increase in the scale and earnings of the
business.


The $1.5 million net change in unrealized appreciation in our investment in
Netreo Holdings, LLC was driven by a continued increase in the scale and
earnings of the business.




103


Changes in net assets resulting from operations




For the three months ended August 31, 2020, we recorded a net increase in net
assets resulting from operations of $21.8 million. Based on 11,207,142 weighted
average common shares outstanding as of August 31, 2020, our per share net
increase in net assets resulting from operations was $1.95 for the three months
ended August 31, 2020. For the three months ended August 31, 2019, we recorded a
net increase in net assets resulting from operations of $7.6 million, or $0.91
per share based on 8,333,570 weighted average common shares outstanding as of
August 31, 2019.

For the six months ended August 31, 2020, we recorded a net decrease in net
assets resulting from operations of $0.8 million. Based on 11,212,315 weighted
average common shares outstanding as of August 31, 2020, our per share net
decrease in net assets resulting from operations was $0.08 for the six months
ended August 31, 2020. For the six months ended August 31, 2019, we recorded a
net increase in net assets resulting from operations of $15.2 million, or $1.89
per share based on 8,041,365 weighted average common shares outstanding as



of
August 31, 2019.

104

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We intend to continue to generate cash primarily from cash flows from
operations, including interest earned from our investments in debt in middle
market companies, interest earned from the temporary investment of cash in U.S.
government securities and other high-quality debt investments that mature in one
year or less, future borrowings and future offerings of securities.

Although we expect to fund the growth of our investment portfolio through the
net proceeds from future equity offerings, including our dividend reinvestment
plan ("DRIP"), and issuances of senior securities or future borrowings, to the
extent permitted by the 1940 Act, we cannot assure you that our plans to raise
capital will be successful. In this regard, because our common stock has
historically traded at a price below our current net asset value per share and
we are limited in our ability to sell our common stock at a price below net
asset value per share, we have been and may continue to be limited in our
ability to raise equity capital.

In addition, we intend to distribute to our stockholders substantially all of
our operating taxable income in order to satisfy the distribution requirement
applicable to RICs under the Code. In satisfying this distribution requirement,
in accordance with certain applicable provisions of the Code and the Treasury
regulations and a revenue procedure issued by the Internal Revenue Service
("IRS"), a RIC may treat a distribution of its own stock as fulfilling its RIC
distribution requirements if each stockholder may elect to receive his or her
entire distribution in either cash or stock of the RIC subject to a limitation
that the aggregate amount of cash to be distributed to all stockholders must be
at least 20% of the aggregate declared distribution. We may rely on the revenue
procedure in future periods to satisfy our RIC distribution requirement.

Also, as a BDC, we generally are required to meet a coverage ratio of total
assets, less liabilities and indebtedness not represented by senior securities,
to total senior securities, which include all of our borrowings and any
outstanding preferred stock, of at least 200.0%, reduced to 150.0% effective
April 16, 2019 following the approval received from the non-interested board of
directors on April 16, 2018. This requirement limits the amount that we may
borrow. Our asset coverage ratio, as defined in the 1940 Act, was 375.8% as of
August 31, 2020 and 607.1% as of February 29, 2020. To fund growth in our
investment portfolio in the future, we anticipate needing to raise additional
capital from various sources, including the equity markets and other
debt-related markets, which may or may not be available on favorable terms, if
at all.

Consequently, we may not have the funds or the ability to fund new investments,
to make additional investments in our portfolio companies, to fund our unfunded
commitments to portfolio companies, to pay dividends or to repay borrowings.
Also, the illiquidity of our portfolio investments may make it difficult for us
to sell these investments when desired and, if we are required to sell these
investments, we may realize significantly less than their recorded value.


Madison revolving credit facility



Below is a summary of the terms of the senior secured revolving credit facility
we entered into with Madison Capital Funding LLC (the "Credit Facility") on
June 30, 2010, which was most recently amended on September 14, 2020. (See
Recent Developments).




Availability. The Company can draw up to the lesser of (i) $40.0 million (the
"Facility Amount") and (ii) the product of the applicable advance rate (which
varies from 50.0% to 75.0% depending on the type of loan asset) and the value,
determined in accordance with the Credit Facility (the "Adjusted Borrowing
Value"), of certain "eligible" loan assets pledged as security for the loan (the
"Borrowing Base"), in each case less (a) the amount of any undrawn funding
commitments the Company has under any loan asset and which are not covered by
amounts in the Unfunded Exposure Account referred to below (the "Unfunded
Exposure Amount") and outstanding borrowings. Each loan asset held by the
Company as of the date on which the Credit Facility was closed was valued as of
that date and each loan asset that the Company acquires after such date will be
valued at the lowest of its fair value, its face value (excluding accrued
interest) and the purchase price paid for such loan asset. Adjustments to the
value of a loan asset will be made to reflect, among other things, changes in
its fair value, a default by the obligor on the loan asset, insolvency of the
obligor, acceleration of the loan asset, and certain modifications to the terms
of the loan asset.

105

The Credit Facility contains limitations on the type of loan assets that are
"eligible" to be included in the Borrowing Base and as to the concentration
level of certain categories of loan assets in the Borrowing Base such as
restrictions on geographic and industry concentrations, asset size and quality,
payment frequency, status and terms, average life, and collateral interests. In
addition, if an asset is to remain an "eligible" loan asset, the Company may not
make changes to the payment, amortization, collateral and certain other terms of
the loan assets without the consent of the administrative agent that will either
result in subordination of the loan asset or be materially adverse to the
lenders.

Collateral. The Credit Facility is secured by substantially all of the assets
of the Company (other than assets held by our SBIC subsidiary) and includes the
subordinated notes ("CLO Notes") issued by Saratoga CLO and the Company's rights
under the CLO Management Agreement (as defined below).

Interest Rate and Fees. Under the Credit Facility, funds are borrowed from or
through certain lenders at the greater of the prevailing LIBOR rate and 1.00%,
plus an applicable margin of 4.75%. At the Company's option, funds may be
borrowed based on an alternative base rate, which in no event will be less than
2.00%, and the applicable margin over such alternative base rate is 3.75%. In
addition, the Company pays the lenders a commitment fee of 0.75% per year on the
unused amount of the Credit Facility for the duration of the Revolving Period
(defined below). Accrued interest and commitment fees are payable monthly. The
Company was also obligated to pay certain other fees to the lenders in
connection with the closing of the Credit Facility.

Revolving Period and Maturity Date. The Company may make and repay borrowings
under the Credit Facility for a period of three years following the closing of
the Credit Facility (the "Revolving Period"). The Revolving Period may be
terminated at an earlier time by the Company or, upon the occurrence of an event
of default, by action of the lenders or automatically. All borrowings and other
amounts payable under the Credit Facility are due and payable in full five years
after the end of the Revolving Period.

Collateral Tests. It is a condition precedent to any borrowing under the Credit
Facility that the principal amount outstanding under the Credit Facility, after
giving effect to the proposed borrowings, not exceed the lesser of the Borrowing
Base or the Facility Amount (the "Borrowing Base Test"). In addition to
satisfying the Borrowing Base Test, the following tests must also be satisfied
(together with Borrowing Base Test, the "Collateral Tests"):

• Interest Coverage Ratio. The ratio (expressed as a percentage) of interest
collections with respect to pledged loan assets, less certain fees and expenses
relating to the Credit Facility, to accrued interest and commitment fees and any
breakage costs payable to the lenders under the Credit Facility for the last
6 payment periods must equal at least 175.0%.

• Overcollateralization Ratio. The ratio (expressed as a percentage) of the
aggregate Adjusted Borrowing Value of "eligible" pledged loan assets plus the
fair value of certain ineligible pledged loan assets and the CLO Notes (in each
case, subject to certain adjustments) to outstanding borrowings under the Credit
Facility plus the Unfunded Exposure Amount must equal at least 200.0%.

• Weighted Average FMV Test. The aggregate adjusted or weighted value of
"eligible" pledged loan assets as a percentage of the aggregate outstanding
principal balance of "eligible" pledged loan assets must be equal to or greater
than 72.0% and 80.0% during the one-year periods prior to the first and second
anniversary of the closing date, respectively, and 85.0% at all times
thereafter.

The Credit Facility also requires payment of outstanding borrowings or
replacement of pledged loan assets upon the Company's breach of its
representation and warranty that pledged loan assets included in the Borrowing
Base are "eligible" loan assets. Such payments or replacements must equal the
lower of the amount by which the Borrowing Base is overstated as a result of
such breach or any deficiency under the Collateral Tests at the time of
repayment or replacement. Compliance with the Collateral Tests is also a
condition to the discretionary sale of pledged loan assets by the Company.

Priority of Payments. During the Revolving Period, the priority of payments
provisions of the Credit Facility require, after payment of specified fees and
expenses and any necessary funding of the Unfunded Exposure Account, that
collections of principal from the loan assets and, to the extent that these are
insufficient, collections of interest from the loan assets, be applied on each
payment date to payment of outstanding borrowings if the Borrowing Base Test,
the Overcollateralization Ratio and the Interest Coverage Ratio would not
otherwise be met. Similarly,

106

following termination of the Revolving Period, collections of interest are
required to be applied, after payment of certain fees and expenses, to cure any
deficiencies in the Borrowing Base Test, the Interest Coverage Ratio and the
Overcollateralization Ratio as of the relevant payment date.

Reserve Account. The Credit Facility requires the Company to set aside an
amount equal to the sum of accrued interest, commitment fees and administrative
agent fees due and payable on the next succeeding three payment dates (or
corresponding to three payment periods). If for any monthly period during which
fees and other payments accrue, the aggregate Adjusted Borrowing Value of
"eligible" pledged loan assets which do not pay cash interest at least quarterly
exceeds 15.0% of the aggregate Adjusted Borrowing Value of "eligible" pledged
loan assets, the Company is required to set aside such interest and fees due and
payable on the next succeeding six payment dates. Amounts in the reserve account
can be applied solely to the payment of administrative agent fees, commitment
fees, accrued and unpaid interest and any breakage costs payable to the lenders.

Unfunded Exposure Account. With respect to revolver or delayed draw loan
assets, the Company is required to set aside in a designated account (the
"Unfunded Exposure Account") 100.0% of its outstanding and undrawn funding
commitments with respect to such loan assets. The Unfunded Exposure Account is
funded at the time the Company acquires a revolver or delayed draw loan asset
and requests a related borrowing under the Credit Facility. The Unfunded
Exposure Account is funded through a combination of proceeds of the requested
borrowing and other Company funds, and if for any reason such amounts are
insufficient, through application of the priority of payment provisions
described above.

Operating Expenses. The priority of payments provision of the Credit Facility
provides for the payment of certain operating expenses of the Company out of
collections on principal and interest during the Revolving Period and out of
collections on interest following the termination of the Revolving Period in
accordance with the priority established in such provision. The operating
expenses payable pursuant to the priority of payment provisions is limited to
$350,000 for each monthly payment date or $2.5 million for the immediately
preceding period of twelve consecutive monthly payment dates. This ceiling can
be increased by the lesser of 5.0% or the percentage increase in the fair market
value of all the Company's assets only on the first monthly payment date to
occur after each one-year anniversary following the closing of the Credit
Facility. Upon the occurrence of a Manager Event (described below), the consent
of the administrative agent is required in order to pay operating expenses
through the priority of payments provision.

Events of Default. The Credit Facility contains certain negative covenants,
customary representations and warranties and affirmative covenants and events of
default. The Credit Facility does not contain grace periods for breach by the
Company of certain covenants, including, without limitation, preservation of
existence, negative pledge, change of name or jurisdiction and separate legal
entity status of the Company covenants and certain other customary covenants.
Other events of default under the Credit Facility include, among other things,
the following:

• an Interest Coverage Ratio of less than 150.0%;

• an Overcollateralization Ratio of less than 175.0%;

• the filing of certain ERISA or tax liens;

• the occurrence of certain "Manager Events" such as:

• failure by Saratoga Investment Advisors and its affiliates to maintain
collectively, directly or indirectly, a cash equity investment in the Company in
an amount equal to at least $5.0 million at any time prior to the third
anniversary of the closing date;


• failure of the Management Agreement between Saratoga Investment Advisors
and the Company to be in full force and effect;



• indictment or conviction of Saratoga Investment Advisors or any "key
person" for a felony offense, or any fraud, embezzlement or misappropriation of
funds by Saratoga Investment Advisors or any "key person" and, in the case of
"key persons," without a reputable, experienced individual reasonably
satisfactory to Madison Capital Funding appointed to replace such key person
within 30 days;

107



• resignation, termination, disability or death of a "key person" or failure
of any "key person" to provide active participation in Saratoga Investment
Advisors'
daily activities, all without a reputable, experienced individual
reasonably satisfactory to Madison Capital Funding appointed within 30 days; or




• occurrence of any event constituting "cause" under the Collateral
Management Agreement between the Company and Saratoga CLO (the "CLO Management
Agreement"), delivery of a notice under Section 12(c) of the CLO Management
Agreement with respect to the removal of the Company as collateral manager or
the Company ceases to act as collateral manager under the CLO Management
Agreement.

Conditions to Acquisitions and Pledges of Loan Assets. The Credit Facility
imposes certain additional conditions to the acquisition and pledge of
additional loan assets. Among other things, the Company may not acquire
additional loan assets without the prior written consent of the administrative
agent until such time that the administrative agent indicates in writing its
satisfaction with Saratoga Investment Advisors' policies, personnel and
processes relating to the loan assets.

Fees and Expenses. The Company paid certain fees and reimbursed Madison Capital
Funding LLC for the aggregate amount of all documented, out-of-pocket costs and
expenses, including the reasonable fees and expenses of lawyers, incurred by
Madison Capital Funding LLC in connection with the Credit Facility and the
carrying out of any and all acts contemplated thereunder up to and as of the
date of closing of the stock purchase transaction with Saratoga Investment
Advisors
and certain of its affiliates. These amounts totaled $2.0 million.



On February 24, 2012, we amended our senior secured revolving credit facility
with Madison Capital Funding LLC to, among other things:



• expand the borrowing capacity under the Credit Facility from $40.0 million
to $45.0 million;




• extend the period during which we may make and repay borrowings under the
Credit Facility from July 30, 2013 to February 24, 2015 (the "Revolving
Period"). The Revolving Period may, upon the occurrence of an event of default,
by action of the lenders or automatically, be terminated. All borrowings and
other amounts payable under the Credit Facility are due and payable five years
after the end of the Revolving Period; and


• remove the condition that we may not acquire additional loan assets without
the prior written consent of the administrative agent.



On September 17, 2014, we entered into a second amendment to the Revolving
Facility with Madison Capital Funding LLC to, among other things:



• extend the commitment termination date from February 24, 2015 to
September 17, 2017;



• extend the maturity date of the Revolving Facility from February 24, 2020
to September 17, 2022 (unless terminated sooner upon certain events);



• reduce the applicable margin rate on base rate borrowings from 4.50% to
3.75%, and on LIBOR borrowings from 5.50% to 4.75%; and



• reduce the floor on base rate borrowings from 3.00% to 2.25%; and on LIBOR
borrowings from 2.00% to 1.25%.



On May 18, 2017, we entered into a third amendment to the Credit Facility with
Madison Capital Funding LLC to, among other things:



• extend the commitment termination date from September 17, 2017 to
September 17, 2020;



• extend the final maturity date of the Credit Facility from September 17,
2022
to September 17, 2025;



• reduce the floor on base rate borrowings from 2.25% to 2.00%;




108


• reduce the floor on LIBOR borrowings from 1.25% to 1.00%; and




• reduce the commitment fee rate from 0.75% to 0.50% for any period during
which the ratio of advances outstanding to aggregate commitments, expressed as a
percentage, is greater than or equal to 50%.


On April 24, 2020, we entered into a fourth amendment to the Credit Facility
with Madison Capital Funding LLC to, among other things:



• permit certain amendments related to the Paycheck Protection Program
("Permitted PPP Amendment") to Loan Asset Documents;




• exclude certain debt and interest amounts allowed by the Permitted PPP
Amendments from certain calculations related to Net Leverage Ratio, Interest
Coverage Ratio and EBITDA; and


• exclude such Permitted PPP Amendments from constituting a Material
Modification.




As of August 31, 2020, we had no outstanding borrowings under the Credit
Facility and $170.0 million of SBA-guaranteed debentures outstanding (which are
discussed below). As of February 29, 2020, we had no outstanding borrowings
under the Credit Facility and $150.0 million of SBA-guaranteed debentures
outstanding. Our borrowing base under the Credit Facility at August 31, 2020 and
February 29, 2020 was $28.8 million and $35.6 million, respectively.


Our asset coverage ratio, as defined in the 1940 Act, was 375.8% as of
August 31, 2020 and 607.1% as of February 29, 2020.



SBA-guaranteed debentures



In addition, we, through two wholly-owned subsidiaries, sought and obtained
licenses from the SBA to operate an SBIC. In this regard, on March 28, 2012, our
wholly-owned subsidiary, Saratoga Investment Corp. SBIC LP, received a license
from the SBA to operate as an SBIC under Section 301(c) of the Small Business
Investment Act of 1958 and on August 14, 2019, our wholly-owned subsidiary,
Saratoga Investment Corp. SBIC II LP, also received a license. SBICs are
designated to stimulate the flow of private equity capital to eligible small
businesses. Under SBA regulations, SBICs may make loans to eligible small
businesses and invest in the equity securities of small businesses.

The SBIC licenses allows our SBIC subsidiaries to obtain leverage by issuing
SBA-guaranteed debentures. SBA-guaranteed debentures are non-recourse, interest
only debentures with interest payable semi-annually and have a ten-year
maturity. The principal amount of SBA-guaranteed debentures is not required to
be paid prior to maturity but may be prepaid at any time without penalty. The
interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a
market-driven spread over U.S. Treasury Notes with 10-year maturities.

SBA regulations previously limited the amount that our SBIC subsidiary may
borrow to a maximum of $150.0 million when it has at least $75.0 million in
regulatory capital, receives a capital commitment from the SBA and has been
through an examination by the SBA subsequent to licensing. This maximum has been
increased by SBA regulators for new licenses to $175.0 million of SBA debentures
when it has at least $87.5 million in regulatory capital. The new license will
provide up to $175.0 million in additional long-term capital in the form of
SBA-guaranteed debentures. The SBIC LP and SBIC II LP are regulated by the SBA.
As a result of the 2016 omnibus spending bill signed into law in December 2015,
the maximum amount of SBA-guaranteed debentures that affiliated SBIC funds can
have outstanding was increased from $225.0 million to $350.0 million. Our
wholly-owned SBIC subsidiaries are able to borrow funds from the SBA against
regulatory capital (which approximates equity capital) that is paid in and is
subject to customary regulatory requirements including but not limited to an
examination by the SBA. With this license approval, Saratoga will grow its SBA
relationship from $150.0 million to $325.0 million of committed capital.

We received exemptive relief from the SEC to permit us to exclude the debt of
our SBIC subsidiaries guaranteed by the SBA from the definition of senior
securities in the asset coverage test under the 1940 Act. This allows us
increased flexibility under the asset coverage test by permitting us to borrow
up to $325.0 million more than we would otherwise be able to absent the receipt
of this exemptive relief. On April 16, 2018, as permitted by the Small Business
Credit Availability Act, which was signed into law on March 23, 2018, our
non-interested

109

board of directors approved of our becoming subject to a minimum asset coverage
ratio of 150.0% from 200% under Sections 18(a)(1) and 18(a)(2) of the Investment
Company Act, as amended. The 150.0% asset coverage ratio became effective on
April 16, 2019.

As of August 31, 2020, our SBIC LP subsidiary had $75.0 million in regulatory
capital and $150.0 million in SBA-guaranteed debentures outstanding and our SBIC
II LP
subsidiary had $65.0 million in regulatory capital and $20.0 million in
SBA-guaranteed debentures outstanding.


Unsecured notes



In May 2013, the Company issued $48.3 million in aggregate principal amount of
7.50% fixed-rate notes due 2020 (the "2020 Notes"). The 2020 Notes were redeemed
in full on January 13, 2017 and are no longer listed on the NYSE.

On May 29, 2015, we entered into a Debt Distribution Agreement with Ladenburg
Thalmann & Co.
through which we may offer for sale, from time to time, up to
$20.0 million in aggregate principal amount of the 2020 Notes through an ATM
offering. Prior to the 2020 Notes being redeemed in full, the Company had sold
539,725 bonds with a principal of $13.5 million at an average price of $25.31
for aggregate net proceeds of $13.4 million (net of transaction costs).

On December 21, 2016, we issued $74.5 million in aggregate principal amount of
our 2023 Notes for net proceeds of $71.7 million after deducting underwriting
commissions of approximately $2.3 million and offering costs of approximately
$0.5 million. The net proceeds from the offering were used to repay all of the
outstanding indebtedness under the 2020 Notes on January 13, 2017, which
amounted to $61.8 million, and for general corporate purposes in accordance with
our investment objective and strategies. On December 21, 2019 and February 7,
2020
, the Company redeemed $50.0 million and $24.5 million, respectively, in
aggregate principal amount of the $74.5 million in aggregate principal amount of
issued and outstanding 2023 Notes and are no longer listed on the NYSE.

On August 28, 2018, the Company issued $40.0 million in aggregate principal
amount of our 6.25% fixed-rate notes due 2025 (the "6.25% 2025 Notes") for net
proceeds of $38.7 million after deducting underwriting commissions of
approximately $1.3 million. Offering costs incurred were approximately $0.3
million
. The issuance included the full exercise of the underwriters' option to
purchase an additional $5.0 million aggregate principal amount of 6.25% 2025
Notes within 30 days. Interest on the 6.25% 2025 Notes is paid quarterly in
arrears on February 28, May 31, August 31 and November 30, at a rate of
6.25% per year, beginning November 30, 2018. The 6.25% 2025 Notes mature on
August 31, 2025 and commencing August 28, 2021, may be redeemed in whole or in
part at any time or from time to time at our option. The net proceeds from the
offering were used for general corporate purposes in accordance with our
investment objective and strategies. Financing costs of $1.6 million related to
the 6.25% 2025 Notes have been capitalized and are being amortized over the term
of the 6.25% 2025 Notes. The 6.25% 2025 Notes are listed on the NYSE under the
trading symbol "SAF" with a par value of $25.00 per share.

On February 5, 2019, the Company completed a re-opening and up-sizing of its
existing 6.25% 2025 Notes by issuing an additional $20.0 million in aggregate
principal amount for net proceeds of $19.2 million after deducting underwriting
commissions of approximately $0.6 million and discount of $0.2 million. Offering
costs incurred were approximately $0.2 million. The issuance included the full
exercise of the underwriters' option to purchase an additional $2.5 million
aggregate principal amount of 6.25% 2025 Notes within 30 days. Interest rate,
interest payment dates and maturity remain unchanged from the existing 6.25%
2025 Notes issued in August 2018. The net proceeds from this offering were used
for general corporate purposes in accordance with our investment objective and
strategies. The financing costs and discount of $1.0 million related to the
6.25% 2025 Notes have been capitalized and are being amortized over the term of
the 6.25% 2025 Notes.


At August 31, 2020, the total 6.25% 2025 Notes outstanding was $60.0 million.




110


In connection with the issuance of the 6.25% 2025 Notes, we agreed to the
following covenants for the period of time during which the notes are
outstanding:




• we will not violate (whether or not we are subject to) Section 18(a)(1)(A)
as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but
giving effect to any exemptive relief granted to us by the SEC. These provisions
generally prohibit us from making additional borrowings, including through the
issuance of additional debt or the sale of additional debt securities, unless
our asset coverage, as defined in the 1940 Act, equals at least 200% after such
borrowings, or, if we obtain the required approvals from our independent
directors and/or stockholders, 150% (after deducting the amount of such
dividend, distribution or purchase price, as the case may be).

• we will not declare any dividend (except a dividend payable in our stock),
or declare any other distribution, upon a class of our capital stock, or
purchase any such capital stock, unless, in every such case, at the time of the
declaration of any such dividend or distribution, or at the time of any such
purchase, we have an asset coverage (as defined in the 1940 Act) of at least
150.0%, as such obligation may be amended or superseded, after deducting the
amount of such dividend, distribution or purchase price, as the case may be, and
in each case giving effect to (i) any exemptive relief granted to us by the SEC,
and (ii) any SEC no-action relief granted by the SEC to another BDC (or to us if
we determine to seek such similar no-action or other relief) permitting the BDC
to declare any cash dividend or distribution notwithstanding the prohibition
contained in Section 18(a)(1)(B) as modified by such provisions of Section 61(a)
of the 1940 Act as may be applicable to us from time to time, as such obligation
may be amended or superseded, in order to maintain such BDC's status as a
regulated investment company under Subchapter M of the Code.

• if, at any time, we are not subject to the reporting requirements of
Sections 13 or 15(d) of the Securities Exchange Act of 1934, or the Exchange
Act, to file any periodic reports with the SEC, we agree to furnish to holders
of the 6.25% 2025 Notes and the Trustee, for the period of time during which the
6.25% 2025 Notes are outstanding, our audited annual consolidated financial
statements, within 90 days of our fiscal year end, and unaudited interim
consolidated financial statements, within 45 days of our fiscal quarter end
(other than our fourth fiscal quarter). All such financial statements will be
prepared, in all material respects, in accordance with applicable United States
generally accepted accounting principles.

On June 24, 2020, the Company issued $37.5 million in aggregate principal amount
of our 7.25% fixed-rate notes due 2025 (the "7.25% 2025 Notes") for net proceeds
of $36.3 million after deducting underwriting commissions of approximately $1.2
million
. Offering costs incurred were approximately $0.3 million. On July 6,
2020
, the underwriters exercised their option in full to purchase an additional
$5.625 million in aggregate principal amount of its 7.25% unsecured notes due
2025. Net proceeds to the Company were $5.4 million after deducting underwriting
commissions of approximately $0.2 million. Interest on the 7.25% 2025 Notes is
paid quarterly in arrears on February 28, May 31, August 31 and November 30, at
a rate of 7.25% per year, beginning August 31, 2020. The 7.25% 2025 Notes mature
on June 30, 2025 and commencing June 24, 2022, may be redeemed in whole or in
part at any time or from time to time at our option. The net proceeds from the
offering were used for general corporate purposes in accordance with our
investment objective and strategies. Financing costs of $1.6 million related to
the 7.25% 2025 Notes have been capitalized and are being amortized over the term
of the 7.25% 2025 Notes. The Company has received an investment grade private
rating of "BBB" from Egan-Jones Ratings Company, an independent, unaffiliated
rating agency. As of August 31, 2020, the total 7.25% 2025 Notes outstanding was
$43.1 million. The 7.25% 2025 Notes are listed on the NYSE under the trading
symbol "SAK" with a par value of $25.00 per share. At August 31, 2020, the total
7.25% 2025 Notes outstanding was $43.1 million.

On July 9, 2020, the Company issued $5.0 million aggregate principal amount of
our 7.75% fixed-rate Notes due in 2025 (the "7.75% 2025 Notes") for net proceeds
of $4.8 million after deducting underwriting commissions of approximately $0.2
million
. Offering costs incurred were approximately $0.1 million. Interest on
the 7.75% Notes 2025 is paid quarterly in arrears on February 28, May 31, August
31
and November 30, at a rate of 7.75% per year, beginning August 31, 2020. The
7.75% Notes 2025 mature on July 9, 2025 and may be redeemed in whole or in part
at any time or from time to time at our option. The net proceeds from the
offering were used for general corporate purposes in accordance with our
investment objective and strategies. Financing costs of $0.3 million related to
the 7.75% Notes 2025 have been capitalized and are being amortized over the term
of the Notes. The 7.75% 2025 Notes are unlisted and have a par value of $25.00
per share.

111



At August 31, 2020, the total 7.75% 2025 Notes outstanding was $5.0 million.




On July 13, 2018, the Company issued 1,150,000 shares of its common stock priced
at $25.00 per share (par value $0.001 per share) at an aggregate total of $28.75
million
. The net proceeds, after deducting underwriting commissions of $1.15
million
and offering costs of approximately $0.2 million, amounted to
approximately $27.4 million. The Company also granted the underwriters a 30-day
option to purchase up to an additional 172,500 shares of its common stock, which
was not exercised.

At August 31, 2020 and February 29, 2020, the fair value of investments, cash
and cash equivalents and cash and cash equivalents, reserve accounts were as
follows:

August 31, 2020 February 29, 2020
Percentage of Percentage of
Fair Value Total Fair Value Total
($ in thousands)
Cash and cash equivalents $ 39,052 6.8 % $ 24,599 4.7 %
Cash and cash equivalents,
reserve accounts 26,343 4.7 14,851 2.8
First lien term loans 389,912 67.9 346,233 66.0
Second lien term loans 50,295 8.8 73,570 14.0
Unsecured term loans 6,522 1.1 4,346 0.8
Structured finance securities 31,096 5.4 32,470 6.2
Equity interests 30,292 5.3 29,013 5.5
Total $ 573,512 100.0 % $ 525,082 100.0 %


On March 16, 2017, we entered into an equity distribution agreement with
Ladenburg Thalmann & Co. Inc., through which we may offer for sale, from time to
time, up to $30.0 million of our common stock through an ATM offering.
Subsequent to this, BB&T Capital Markets and B. Riley FBR, Inc. were also added
to the agreement. On July 11, 2019, the amount of the common stock to be offered
through this offering was increased to $70.0 million, and on October 8, 2019,
the amount of the common stock to be offered was increased to $130.0 million. As
of August 31, 2020, the Company sold 3,922,018 shares for gross proceeds of
$97.1 million at an average price of $24.77 for aggregate net proceeds of $95.9
million
(net of transaction costs). During the six months ended August 31, 2020,
there was no activity related to the ATM offering.

On September 24, 2014, the Company announced the approval of an open market
share repurchase plan that allowed it to repurchase up to 200,000 shares of its
common stock at prices below its NAV as reported in its then most recently
published consolidated financial statements. On October 7, 2015, the Company's
board of directors extended the open market share repurchase plan for another
year and increased the number of shares the Company is permitted to repurchase
at prices below its NAV, as reported in its then most recently published
consolidated financial statements, to 400,000 shares of its common stock. On
October 5, 2016, the Company's board of directors extended the open market share
repurchase plan for another year to October 15, 2017 and increased the number of
shares the Company is permitted to repurchase at prices below its NAV, as
reported in its then most recently published consolidated financial statements,
to 600,000 shares of its common stock. On October 10, 2017, January 8, 2019 and
January 7, 2020, the Company's board of directors extended the open market share
repurchase plan for another year to October 15, 2018, January 15, 2020 and
January 15, 2021, respectively, each time leaving the number of shares unchanged
at 600,000 shares of its common stock. On May 4, 2020, the Board of Directors
increased the share repurchase plan to 1.3 million shares of common stock. As of
August 31, 2020, the Company purchased 308,812 shares of common stock, at the
average price of $16.96 for approximately $5.3 million pursuant to this
repurchase plan. During the six months ended August 31, 2020, the Company
purchased 90,321 shares of common stock, at the average price of $17.17 for
approximately $5.2 million pursuant to this repurchase plan.

On July 7, 2020, the Company declared a dividend of $0.40 per share payable on
August 12, 2020, to common stockholders of record on July 27, 2020. Shareholders
have the option to receive payment of the dividend in cash, or receive shares of
common stock, pursuant to the Company's DRIP. Based on shareholder elections,
the dividend consisted of approximately $3.7 million in cash and 47,098 newly
issued shares of common stock, or 0.4% of our outstanding common stock prior to
the dividend payment. The number of shares of common stock comprising the

112

stock portion was calculated based on a price of $16.45 per share, which equaled
95.0% of the volume weighted average trading price per share of the common stock
on July 30, 31 and August 3, 4, 5, 6, 7, 10, 11 and 12, 2020.

On January 7, 2020, the Company declared a dividend of $0.56 per share, which
was paid on February 6, 2020, to common stockholders of record on January 24,
2020
. Shareholders had the option to receive payment of the dividend in cash, or
receive shares of common stock, pursuant to the Company's DRIP. Based on
shareholder elections, the dividend consisted of approximately $5.4 million in
cash and 35,682 newly issued shares of common stock, or 0.3% of our outstanding
common stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $25.44 per
share, which equaled 95.0% of the volume weighted average trading price per
share of the common stock on January 24, 27, 28, 29, 30, 31 and February 3, 4, 5
and 6, 2020.

On August 27, 2019, the Company declared a dividend of $0.56 per share, which
was paid on September 26, 2019, to common stockholders of record on
September 13, 2019. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to the Company's
DRIP. Based on shareholder elections, the dividend consisted of approximately
$4.5 million in cash and 34,575 newly issued shares of common stock, or 0.4% of
our outstanding common stock prior to the dividend payment. The number of shares
of common stock comprising the stock portion was calculated based on a price of
$23.34 per share, which equaled 95.0% of the volume weighted average trading
price per share of the common stock on September 13, 16, 17, 18, 19, 20, 23, 24,
25 and 26, 2019.

On May 28, 2019, our board of directors declared a dividend of $0.55 per share,
which was paid on June 27, 2019, to common stockholders of record as of June 13,
2019
. Shareholders had the option to receive payment of the dividend in cash, or
receive shares of common stock, pursuant to our DRIP. Based on shareholder
elections, the dividend consisted of approximately $3.6 million in cash and
31,545 newly issued shares of common stock, or 0.4% of our outstanding common
stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $22.65 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on June 14, 17, 18, 19, 20, 21, 24, 25, 26 and 27, 2019.

On February 26, 2019, our board of directors declared a dividend of $0.54 per
share, which was paid on March 28, 2019, to common stockholders of record as of
March 14, 2019. Shareholders had the option to receive payment of the dividend
in cash, or receive shares of common stock, pursuant to our DRIP. Based on
shareholder elections, the dividend consisted of approximately $3.5 million in
cash and 31,240 newly issued shares of common stock, or 0.4% of our outstanding
common stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $21.36 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on March 15, 18, 19, 20, 21, 22, 25, 26, 27 and 28, 2019.

On November 27, 2018, our board of directors declared a dividend of $0.53 per
share, which was paid on January 2, 2019, to common stockholders of record on
December 17, 2018. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to the Company's
DRIP. Based on shareholder elections, the dividend consisted of approximately
$3.4 million in cash and 30,100% newly issued shares of common stock, or 0.4% of
our outstanding common stock prior to the dividend payment. The number of shares
of common stock comprising the stock portion was calculated based on a price of
$18.88 per share, which equaled 95.0% of the volume weighted average trading
price per share of the common stock on December 18, 19, 20, 21, 24, 26, 27, 28,
31, 2018 and January 2, 2019.

On August 28, 2018, our board of directors declared a dividend of $0.52 per
share, which was paid on September 27, 2018, to common stockholders of record as
of September 17, 2018. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $3.3 million
in cash and 25,862 newly issued shares of common stock, or 0.3% of our
outstanding common stock prior to the dividend payment. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$22.35 per share, which equaled 95.0% of the volume weighted average trading
price per share of the common stock on September 14, 17, 18, 19, 20, 21, 24, 25,
26 and 27, 2018.

On May 30, 2018, our board of directors declared a dividend of $0.51 per share,
which was paid on June 27, 2018, to common stockholders of record as of June 15,
2018
. Shareholders had the option to receive payment of the dividend in cash, or
receive shares of common stock, pursuant to our DRIP. Based on shareholder
elections, the dividend consisted of approximately $2.7 million in cash and
21,562 newly issued shares of common stock, or 0.3%

113

of our outstanding common stock prior to the dividend payment. The number of
shares of common stock comprising the stock portion was calculated based on a
price of $23.72 per share, which equaled 95.0% of the volume weighted average
trading price per share of the common stock on June 14, 15, 18, 19, 20, 21, 22,
25, 26 and 27, 2018.

On February 26, 2018, our board of directors declared a dividend of $0.50 per
share, which was paid on March 26, 2018, to common stockholders of record as of
March 14, 2018. Shareholders had the option to receive payment of the dividend
in cash, or receive shares of common stock, pursuant to our DRIP. Based on
shareholder elections, the dividend consisted of approximately $2.6 million in
cash and 25,354 newly issued shares of common stock, or 0.4% of our outstanding
common stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $19.91 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on March 13, 14, 15, 16, 19, 20, 21, 22, 23 and 26, 2018.

On November 29, 2017, our board of directors declared a dividend of $0.49 per
share, which was paid on December 27, 2017, to common stockholders of record on
December 15, 2017. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $2.5 million
in cash and 25,435 newly issued shares of common stock, or 0.4% of our
outstanding common stock prior to the dividend payment. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$21.14 per share, which equaled 95% of the volume weighted average trading price
per share of the common stock on December 13, 14, 15, 18, 19, 20, 21, 22, 26 and
27, 2017.

On August 28, 2017, our board of directors declared a dividend of $0.48 per
share, which was paid on September 26, 2017, to common stockholders of record on
September 15, 2017. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $2.2 million
in cash and 33,551 newly issued shares of common stock, or 0.6% of our
outstanding common stock prior to the dividend payment. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$20.19 per share, which equaled 95% of the volume weighted average trading price
per share of the common stock on September 13, 14, 15, 18, 19, 20, 21, 22, 25
and 26, 2017.

On May 30, 2017, our board of directors declared a dividend of $0.47 per share,
which was paid on June 27, 2017, to common stockholders of record on June 15,
2017
. Shareholders had the option to receive payment of the dividend in cash, or
receive shares of common stock, pursuant to our DRIP. Based on shareholder
elections, the dividend consisted of approximately $2.3 million in cash and
26,222 newly issued shares of common stock, or 0.4% of our outstanding common
stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $20.04 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on June 14, 15, 16, 19, 20, 21, 22, 23, 26 and 27, 2017.

On February 28, 2017, our board of directors declared a dividend of $0.46 per
share, which was paid on March 28, 2017, to common stockholders of record as of
March 15, 2017. Shareholders had the option to receive payment of the dividend
in cash, or receive shares of common stock, pursuant to our DRIP. Based on
shareholder elections, the dividend consisted of approximately $2.0 million in
cash and 29,096 newly issued shares of common stock, or 0.5% of our outstanding
common stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $21.38 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on March 15, 16, 17, 20, 21, 22, 23, 24, 27 and 28, 2017.

On January 12, 2017, our board of directors declared a dividend of $0.45 per
share, which was paid on February 9, 2017, to common stockholders of record as
of January 31, 2017. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $1.6 million
in cash and 50,453 newly issued shares of common stock, or 0.9% of our
outstanding common stock prior to the dividend payment. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$20.25 per share, which equaled 95% of the volume weighted average trading price
per share of the common stock on January 27, 30, 31 and February 1, 2, 3, 6, 7,
8 and 9, 2017.

On October 5, 2016, our board of directors declared a dividend of $0.44 per
share, which was paid on November 9, 2016, to common stockholders of record as
of October 31, 2016. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $1.5 million
in cash and 58,548 newly issued shares

114

of common stock, or 1.0% of our outstanding common stock prior to the dividend
payment. The number of shares of common stock comprising the stock portion was
calculated based on a price of $17.12 per share, which equaled 95% of the volume
weighted average trading price per share of the common stock on October 27, 28,
31 and November 1, 2, 3, 4, 7, 8 and 9, 2016.

On August 8, 2016, our board of directors declared a special dividend of $0.20
per share, which was paid on September 5, 2016, to common stockholders of record
as of August 24, 2016. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $0.7 million
in cash and 24,786 newly issued shares of common stock, or 0.4% of our
outstanding common stock prior to the dividend payment. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$17.06 per share, which equaled 95% of the volume weighted average trading price
per share of the common stock on August 22, 23, 24, 25, 26, 29, 30, 31 and
September 1 and 2, 2016.

On July 7, 2016, our board of directors declared a dividend of $0.43 per share,
which was paid on August 9, 2016, to common stockholders of record as of
July 29, 2016. Shareholders had the option to receive payment of the dividend in
cash, or receive shares of common stock, pursuant to our DRIP. Based on
shareholder elections, the dividend consisted of approximately $1.5 million in
cash and 58,167 newly issued shares of common stock, or 1.0% of our outstanding
common stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $16.32 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on July 27, 28, 29 and August 1, 2, 3, 4, 5, 8 and 9, 2016.

On March 31, 2016, our board of directors declared a dividend of $0.41 per
share, which was paid on April 27, 2016, to common stockholders of record as of
April 15, 2016. Shareholders had the option to receive payment of the dividend
in cash, or receive shares of common stock, pursuant to our DRIP. Based on
shareholder elections, the dividend consisted of approximately $1.5 million in
cash and 56,728 newly issued shares of common stock, or 1.0% of our outstanding
common stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $15.43 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on April 14, 15, 18, 19, 20, 21, 22, 25, 26 and 27, 2016.

On January 12, 2016, our board of directors declared a dividend of $0.40 per
share, which was paid on February 29, 2016, to common stockholders of record as
of February 1, 2016. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $1.4 million
in cash and 66,765 newly issued shares of common stock, or 1.2% of our
outstanding common stock prior to the dividend payment. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$13.11 per share, which equaled 95% of the volume weighted average trading price
per share of the common stock on February 16, 17, 18, 19, 22, 23, 24, 25, 26 and
29, 2016.

On October 7, 2015, our board of directors declared a dividend of $0.36 per
share, which was paid on November 30, 2015, to common stockholders of record as
of November 2, 2015. Shareholders had the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $1.1 million
in cash and 61,029 newly issued shares of common stock, or 1.1% of our
outstanding common stock prior to the dividend payment. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$14.53 per share, which equaled 95% of the volume weighted average trading price
per share of the common stock on November 16, 17, 18, 19, 20, 23, 24, 25, 27 and
30, 2015.

On July 8, 2015, our board of directors declared a dividend of $0.33 per share,
which was paid on August 31, 2015, to common stockholders of record as of
August 3, 2015. Shareholders had the option to receive payment of the dividend
in cash, or receive shares of common stock, pursuant to our DRIP. Based on
shareholder elections, the dividend consisted of approximately $1.1 million in
cash and 47,861 newly issued shares of common stock, or 0.9% of our outstanding
common stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $15.28 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on August 18, 19, 20, 21, 24, 25, 26, 27, 28 and 31, 2015.

115

On May 14, 2015, our board of directors declared a special dividend of $1.00 per
share, which was paid on June 5, 2015, to common stockholders of record on as of
May 26, 2015. Shareholders had the option to receive payment of the dividend in
cash, or receive shares of common stock, pursuant to our DRIP. Based on
shareholder elections, the dividend consisted of approximately $3.4 million in
cash and 126,230 newly issued shares of common stock, or 2.3% of our outstanding
common stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $16.47 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on May 22, 26, 27, 28, 29 and June 1, 2, 3, 4 and 5, 2015.

On April 9, 2015, our board of directors declared a dividend of $0.27 per share,
which was paid on May 29, 2015, to common stockholders of record as of May 4,
2015
. Shareholders had the option to receive payment of the dividend in cash, or
receive shares of common stock, pursuant to our DRIP. Based on shareholder
elections, the dividend consisted of approximately $0.9 million in cash and
33,766 newly issued shares of common stock, or 0.6% of our outstanding common
stock prior to the dividend payment. The number of shares of common stock
comprising the stock portion was calculated based on a price of $16.78 per
share, which equaled 95% of the volume weighted average trading price per share
of the common stock on May 15, 18, 19, 20, 21, 22, 26, 27, 28 and 29, 2015.

On September 24, 2014, our board of directors declared a dividend of $0.22 per
share, which was paid on February 27, 2015, to common stockholders of record on
February 2, 2015. Shareholders have the option to receive payment of the
dividend in cash, or receive shares of common stock, pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $0.8 million
in cash and 26,858 newly issued shares of common stock, or 0.5% of our
outstanding common stock prior to the dividend payment. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$14.97 per share, which equaled 95% of the volume weighted average trading price
per share of the common stock on February 13, 17, 18, 19, 20, 23, 24, 25, 26 and
27, 2015.

Also, on September 24, 2014, our board of directors declared a dividend of $0.18
per share, which was paid on November 28, 2014, to common stockholders of record
on November 3, 2014. Shareholders had the option to receive payment of the
dividend in cash or receive shares of common stock pursuant to our DRIP. Based
on shareholder elections, the dividend consisted of approximately $0.6 million
in cash and 22,283 newly issued shares of common stock, or 0.4% of our
outstanding common stock prior to the dividend payment. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$14.37 per share, which equaled 95% of the volume weighted average trading price
per share of the common stock on November 14, 17, 18, 19, 20, 21, 24, 25, 26 and
28, 2014.

On October 30, 2013, our board of directors declared a dividend of $2.65 per
share, which was paid on December 27, 2013, to common stockholders of record as
of November 13, 2013. Shareholders had the option to receive payment of the
dividend in cash, shares of common stock, or a combination of cash and shares of
common stock, provided that the aggregate cash payable to all shareholders was
limited to approximately $2.5 million or $0.53 per share. This dividend was
declared in reliance on certain private letter rulings issued by the IRS
concluding that a RIC may treat a distribution of its own stock as fulfilling
its RIC distribution requirements if each stockholder may elect to receive his
or her entire distribution in either cash or stock of the RIC subject to a
limitation on the aggregate amount of cash to be distributed to all
stockholders, which limitation must be at least 20.0% of the aggregate declared
distribution. Based on shareholder elections, the dividend consisted of
approximately $2.5 million in cash and 649,500 shares of common stock, or 13.7%
of our outstanding common stock prior to the dividend payment. The amount of
cash elected to be received was greater than the cash limit of 20.0% of the
aggregate dividend amount, thus resulting in the payment of a combination of
cash and stock to shareholders who elected to receive cash. The number of shares
of common stock comprising the stock portion was calculated based on a price of
$15.439 per share, which 95% of equaled the volume weighted average trading
price per share of the common stock on December 11, 13, and 16, 2013.

On November 9, 2012, our board of directors declared a dividend of $4.25 per
share, which was paid on December 31, 2012, to common stockholders of record as
of November 20, 2012. Shareholders had the option to receive payment of the
dividend in cash, shares of common stock, or a combination of cash and shares of
common stock, provided that the aggregate cash payable to all shareholders was
limited to approximately $3.3 million or $0.85 per share. Based on shareholder
elections, the dividend consisted of $3.3 million in cash and 853,455 shares of
common stock, or 22.0% of our outstanding common stock prior to the dividend
payment. The amount of cash elected to be received was greater than the cash
limit of 20.0% of the aggregate dividend amount, thus resulting in

116

the payment of a combination of cash and stock to shareholders who elected to
receive cash. The number of shares of common stock comprising the stock portion
was calculated based on a price of $15.444 per share, which equaled 95% of the
volume weighted average trading price per share of the common stock on
December 14, 17 and 19, 2012.

On November 15, 2011, our board of directors declared a dividend of $3.00 per
share, which was paid on December 30, 2011, to common stockholders of record as
of November 25, 2011. Shareholders had the option to receive payment of the
dividend in cash, shares of common stock, or a combination of cash and shares of
common stock, provided that the aggregate cash payable to all shareholders was
limited to $2.0 million or $0.60 per share. Based on shareholder elections, the
dividend consisted of $2.0 million in cash and 599,584 shares of common stock,
or 18.0% of our outstanding common stock prior to the dividend payment. The
amount of cash elected to be received was greater than the cash limit of 20.0%
of the aggregate dividend amount, thus resulting in the payment of a combination
of cash and stock to shareholders who elected to receive cash. The number of
shares of common stock comprising the stock portion was calculated based on a
price of $13.117067 per share, which equaled 95% of the volume weighted average
trading price per share of the common stock on December 20, 21 and 22, 2011.

On November 12, 2010, our board of directors declared a dividend of $4.40 per
share to shareholders payable in cash or shares of our common stock, in
accordance with the provisions of the IRS Revenue Procedure 2010-12, which
allows a publicly-traded regulated investment company to satisfy its
distribution requirements with a distribution paid partly in common stock
provided that at least 10.0% of the distribution is payable in cash. The
dividend was paid on December 29, 2010 to common shareholders of record on
November 19, 2010. Based on shareholder elections, the dividend consisted of
$1.2 million in cash and 596,235 shares of common stock, or 22.0% of our
outstanding common stock prior to the dividend payment. The amount of cash
elected to be received was greater than the cash limit of 10.0% of the aggregate
dividend amount, thus resulting in the payment of a combination of cash and
stock to shareholders who elected to receive cash. The number of shares of
common stock comprising the stock portion was calculated based on a price of
$17.8049 per share, which equaled 95% of the volume weighted average trading
price per share of the common stock on December 20, 21 and 22, 2010.

On November 13, 2009, our board of directors declared a dividend of $18.25 per
share, which was paid on December 31, 2009, to common stockholders of record as
of November 25, 2009. Shareholders had the option to receive payment of the
dividend in cash, shares of common stock, or a combination of cash and shares of
common stock, provided that the aggregate cash payable to all shareholders was
limited to $2.1 million or $0.25 per share. Based on shareholder elections, the
dividend consisted of $2.1 million in cash and 864,872.5 shares of common stock,
or 104.0% of our outstanding common stock prior to the dividend payment. The
amount of cash elected to be received was greater than the cash limit of 13.7%
of the aggregate dividend amount, thus resulting in the payment of a combination
of cash and stock to shareholders who elected to receive cash. The number of
shares of common stock comprising the stock portion was calculated based on a
price of $1.5099 per share, which equaled 95% of the volume weighted average
trading price per share of the common stock on December 24 and 28, 2009.


We cannot provide any assurance that these measures will provide sufficient
sources of liquidity to support our operations and growth.



Contractual obligations



The following table shows our payment obligations for repayment of debt and
other contractual obligations at August 31, 2020:




Payment Due by Period
Long-Term Debt Less Than More Than
Obligations Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years
($ in thousands)
Revolving credit facility $ - $ - $ - $ - $ -
SBA debentures 170,000 - 40,000 39,000 91,000
6.25% 2025 Notes 60,000 - - 60,000 -
7.25% 2025 Notes 43,125 - - 43,125 -
7.75% 2025 Notes 5,000 - - 5,000 -
Total Long-Term Debt
Obligations $ 278,125 $ - $ 40,000 $ 147,125 $ 91,000


117



Off-balance sheet arrangements




As of August 31, 2020 and February 29, 2020, the Company's off-balance sheet
arrangements consisted of $45.0 million and $64.1 million, respectively, of
unfunded commitments outstanding to provide debt financing to its portfolio
companies or to fund limited partnership interests. Such commitments are
generally up to the Company's discretion to approve, or the satisfaction of
certain financial and nonfinancial covenants and involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the Company's
consolidated statements of assets and liabilities and are not reflected in the
Company's consolidated statements of assets and liabilities.


A summary of the unfunded commitments outstanding as of August 31, 2020 and
February 29, 2020 is shown in the table below (dollars in thousands):




August 31, February 29,
2020
2020
At Company's discretion



CLEO Communications Holding, LLC $ 630 $



-
inMotionNow, Inc. - 3,000
Omatic Software, LLC - 1,000
Passageways, Inc. 5,000 5,000
PDDS Buyer, LLC - 5,000
Saratoga Investment Corp. CLO 2013-1 Warehouse 2,
Ltd. 15,000



17,500



Top Gun Pressure Washing, LLC 3,175



5,000
Village Realty Holdings LLC 10,000 10,000
33,805 46,500
At portfolio company's discretion - satisfaction of
certain financial and nonfinancial covenants
required
ArbiterSports, LLC - 1,000
Axiom Purchaser, Inc. - 1,000
CoConstruct, LLC - 3,500
Davisware, LLC 1,022 2,000
GoReact 2,000 2,000



HemaTerra Holding Company, LLC 2,000



4,000
Passageways, Inc. 3,000 3,000
Service Fusion 2,000 -
Village Realty Holdings LLC 1,124 1,124
11,146 17,624
Total $ 44,951 $ 64,124


Recent Developments



On October 6, 2020, the Company declared a dividend of $0.41 per share payable
on November 10, 2020, to common stockholders of record on October 26, 2020.
Shareholders have the option to receive payment of the dividend in cash, or
receive shares of common stock, pursuant to the Company's DRIP.




Subsequent to August 31, 2020, the global outbreak of the coronavirus, or
COVID-19, pandemic, and the related effect on the U.S. and global economies, has
continued to have adverse consequences for the business operations of some of
the Company's portfolio companies and, as a result, has had some adverse effects
on the Company's operations. The ultimate economic fallout from the pandemic,
and the long-term impact on economies, markets, industries and individual
issuers, is uncertain. The operational and financial performance of the issuers
of securities in which the Company invests depends on future developments,
including the duration and spread of the outbreak, and such uncertainty may in
turn adversely affect the value and liquidity of the Company's investments and
negatively impact the Company's performance.

118


On September 14, 2020, we entered into a fifth amendment to the Credit Facility
with Madison Capital Funding LLC to, among other things:



• extend the commitment termination date of the Credit Facility from
September 17, 2020 to September 17, 2021, with no change to the maturity date of
September 17, 2025.




• provide for the transition away from the LIBOR Rate in the market, and

• expand the definition of Eligible Loan Asset to allow investments with



certain recurring revenue features to qualify as Collateral and be included in
the borrowing base.

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