Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Saratoga Investment Corp's Fiscal Second Quarter 2017 Financial Results Conference Call. Please note that today’s call is being recorded. During today’s presentation all parties will be in a listen-only mode. Following management’s prepared remarks, we will open the line for questions. At this time I would like to turn the call over to Saratoga Investment Corp's Chief Financial Officer, Mr. Henri Steenkamp. Sir, please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's fiscal second quarter 2017 earnings conference call. Today's conference call includes forward-looking statements and projections. We ask you to refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. We do not undertake to update our forward-looking statements unless required to do so by law. Today, we will be referencing a presentation during our call. You can find our fiscal second quarter 2017 shareholder presentation in the Events and Presentations section of our Investor Relations website. A link to our IR page is in the earnings press release distributed last night. A replay of this conference call will also be available from 1 PM today through October 20. Please refer to our earnings press release for details. I would now like to turn the call over to our Chief Executive Officer, Christian Oberbeck, who will be making a few introductory remarks.

Thank you, Henri, and welcome everyone. Before we go into greater detail on our fiscal second quarter 2017 results, we would like to highlight some of the continued progress and achievements during th0is quarter for Saratoga. Some of these are outlined on Slide 2. Since becoming the manager of Saratoga Investment Corp, we have been singularly focused on the long-term objective of increasing the quality and size of our asset base with the ultimate purpose of building Saratoga Investment Corp into a best-in-class BDC generating meaningful return for our shareholders. We are very pleased to say that our fiscal second quarter 2017 continued our trend of outperformance and steady growth. As highlighted on Slide 2, during the past quarter, many of our metrics illustrate our achievements and continued momentum. To briefly recap, first, we continued to strengthen our financial foundation by increasing our net asset value to $128.6 million, a 1.1% increase from $127.1 million as of last quarter, increasing our net asset value per share from $22.11 last quarter to $22.39 as of this quarter, maintaining our investment quality and credit with 99.9% of our loan investments now having our highest rating, our highest percentage ever, and as importantly no investments on non-accrual, and generating an annualized return on equity or 16.5% for the quarter and 9.1% on a trailing twelve month basis, greatly outperforming the last twelve months BDC industry average of approximately negative 1.1%. Second, we expanded our assets under management to $273 million, an 8% increase from the $252 million as of August 31, 2015, and a sequential increase of 3% from $264 million as of May 31, 2016. The year-to-date assets under management are slightly down from $284 million. From a longer-term perspective, this quarter also reflects 186% increase from $95 million at the end…

Thank you, Chris. Looking at our quarterly key performance metrics on Slide 4, we see that for the quarter ended August 31, 2016, our net investment income was $2.6 million or $0.45 on a weighted average per share basis. Adjusted for the incentive fee accrual related to net unrealized capital gains in the second incentive fee calculation, our net investment income was $3.0 million or $0.53 per share. This represented an increase of $0.1 million compared to the same period last year and an increase of $0.4 million compared to the quarter ended May 31, 2016. For this year’s second quarter, total investment income increased 6.8% to $8.4 million as compared to $7.9 million for this year’s first quarter, and increased 8.9% from $7.8 million for the same quarterly period last year. This increased investment income was generated from an investment base that is growing by 8% from the second quarter last year and by 3% on a sequential quarterly basis. In addition, total investments income benefited from an increase of $0.2 million in other income this quarter compared to last year as the high levels of originations and redemptions this quarter led to increased advisory fees and prepayment penalties received. The investment income increase was offset by first, increased debt and financing expenses from higher outstanding notes payable and SBA debentures this year reflective of the growing average investment and asset base. Second, slightly increased base and incentive management fees generated from the management of this larger pool of investment and third, increased total expenses excluding interest and debt financing expenses, base management fees and incentive fees reflecting primarily higher administrator and general and administrative expenses. In the second quarter of fiscal 2017, we experienced a net gain on investment of $2.7 million or $0.46 on a weighted average…

Thank you, Henri. I would like to start by taking a couple minutes to update everyone on the current on market as we see it. The market is at extremely competitive conditions that we’ve seen during the last couple of quarters continued through Q2 2017. Slide 11 indicates how many fewer deals are being done in the market. The number of transactions per deal sizes in the US below $25 million in 2015 was down 23% from calendar year 2014 and calendar year 2016 is even slower continuing that trend. There is a year-over-year reduction in deal volume of 35% at this stage. At this pace, we anticipate calendar year 2016 to be a slower year than 2015. As a result, pricing remains under pressure as lenders compete for mandates, there is evidence suggesting that yields across the broader middle market for most credit types have tightened slightly over the last quarter but these decreases were modest generally no more than 25 basis points. This was most likely due to an increase in inflows or demand coupled with limited new issuances or supply. Generally, we have seen no widening of spreads in the lower middle market where we operate. Our experience has been that strong credits are aggressively sought after. In the broader market where there is an abundance of capital and relatively soft deal volume, we continue to believe that the lower middle market is the most attractive market segment to deploy capital and the fundamentals here remains strong leading to the best risk-adjusted returns. In our case, we have created a primary origination portfolio of healthy low leverage assets with a robust average yield of around 11%. In addition, powerful long-term secular trends bode well for the BDC industry as a whole. Banks continue to shift toward large…

Thank you, Mike. From the start of our quarterly dividend payment program two years ago, our expectation was this dividend would increase substantially that it has growing by a 144% since the program launched. As outlined on Slide 17, during the fiscal year 2016, we declared and paid dividends of $2.36 per share, gradually raising the dividend for the year from $0.27 for the quarter ended February 28, 2015 to $0.40 per share for the quarter ended November 30, 2015. Last year also included a special dividend of $1 per share. In addition, during the fiscal year 2017, so far, we paid a dividend of $0.41 per share for the fiscal quarter ended February 29, 2016, a dividend of $0.043 per share for the fiscal quarter ended May 31, 2016 and a special dividend of $0.20 per share paid on September 5, 2016. On October 5, 2016, our Board of Directors declared a dividend of $0.44 for the quarter ended August 31, 2016 to be paid on November 9, 2016 to all shareholders of record at the close of business on October 31, 2016. This is a further increase of $0.01 to our quarterly dividend. Therefore, in total, we’ve already declared dividends of $1.48 per share during the first two quarters of fiscal 2017. Shareholders continue to have the option to receive payment of the dividend in cash or receive shares of common stock pursuant to our dividend reinvestment plan or DRIP plan which we adopted in conjunction with the new dividend policy and provides with a reinvestment of dividend on behalf of our stockholders. For more information, see the Stock Information section of our investor relations section on our website. Slide 17 also shows how we are currently still overearning our dividend. This quarter’s dividend of $0.44 per share…

[Operator Instructions] And our first question comes from the line of Mickey Schleien from Ladenburg. Your line is open.

Yes, good morning everyone. Thanks for taking my questions. I'd like to start by asking, to what do you attribute the high level of repayments this quarter?

That’s a good question, Mickey. The one part of our business that we don’t have much control over is payoffs. So if we were to look at the loans that did payoff, it’s a combination of factors. In some cases, the companies were sold; in other cases, the companies perform so well that they were refinanced with sort of more traditional capital and that’s kind of the natural development of our portfolio. If the deals perform very well, they are going to recycle a little bit faster and you’d certainly experience that.

Mike, that's a good segue to my next question, a couple of your repayments had relatively high coupons like National Truck and Bristol. Did you offer to reprice those deals given the recent amount of spread compression we've seen in the middle market?

We certainly were engaged with ownership and new ownership in both cases and had dialogue around that but chose not to proceed with the new financing.

Okay. And I haven't done the math, but could you give me a sense of the yields on your new investments versus your exits?

I think we have that. Give us one second.

If you want to give it to me offline that will be fine.

It’s in the deck, but it’s going to be in the mid tens on new investments on a blended basis and then I think on the redemptions it averages to a little over 11 like a 11.1 on the interest rate.

Okay.

So a slight decline, but one of the things, it seem perfect sort of when you look at that because some of that depends on the mix of securities as well.

Sure.

And of course the thing that we are encouraged by and we look at is the vast majority of the new investments were all SBIC qualified investments. So, at a rate that we achieved on those new investments is kind of in the mid tens. It’s very accretive, a two to one leverage, very accretive to shareholders we think especially on a risk-adjusted basis.

I understand. Mike, the assumptions at least that you disclosed in the Q for the valuation of CLO didn't change quarter-to-quarter, but some of that is due to a broad range that's described in the filings. But I did notice that you assumed a higher estimated yield on this CLO. Can you talk a little bit about what changed?

By yield, you mean the discount, right, Mickey?

Yes, the effective yield - estimated yield that you are using.

We actually, it actually was a slight increase, so…

That's my point, yes

Yes, yes, we had a – we basically went from 19% to 8% and it’s really a combination. As we do the valuation of the CLO, we look at input from recent trades that we see and then there is also conversations that I had with trading desks regarding the current CLO equity and what they are seeing in the market and it was sort of based on a combination of all of that that we decreased the discount rate from 19% to 18%, and that had a very minor impact, a slight $0.2 million increase in the actual valuation from Q1. But it wasn’t a major change, 19% to 18% is not that significant in the context of the CLO.

Right. Mike, I noticed that the portfolio's average leverage has been creeping up, not significantly, but it's gone up for the last few quarters. Does that reflect a benign outlook that you have on the economy and your willingness to take on more risk or something else?

No, it’s a good question. It’s really just reflective of the deal opportunities that we are seeing in the marketplace. Certainly over time, if you were to look at the mix of our portfolio back two three years ago, there were fewer sponsored transactions. So we had more deals that we are investing in. We were backing a management team, maybe backing ownership that wasn’t in a funded sponsorship structure, and those deals were generally going to be a little bit lower leverage. The mix of our deals that we’re closing now consists of a higher percentage of sponsor-backed transactions. Those deals have the benefit of very sophisticated sponsors that we’ve gotten to know very well and have repeat business from. They are usually writing significant equity checks to support the debt in the transaction, but typically the leverage profile of those deals is a bit higher as well. So they sort of trade offs. The size of those companies tends to be higher as well. So it’s sort of a – there’s a lot of factors that are influencing that, but we are not – we are certainly not taking approach where we say, we think the economy is in a really good place and therefore lets reflect that in our comfort level on leverage. We instead look at each deal individually, look at it on its merits and every single deal that we evaluate. We run it through the gauntlet. We really look at what it – how much would that industry cycle if it cycles like that again, will the balance sheet hold up, all those factors weigh into our comfort level in the leverage profile. And so, if we do something as I indicated in our prepared remarks that has a higher leverage profile, it’s because we indeed believe that the enterprise value will sustainably support that higher leverage profile.

I understand. Just a couple more questions, I don't think I've seen an SBA green light letter expire, at least in the times that I've been looking at the sector. So that seems to imply that there was some sort of issue with the initial application and can you give us any more color on what caused them to ask you to reapply and what caused the delay?

Sure Mickey. Basically, we don’t know exactly how they make their decisions at the SBA and so we don’t want to get too involved and try to say exactly what it is. But I think part of the consideration had to do with where we are in our first license and the utilization of our first license. And at this point in time, we still have, as Henri had said earlier, like $44 million left of investment capacity in our first license and I think that was part of the consideration was where we were in terms of our first license before engaging in a second license. I think it’s notable that they invited us to reapply and so, we can’t project exactly what they are thinking, but we view that as encouraging that we are still in that process. I think, in Mike’s presentation, I think, if you look at the performance of our SBIC investments with very high double-digit returns in the 20% sort of returns, our return profile is among the very best for credit-oriented SBIC investments vehicles there. So, we are positive and optimistic and we still have a significant amount of investments to go with our remaining first license.

I understand and just a couple of housekeeping questions with respect to liquidity, how much of your cash is in the SBIC? And lastly, could you remind us, what - at least within a range the amount of private funds that are managed by other Saratoga entities? That's it for me.

I’ll take the first one just on the cash. So, I think in the past, Mickey, we’ve seen more of the cash actually being in our SBIC, which we’ve always noted. For this quarter actually it was more of a equal split between SBIC and then in our holding company, because some of the realizations that we did had this quarter was actually outside of our SBIC and that’s the cash that we still have to deploy.

So on your balance sheet, the line that reads reserve accounts, that's not necessarily the SBIC cash, correct?

Correct. It’s a combination of SBIC as well as one of our subsidiaries over which the asset-backed by Madison’s ability is. So that one is a combination, the other line is solely non-SBIC.

Okay and the other question was related to the private funds.

Sure, Mickey. I think, that’s – that they are private funds and it’s generally not a public matter. So we generally don’t speak to the exact amount of that. It’s substantial, but it’s not something that we specifically disclose.

Okay, that's it for me. Thank you for your time.

Thanks, Mickey.

Thank you.

Thanks Mickey.

Thank you. And our next question comes from the line of Casey Alexander from Compass Point Research Trading. Your line is open.

Hi, good morning guys.

Hi, Casey.

You have gotten to a lot of my questions, but I have got a few more. Just for clarification sake, is there any acceleration of the SBIC process, given that you have had an application in there for 18 months or is it literally back to square one? I mean, are we now working towards getting a new green light letter?

Yes, technically we are a new green light letter, but it’s a new green light letter for a second license and we…

Right.

Have been part of the program since 2012. So, we’ve had multiple audits. For example, we just completed our recent audit in August. Our portfolio is pretty well seasoned. They know us well. We have a very – we are well known down there, we’ve been down there many times. So, all those are important consideration in their process for evaluating making these investments. So, to our understanding, a green light or a second license process is in and of itself generally a more accelerated process than a de novo green light. But again, we want to be very careful not to project too much of their decision-making process. It’s into our discussion as I said, we are responsible for is our inputs and our inputs are very strong performance and our continued investment performance and as we said earlier, the green light has expired, but we were invited to be applied. So, we view that as a positive indication.

Okay, thank you. Mike, my next questions are for you, because they relate more to the portfolio. If I've checked this right there is actually only three new companies in the portfolio and the vast majority of the originations were to existing companies. Can you - why should I be comfortable that we are not getting too concentrated in the same companies?

Well, there is, I think it’s interesting. The thing that we like about building a portfolio at seasons is, having an opportunity to invest more capital in a well-performing company where you know the management team, you know the ownership et cetera. Those are the best calls that you can get. We feel like our portfolio is well balanced. The businesses that we supported this quarter, we were delighted to support, because they are all performing very well and I think we are going to deliver terrific returns for our shareholders. Some of those deals, as I look at sort of the ones that we closed this past quarter were on the small side for us and we actually made those investments with the hope that we have an opportunity to expand the dollars invested in those companies. So we are delighted to have the opportunity to invest in those portfolio of companies. I think as I said, earlier, as I think the about the portfolio and growth in the portfolio, there is three avenues, all of them are important and they are especially important in this market, one is just repeat business from sponsors and intermediaries that you’ve done business with and if you were to start to look over the last three years, we’ve done a terrific job of getting repeat business as we’ve established relationships in the market. That’s why we spend so much time trying to build more relationships as we know that had that kind of recurring deal flow effects. Another is from – as you pointed out is from, expanding our investment in good well-performing portfolio of companies that we love to have that opportunity when it arises, especially for investing in the equity in those deals. It tends to be – kind of typically things are going well and it’s very accretive all the way around. And then the last thing is just new relationships and that’s where we spend the majority of our time is trying to build those new relationships which will then expand those other two categories. And in this last quarter, we were successful with all three, repeat business from existing sponsors, new portfolio of companies, new sponsor relationships that we hadn’t had prior to this and then we are delighted to support existing portfolio of companies with additional capital.

Well, okay, I get your answer, but then - if they are well-performing companies, when you expand the relationship, particularly in the case of Noland and Mercury, the Noland investment went from $5 million to $17 million and Mercury went from $9 million to $21 million, but in both cases there was a pretty significant increase in the interest being charged them, which is not typical of what you would see from a well-performing investment. And yet, these have now become significantly - a significant double-digit percentage of net assets of the company. So I would – again, say on - particularly on those two, how do I get comfortable that we have increased the size of the commitment but their rate went up so much?

Yes, I think, whenever we look at a transaction, particularly supporting companies’ growth, we always reevaluate what the balance sheet looks like and where we are in accounting structure and so I think in both cases, we had an opportunity to upsize or increase the interest rate based on the new leverage profile that we are evaluating and it’s not uncommon for us, Casey, as we structure deals to have sort of flexible pricing in that respect, where we say, okay, initially your rate of interest is going to be in this range, but if you perform really well, you’ll have an opportunity to take advantage of a little bit lower pricing. Obviously, there is a floor on that given the return profile that we are seeking. And so that kind of goes both ways, as a company is deleveraging it’s not uncommon, there is number of deals in our portfolio where we’ve lowered interest to keep this deal in our portfolio as it’s performed very well and in these cases, we supported them with more dollars, their leverage profile went up a bit and as a consequence we had the opportunity to raise the interest rate. In Mercury’s case, we did subsequent to quarter end, we did sell down part of our position there just from an exposure standpoint.

Okay, all right.

But those are both companies that we are delighted to be supporting and very happy with and we are excited to be advancing additional dollars to.

Okay. All right, thanks for taking my questions.

Thanks, Casey.

Thank you. At this time, I am showing no further questions in the queue. I’d like to turn the call back over to Christian Oberbeck for closing remarks.

Sure, well, if there are no more questions, we thank you all for participating in this call and we appreciate your support and interest and look forward to speaking with you next quarter. Thank you very much.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone have a great day.