rewrite this title Saratoga Investment Corp. (NYSE: SAR): Q1 FY2027 Financial and Portfolio Analysis – Alphastreet

Asset and Net Asset Value (NAV) Dynamics

Saratoga Investment Corp. reported Assets Under Management (AUM) of $1.126 billion for Q1 FY2027, representing a 1.6% quarter-over-quarter and 16.3% year-over-year expansion. Gross originations reached $79.2 million, resulting in net originations of $30.8 million. However, Net Asset Value (NAV) per share contracted to $23.23, a 4.9% sequential decline from $24.42. This $1.19 per share reduction was primarily driven by $0.93 in unrealized depreciation on credit and equity investments, alongside $0.28 attributed to dividend under-earning.

Income and Yield Metrics

Total investment income decreased 4.8% year-over-year to $30.8 million, pressured by lower interest earned on cash balances and tighter spreads on new originations, despite the larger overall asset base. Adjusted Net Investment Income (NII) fell to $7.6 million, or $0.47 per share, compared to $0.53 in the prior quarter and $0.66 in the previous year. This contraction notably reflects the full-period impact of higher interest expenses resulting from recently issued 7.25% and 7.5% bonds, which replaced a lower-rate 4.375% institutional bond. The core Business Development Company (BDC) portfolio’s weighted average interest rate currently stands at 10.5%.

Credit Quality and Portfolio Health

The portfolio generated a Last Twelve Months (LTM) Return on Equity (ROE) of 4.0%, outpacing the BDC industry average of 2.4%. Internal credit quality metrics indicate 98.3% of credits hold the highest internal rating. Non-accruals represent 0.0% of fair value and 1.2% of cost, following the complete write-down of Pepper Palace. However, the core non-CLO portfolio recorded $18.3 million in net unrealized depreciation. This was driven by company-specific performance issues—notably Exigo and Chronus—and broad market multiple adjustments.

Liquidity and Capital Structure

Saratoga’s liquidity position strengthened, with quarter-end cash increasing to $60.8 million. Total undrawn borrowing capacity and cash equivalents stand at $196.8 million, providing capital for future deployment or portfolio support. Total outstanding borrowings amount to $817.4 million across various credit facilities, SBA debentures, and notes.