Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp.’s Fiscal Fourth and Fiscal Year 2017 Financial Results Conference Call. Please note that today’s call is being recorded. Today's presentation, all parties will be in a listen-only mode. Following management's prepared remark, 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 and Compliance Officer, Mr. Henri Steenkamp. Please go ahead.

Thank you. I would like to welcome everyone to the Saratoga Investment Corp.’s fiscal fourth and fiscal year 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 fourth and fiscal year-end 2017 shareholder presentation in the Events & 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 p.m. today through May 24. Please refer to our earnings press release for details. I would now like to turn the call over to our Chairman and Chief Executive Officer, Christian Oberbeck, who will be making a few introductory remarks.

Thank you, Henri, and welcome everyone. As we consider our accomplishments during this most recent fiscal year, I am pleased to note the success of our activities and pursuit of credit quality growth and earnings and the strong operating and investment performance that is resulted from these efforts. In addition, we've achieved certain millstone how to serve to expand and enhance our capabilities. Saratoga Investment has risen to and remains at the top of the industry in terms of key performance indicators and in many categories, far outpacing our competitors. Importantly we have accomplished this in a highly competitive and challenging market environment. We continue to progress towards our 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 returns for our shareholders. Slide 2, highlights our continued progress and achievements during the past quarter and fiscal year. To briefly recap, first we continue the strengthening of our financial foundation this year by maintaining a high level of investment credit quality with 94.1% of our loan investment having our highest rating, generating a return on equity of 9% on a trailing 12 month basis, outperforming the last 12 months of BDC industry average of approximately 7.5%. Excluding the 1.6 million realized and unrealized losses in our legacy investments in Targus Group International and Elyria Foundry Company, LLC over the past 12 months as well as the loss associated with the extinguishment of our 2020 notes and the interest paid on the 2020 notes during the call notice period. Our return on equity for the last 12 months ended February 28, 2017 was 11.3%. Both Targus and Elyria are legacy investments that pre-date Saratoga's management of the BDC, and generating our gross unleveraged IRR…

Thank you, Chris. Slide 4 highlights our key performance metrics for the quarter ended February 28, 2017 and our usual presentation of these data. Net investment income of $1.1 million or $0.19 on a weighted average per share basis was down as compared to the quarter ended November 30 and February 29 2016. There are a couple of adjustments necessary this quarter to get our adjusted metrics. In addition to the incentive fee accrual related to net unrealized capital gains in the second incentive fee calculation that we always adjust for, the refinancing of our 2020 baby bonds also resulted in two additional adjustments namely, a $1.5 million loss on extinguishment of the baby bonds as well as the interest and deferred financing cost of $0.3 million on the old baby bonds during the call notice period while the 2023 baby bonds were already issued and outstanding. Both these expenses are directly attributable to the issuance of the 2023 notes and the subsequent repayment of the 2020 notes and are deemed to be non-recurring in nature and not representative of the operations of the business. When adjusting for these items, adjusted NII per share was $0.49, up $0.04 from $0.45 per share last year and down $0.04 from $0.53 per share last quarter. The increase from last year primarily reflects with 3% higher level of investment and results in higher interest income while the decrease from last quarter is driven by a couple of factors. First, interest income is slightly down with our Taco Mac investment on non-accrual this quarter while the increase investments were primarily closed in the last month of the quarter thereby not really benefitting interest income much yet. Second, increased interest expenses from our new 2020 baby bonds are not yet fully deployed. And third, increased…

Thank you, Henri. I'll take a couple of minutes to describe the current market as we see it. Then I'll comment on our portfolio performance and investments strategy. The market’s extremely competitive conditions persist. Slide 15 indicates the continued downward trend in the number of transactions for deal sizes in the U.S. below $25 million. The number of transactions in the last 12 months ended February 28, 2017 is already down significantly as compared to calendar 2016. Total transaction value for the 12 months ended February 28, 2017 is the lowest that it has been for compared to 12 months period since 2013. Opportunities in closings continued to decrease strong credits remained aggressively sort after. As a result, pricing in the broader middle market remains under pressure driven by an intensely competitive environment. Generally, we have seen less change in spreads in the lower middle-market where we operate. In fact, our experience is that the lower middle market is still the most attractive market segments to deploy capital and the most likely to deliver the best risk adjusted returns. In addition we believe long-term secular trends bode well for the BDC industry as a whole. In the chart on Slide 16, you can see that debt multiples in the industry seem to have created somewhat of a borrowed bell. With lower leveraged credits below 3.5x increasing or higher leverage credits above 5x increase as well. However, irrespective of the fluctuation of markets leverage levels historically we have been able to invest in deals with relatively low multiples. Our total leverage is four in the quarter up slightly from previous quarter. This reflects both the repayment this quarter of numerous lower leverage deals as well as the add-ons to our existing investments increasing their immediate leverage profile. Nevertheless, the majority of…

Thank you, Mark. As many of you know, our quarterly cash dividend payment program has grown by 156% since the program launched. As outlined on Slide 21, during the fiscal year 2017 we declared and paid dividends of $1.93 per share gradually raising the dividend to the year. In addition during the beginning of fiscal year 2018, we paid an additional dividend of $0.46 per share continuing the trend of raising the dividend every quarter. We have now had 10 sequential quarters of dividend increases. We are also still over earning our dividend by 9%, giving us one of the higher dividend coverage's in the BDC industry. We are also pleased to see our relative standing in the industry consistently improved overtime. As you can see on Slide 22 and reflecting our strong key performance indicators we have discussed earlier, our total returns of last 12 months which includes both capital depreciation and dividends has generated total returns of 47%, significantly beating the BDC index at 27% after the rally the industry has seen over the last couple of months. Turning to Slide 23, when viewed over a longer time horizon such as six years, which is when we took over the management of the BDC, our three and six year return places us on the top two of all BDCs. Moving on to Slide 24, you will see how our dividend yield has dramatically improved relative to the rest of the industry over the last couple of years. We have moved from consistently below the BDC average to now beating internally managed BDCs in line with the total BDC index and the externally-managed BDCs index. And Slide 25 highlights how our dividend growth has been the highest year-over-year quarterly dividend growth in the whole BDC industry with only two…

Thank you. [Operator Instructions] And your first question comes from Casey Alexander with Compass Point Research. Your line is open.

First of all, as it relates to Easy Ice, you said this was a change of control. So this was almost -- this was a re-underwriting where the previous commitment was considered paid off, the previous '16, and this is a new commitment of $26.7 million, is that right?

Casey, basically our Easy Ice I think we notice in your write-up from last night that I mean clearly you are correct Easy Ice has been a really solid performing investment for us for many years. There management has certain investments stake and they had a majority owner that we were able to help company to fluctuate a change of control where in effect management and we were able to takeout this in other equity investor and that was the transaction. So, it was not a refinancing of all our position per se, but there was incremental capital that we contributed in support of our management team facilitating an increase in both their equity share and our equity share of the Company by taking out the majority of shareholder.

Right. Okay. And what percentage is your equity share? Because I noticed it was moved from non-controlled to a controlled investment

Some of that's just the in the way the accounting regs are, it's less than 50%, but I think the way that disclosure works is that if you have more than 25% it falls into that categories. So, we are not in a controlled position as if you were little find that by having greater than 50%, but it is the significant equity position; actually structured at preferred equity as well, so there is some safety in the structure that we divides in this case.

Right. That's -- but it would be fair to call it somewhere between 25% and 50% then?

That's correct.

Secondly, in Slide #3, we now have -- one loan is listed as underperforming and one loan is listed as payment default risk, and I assume that those refer to Taco Mac and My Alarm Center, but can you tell us which is which?

It's actually -- it's a little bit of scale here Casey, actually both of those are what we call our underperforming. So both Taco Mac and My Alarm Center I believe are in underperforming. I know here it’s a showing -- I guess it's a scale issue really we only have the small little residual. I think it's like $25,000 of MC Communication at legacy investment that’s in the payment default risk category. I believe that both are underperforming.

Okay. So it's just a way it looks on the slide representatively?

Yes, it will -- we can fix. The point is that both of those are nonaccrual.

Okay.

We're still on accrual at year-end, but it's now for Q1 and that will be a non-accrual.

From a strategic standpoint, as you continue to create originations, you still have some capacity in the SBA subsidiary, that you have nothing outstanding on the revolver, where would new leverage likely to come from as you expand originations? Would you start to tap the revolver or -- because the SBA balance hasn't moved in quite a while.

Casey, yes, well that's true. Those debentures are callable debentures and so that would be a source of capital and the revolver, and it'd be you have to do with the characteristic of the investments, but those are both sources of capital for the deployment.

But just to add a little bit clarity to that, so if it's in SBIC qualified investment, you would expect that we would avail ourselves to the SBIC debentures and continue to leverage assets that leverage first. And then when we through that leverage the next source of capital would be the revolver.

And how much cash you have available on the SBIC subsidiary?

So, well, we have about -- as of year-end, we had about 4 million of cash Casey, but to Chris and Mike's point, we have the debentures callable and available to 37 million that makes up the 41 you described. And we are able to then either invest in the SBIC or actually distribute the cash out of the SBIC subsidiary, drove the debenture and distribute there the read out of the SBIC subsidiary to our BDC.

Right, but I think in previous quarters, you had a lot more cash than 4 million in that subsidiary. Then you've -- you've successfully gotten some of that put to work?

Correct. Yes, in Q4 we had a couple of new investments, three new portfolio companies and although we had some repayments, we had some -- our new investments exceeded the repayments and we utilized some of that cash.

Right okay.

A lot of it was towards the end of the quarter as I mentioned in my remarks.

And Mike, the total portfolio leverage, your attachment point of 4.25, how does that compared to previous quarters?

I think the exact number is up over the last six months. And there is certainly noise in that number. We don’t view that as a long term trend necessarily. As you know we have so much turn over in our portfolio which reference 43% of our portfolio turnover last year that can vary quarter-to-quarter. We continue to see a healthy amount of first lien unitranche deals. We also see deals that are quite attractive were in the second lien position and depending on the mix of those securities that's going to affect that number.

And how do you view the sort of velocity of repayments? I mean, we are hearing that across the space, the velocity of repayments has increased. Is -- how do you view it going forward? Are you starting to assume a higher velocity of repayments? And are you seeing that because of some sort of change in the competitive dynamics?

We do not expect to have 43% of our portfolio turnover this year, that could happen, but we're not planning on it; and it's interesting we asked ourselves that question, is there something fundamental about our business model or the way that we're approaching or the deals that we're selecting that is causing a higher than average repayment experience? And the answer that we conclude is no, that it's just it's somewhat of an anomaly. Most of the repayment experience that we had was due to sales of the Company, so we exited because the Company was sold in most cases and I think that was 75%. And so a lot less to do with robust capital markets and people just refinancing us. So, I think from our perspective we expect to see less repayment, the most important thing is that with all of the resources that we're dedicating to business development especially in the lower end of the middle market where we operate and there's many more companies at the lower end of the middle market that we think that the number of opportunities that we'll generate and looks that we'll get if you will, will exceed what we've had in the past and we'll still be able to outpace our repayments.

Henri the ATM sales, did those primarily take place in the second quarter? You gave them as a date as of yesterday in second calendar quarter, excuse me.

Yes, that is correct, right. [Indiscernible] that calendar quarter because we also -- we intend to as the market allows it to continue to do that, but we also go into a blackout period around our earnings as well and then where you have to sort of just wait.

Your next question comes from Mickey Schleien with Ladenburg. Your line is open.

Just a couple of more questions on Easy Ice, could you expand on the expected further recapitalization for that company or how is that going to work? Are you looking for a credit line or another strategic investor? Can you just give some color there?

It's a private company so we got to be a little bit careful about what we can say in terms of what's going on with the business and so forth, but we can say that when we made that investment it was opportunistic, we feel like we added a lot of value by stepping up and taking advantage of really interesting opportunity for ourselves as well as for management and so we jumped in and bridged the transaction if you will and have a lot of confidence that -- and there's ongoing discussions now that we can refinance a portion of the first lien securities with the traditional folks that you might imagine and so we're in active discussions around that right now.

Mike, does that imply that you are going to keep the preferred? And to those preferred at Easy Ice include a contractual dividend?

We are going to keep our investment in the preferred for sure and that’s one of things that we are really excited about. Again think that the business is just a fantastic business, have known it since 2013 of known management that long as well and we are excited to be supporting the business, glad to be in increasing our exposure to the business and having some equity outside as well.

And to those preferred required them to pay a dividend?

Not cash dividend. There is a pick component to the preferred.

Moving on to Elyria, I see that was refinanced. Could you walk us through that and the thesis for not holding more of the new second lien which has a very high coupon?

Well, I think that was done on a pro data basis, so we were taking out of the first lien position by an ABL lender, traditional senior lender, and a portion of what we have in first lien was putting to the second lien security and shared for those that were in the first lien that piece per share pro-data, so that’s essentially what we got. Just didn’t really have an opportunity to upsize that.

And lastly just I think in your prepared remarks you talked about your history of equity investments and the potential to increase NAV down the road. I see that your equity investments are marked at about 20% above their cost as of the last fiscal quarter. Do you believe there is scope for that valuation decline even more?

For that value -- oh, okay. I was trying to understand -- do we feel like the return on the equity investments could grow to a higher level, yes. We feel good about the equity investments in our portfolio on a general basis. And when we make those equity investments we do it with the intent of -- we are getting up -- returns that’s quite nice as we have in the past.

Those are all my question for today. I appreciate your time. Thank you.

Let me add one thing Mickey, I think both you and Casey asked the question in terms of Easy Ice. The Easy Ice investment is certainly not at the departure from a playbook that we have used very successfully since we have taken over management of the SBIC. If you look at some of our best investments there have been situations where we supported either our management team our entrepreneur in some cases a private equity sponsor and in investment. And then we upside that investment overtime in some cases increased our equity investment and the return experience that we have had in situations like that has been terrific. In fact we -- because of that track record we win deals in the market place when they called folks and get references on us. If you were to start to just think about our existing portfolio and some of the deals that we have exited, expedited MTP, HMN, community, identity, automation, Emily Street or Notocon. Those are all deals that we made an initial investment in the Company came to know the business actually doing well and then took advantage of an opportunity to leverage the relationship that we informed with the management team and our knowledge of the business to make up increasing investment and then deliver exceptional returns for our shareholders. So we do intend to continue to do that, we did it in a Easy Ice case and there the dollar amount of our investment is above where our typical hold will be and so we are working to downsize that, that exposure on that credit but we are super excited about being in that position.

That's helpful. And I do see that Easy Ice is now almost 12% of the portfolio serve value, so just from a risk management perspective, I can see why you would want to reduce that and we look forward to learning more about that in the next quarter.

[Operator Instructions] And you do have a follow-up from Casey Alexander. Your line is open.

Yes, Mike I just wanted to clarify because in your original remarks when you discuss the Easy Ice, you said that it was your intention to downsize the position. But in answer to one of Mickey's questions, it sounded I can't tell whether or not the intention is to fully takeout the first lien loan or just to downsize the position in the first lien loan plus keeping the equity position off course?

We're going to downsize our position based on the best deal that we can negotiate in the marketplace and the portion that we hold will be in a junior capital position as you can imagine. So that doesn’t necessarily mean that a 100% of what is now characterizes first lien will go away, but the capital structure will be change to reflect the deal that we negotiate in the marketplace.

[Operator Instructions] And I am not showing any further questions at this time. Now, I would like to turn the call back to Christian Oberbeck for any further remarks.

Okay. Well, we would like to thank everyone for joining us today and we look forward to speaking with you next quarter.

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