SARATOGA INVESTMENT CORP.

What they do

Saratoga Investment Corp. provides customized financing solutions to U.S. middle-market companies, primarily through senior and unitranche leveraged loans and mezzanine debt, with some equity investments. It defines middle-market companies as those with annual EBITDA between $2 million and $50 million. The company is externally managed by Saratoga Investment Advisors, LLC, and may invest up to 30% of its portfolio in opportunistic investments such as distressed debt and structured finance vehicles.

Revenue drivers

• First lien term loans — 82.1% of the portfolio as of February 28, 2026; these are senior secured leveraged loans generating interest income.
• Second lien term loans — 3.9% of the portfolio; subordinated to first lien debt, typically with higher yields.
• Structured finance securities — 4.9% of the portfolio, including CLO debt and equity investments; provides current income and potential capital appreciation.
• Equity interests — 7.6% of the portfolio; includes equity co-investments in portfolio companies, generating capital gains and dividends.

Recent performance

For the fiscal first quarter ended May 31, 2026, the company reported net investment income (NII) of $0.47 per share, down from $0.53 in the prior quarter, and a net loss per share of $(0.42). Total investment income was $30.8 million, versus $31.1 million in the prior quarter. AUM grew 1.6% to $1.126 billion from the prior quarter and 16.3% year-over-year. NAV per share declined to $23.23 from $24.42 in the prior quarter, and non-accruals decreased to 0.0% of fair value.

Strategy

Management focuses on generating current income and long-term capital appreciation from debt and equity investments in middle-market companies. In the latest quarter, the company originated $79.2 million in new investments, including two new portfolio companies and ten follow-ons, while receiving $48.4 million in repayments, leading to $30.8 million in net originations. They continue to grow AUM through direct lending and loan syndicates, and are expanding sponsor relationships to source high-quality investment opportunities.

Risks

• Leverage risk — The company employs significant leverage (long-term debt of $817.4 million against equity of $378.5 million as of May 31, 2026), which magnifies gains and losses.
• Interest rate sensitivity — A decline in short-term interest rates has pressured NII, as most of the portfolio is floating-rate while liabilities are fixed or have different repricing characteristics.
• Credit risk — Investments are primarily in below-investment-grade leveraged loans, which carry a higher risk of default; non-accruals were 0.0% of fair value but 1.2% of cost as of the latest quarter.
• Capital markets disruption — The company operates in a period of capital markets disruption and economic uncertainty, which could impair portfolio company repayments and new investment activity.

Outlook

Management expects continued robust deal activity despite sector headwinds and competitive market dynamics. They plan to sustain portfolio growth through net originations, while maintaining disciplined underwriting. The recent dividend of $0.75 per share for the second quarter represents a 14.0% yield based on the stock price of $21.42 as of July 6, 2026. The company will continue to manage the impact of declining interest rates and tight spreads on its floating-rate asset base.