Good day ladies and gentlemen, thank you for standing by. Welcome to Saratoga Investment Corporations year end and fiscal fourth quarter 2015 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 Corporations Chief Financial Officer, Mr. Henri Steenkamp. Sir, please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's fiscal year end and fourth quarter 2015 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 year end and fourth quarter 2015 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 be available from 1:00 p.m. today through May 28. 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. As we reach our fiscal 2015 year end, we feel it important to look back over the past year and note on slide two some of the progress we’ve made during this productive year for Saratoga. Since we acquired Saratoga Investment Corp, we’ve been singularly focused on the long term objective of increasing the quality and size of our asset base, with the ultimate porpoise of building Saratoga Investment Corp into a best-in-class BDC. During fiscal year 2015 we achieved a number of important milestones that have marked a steep steady path towards realizing our long term objectives. To briefly recap; first, our steadily growing asset base, consistent yield and improving return on equity have enabled us to adopt a policy to pay regular quarterly cash dividends, which has increased by 22% every consecutive quarter since implementation. We also anticipate another dividend increase next quarter. We will also be talking more about a special dividend of $1 that our Board of Directors has recently declared later on this call. Second, we adopted a dividend reinvestment plan providing for the reinvestment of these dividends for those shareholders who want to reinvest in Saratoga’s ongoing growth. Third, we approved an open market share repurchase plan that allows for the repurchase of up to 200,000 shares of common stock at prices below net asset value. Although not yet utilized, we continuously assess deployment of this important tool for us. We amended and extended our revolving credit facility maturity date through September 17, 2022, reducing our borrowing costs by 150 basis points, lowering annual administrative costs and ensuring the availability and flexibility of our liquidity resources. We successfully deployed a significant amount of the capital available to us through our SBIC license and received a green light and…

Thank you, Chris. Looking at our quarterly key performance metrics on slide four, we see that for the quarter ended February 28, 2015, our net investment income was $2.9 million or $0.53 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 $2.7 million or $0.50 per share. This represented an increase of $0.7 million as compared to the same period last year and a decrease of $0.2 million compared to the quarter ended November 30, 2014. However, last quarter included approximately $400,000 of dividend income that we view as non-recurring. In our fourth quarter of fiscal 2015 we experienced a net loss on investments of $0.2 million or $0.03 on a weighted average per share basis, resulting in a total increase in net assets from operations of $2.7 million or $0.50 per share. The $0.2 million net loss on investments was largely comprised of $0.3 million net unrealized depreciation on investments. Net investment income yield as a percentage of average net asset value was 9.5% for the quarter ended February 28, 2015. Adjusted for the incentive fee accrual, the net investment income yield was 8.8%, up from 7% last year and down from 9.5% last quarter. Excluding the dividend income we view as non-recurring loss quarter, adjusted NII yield of 8.8% was up from the mid eights last year. Return on equity was 8.9% for this quarter. Looking at our key performance metrics for the fiscal year on slide five, we will also focus on our balance sheet metrics. We see that for the ended February 28, 2015, our net investment income was $9.7 million or at $1.80 on a weighted average per share basis. Adjusted for the incentive…

Thanks Henry. I’d like to take a couple of minutes to update everyone on the current market as we see it. The market’s extremely competitive conditions persist as there remains an abundance of capital chasing a historically low volume of new investment opportunities. Last quarter we noted that middle market leverage equaled pre-crises levels and we’ve seen that multiples for both senior and total debt have been trending upwards since 2012. Excess liquidity within the private equity community, as well as an increase in the number of middle market lenders relative to the quantity of new deal opportunities have helped drive debt and purchase [multiple expansion] [ph] . 41% of all middle market deals last quarter were leveraged over 4.6 times. Against this backdrop pricing remains under pressure as lenders compete for mandates. We also watched yield closely across deals, but despite pressure that some BDCs are having, are experiencing on their investment portfolios, we have yet to observe any significant increase in yields in the marketplace. As mentioned earlier, the lower middle markets increased leverage has very much been driven by fewer investment opportunities. Slide 11 demonstrates how the number of calendar year 2014 transactions for deal sizes in the U.S. below $25 million was down about 15% from the previous year. Calendar year 2015 is off to a slow start as well. Only 153 debt deals in that size range closed as of March 2015, with the first quarter 2015 run-rate down 47%. Despite this, we remain optimistic, not only of our own pipeline and originations, but at the outlook for our market. We continue to believe that the lower middle market is the most attractive market segment to deploy capital and the fundamentals here remain strong. Slide 12 outlines the strength of the lower middle market in…

Thank you, Mike. As I mentioned earlier on the call, during this fiscal year we are very pleased to meet an important milestone that has been an important goal for us since our inception, namely to commence the payment of a regular quarterly cash dividend. From the start we said our expectation was that this dividend would continue to increase, which it has by 22% over the last couple of quarters. As outlined on slide 17, during our fiscal year 2015, Saratoga’s paid quarterly dividend of $0.18 per share for the quarter ended August 31, 2014, $0.22 per share for the quarter ended November 30, 2014. On April 9, 2015 we also announced a dividend of $0.27 per share for the fiscal quarter ended February 28, 2015, payable on May 29, 2015 to all stockholders of record at the close of business on May 4, 2015. Consistent with our new policy, shareholders will have the option to receive payment of the dividend in cash or receive shares of common stock pursuant to the company’s Dividend Reinvestment Plan or DRIP plan. Saratoga adopted in conjunction with the new dividend policy and provides for the reinvestment of dividends on behalf of its stockholders. Our goal of this policy is to allow stockholders who want cash to receive their dividends in cash; however, it also provides the opportunity for many stockholders we have spoken to, who are interested in reinvesting their dividends to receive additional shares of common stock. Experience has shown that those stockholders who hold their shares with a broker must affirmatively instruct their brokers prior to the record date if they prefer to receive this dividend and future dividends in common stock. The number of shares of common stock to be delivered shall be determined by dividing the total dollar…

Thank you. [Operator Instructions] The first question comes from Casey Alexander from Gilford Securities. Your line is open. Please go ahead.

Hi, good morning and thank you for that comprehensive review. I have a few questions. First of all, since it’s a little bit opaque to us in terms of its construction and development, can you give us a little bit of color on the current construction and the expected development of the CLO over the course of the next year?

Hi Casey, thank you for your question. I’m not sure I fully understand your question. It’s opaque in that…

Well, the returns on it are highly variable based upon the construction and its development in terms of repayments and so it’s a little hard for us sitting outside the company to see that. So I was wondering if you had any comments related to that.

Well, I’ll give you a total overview and then Henry can go into the specifics, but basically our CLO has a finite life to it and the earnings off the CLO are determined by the spread that we’re able to realize in the marketplace and as you correctly pointed out, we have a cost of our capital which is a floating rate cost and we also have the spread we’re earning on our assets and there are periods of time when that spread declines and it’s been declining a little bit recently, there’s been a little constriction and there’s other times where it expands. So there is variability driven off the CLO by the changes in the spread in our portfolio. In terms of the performance of it, it’s been fairly steady. I mean we have a steady flow of earnings and not all of the earnings show up in GAAP. In other words not all the receipts from the funds show up in our GAAP reporting and that’s the difference between GAAP and tax and maybe this is part of what the opaqueness is your referring to. So we get what’s effectively a principal repayment for GAAP, but it’s actually taxable income for earnings, as well as the yield of the portfolio and then we also get the management fee on that portfolio.

And Casey, if you look at the financials it is actually very discreet, sort of the two strings that come into the BDC through the financials, which on the income statement would be the interest from our controlled investment, the CLO being the only controlled investment and that’s been relatively consistent between $600,000 and $700,000 over the last year per quarter and then there is also of course the management fee income, which is also a separate line on the P&L, which has been around about $350,000, $370,000 per quarter over the last year.

Okay, great, thank you. That’s very helpful. Secondly, Michael your slide on the deal counts in calendar Q1 is very telling and the deal counts are down. How are those deal counts and deals below $25 million developing during Q2?

Well, there is an uptick, is the short answer. I would also add that the first quarter tends to be a light quarter in our business. There is often a run to calendar year end to get transactions done and the first quarter tends to be a bit slower. But that slide also demonstrates that the first quarter relative to prior quarters, first quarters is down. We have seen deal flow pick up pretty substantially though since then.

Okay, that’s good to know. Lastly, as it relates to the share repurchase plan, I’m a little curious and that the dividend reinvestment program which I think is very beneficial for shareholders and is very well constructed also does present a little bit of dilution to NAV and so I’m curious when you say you are assessing the potential of the share repurchase plan, why you haven’t used any of it up to this point in time when the shares have at least at some point in time during the last few quarters been trading at a 30% discount to NAV. Why you haven’t used some of the share repurchase plan to offset some of that dilution and if you think maybe you plan to in the future.

Well, that’s a very good question Casey and an important point. We do have the share repurchase plan in place, to be able to take advantage of situations where we feel our stock is substantially undervalued and we do feel like it is undervalued at this time. We also need to balance our liquidity relative to stock repurchases at this point in time. I think we made a very strong point in our presentation that within the four corners of Saratoga Investment Corp., we have the ability to increase our assets under management by more than 50% and we don’t require any outside capital to do that. I think that’s in contrast to many of the companies in our industry right now where they are pushing up against our leverage requirements and they are trading below NAVs. So their access to capital is somewhat constrained. So we need to be mindful of retaining our ability to finance the growth of our SBIC opportunity where we can invest as we mentioned in high teens type of returns and build the scale that’s going to drive profitability, in addition to looking at the opportunities in our own stock. I would remark that we think with some of the progress we are making, the stock price seems to be increasing in value based on our actions and your recommendations, thank you, and also more exposure to the type of investment management performance we are delivering and the metrics of our increase. In terms of your very specific question, yes there is some dilution that does occur as a result of shareholders exercising the DRIP and we feel that – we hope the shareholders view that as an opportunity and we would like as broad a participation in that, in this transitional period we’re in right now as we move towards paying a higher dividend on a regular quarterly basis.

All right. Well I just, you did point out that you have over $100 million of available capacity for investing and the shareholder, the share repurchase plan at 200,000 shares is only $3.5 million. So I don’t think that exercising the share repurchase plan would necessarily be squeezing your ability to deploy capital, but it would go to some extent to offset the dilution of the share repurchase plan. But we’ll keep recommending investors reinvest, because we think it’s a well constructed plan. So thank you for taking my questions.

Thank you, Casey.

Thank you.

Thank you. Our next question comes from, Andrew Kerai from the BDC Income Fund. Your line is open, please go ahead.

Yes. Hi, good morning and thank you for taking my questions. Just on the CLO equity investments that you guys hold, I noticed the discount rate moved up again. I think from 10% to 12% this quarter and that obviously had an associate unrealized mark. Just wondering and perhaps a little bit more color. I mean with the strength and the liquid low markets here so far in 2015, I mean is there something from just a default outlook that you are seeing in the underlying loan collaterals. Just wondering why you decided to take up that discount rate and as a result, have the mark down on the CLO equity again this quarter.

Hi Andrew, how are you. Well as you remarked that was the one variable that we changed and I think just looking at the market we felt that that was the most appropriate discount rate to use, slightly upping it from 10% to 12%. I would note that, if you think of sort of the adjustment to our CLO valuation for the quarter actually that change in the discount rate had a relatively small impact to the CLO from a valuation perspective. But we did feel just looking at the market and the recommendations we were getting that that was probably the appropriate thing to do. The remaining bulk of the actual change in the CLO valuation related to some cash flow changes as we sort of modeled out the remaining cash flows through the life of the CLO and that actually resulted in most of the change in CLO valuation.

Got it. Okay then, thank you, that’s certainly helpful color. And then I noticed obviously with your portfolio relatively static quarter-over-quarter, the interest income ticked up about $1 million this quarter. Was there some prepayment fee income or something that pulled through in Q4 for you guys?

No, any prepayment or origination fees etcetera come through the other income line, you see how that moved. I would just say that we you had – feel healthy originations this quarter and we managed to maintain the rate at which we’ve sort of been investing as you saw on the various slides we did. We also had a couple of redemptions, some of which happened more towards sort of the middle of quarter, middle and back end, but no, those would go through other income if those types of changes happened.

Great, and certainly that makes sense. And then just Elyria Foundry, obviously you guys have the common equity piece now as well as the revolver. Can you give us just any update on how the business is performing? They’ve sort of seen an uptick in just from an earning perspective and just your outlook having both the equity and the revolver piece now.

Hi Andrew, this is Mike. I would comment on both. So the incremental capital that we’ve put into the company this past quarter is the debt capital which resides at the top of the capital stack. It’s the very – most senior security in the company’s balance sheet. So feel like the risk adjusted return there is just terrific. So that’s a fairly simple one to analyze given the company’s enterprise value. The company is continuing to experience some softness and so their outlook for this year remains pretty soft. That will be and we expect that that will be somewhat offset by the fact that the debt securities in that portion of the capital structure have been converted to equity. So the company’s going to be producing a lot more free cash flow and therefore increasing its enterprise value form that fact alone. The folks that control the company have a bullish outlook on the business in the long run. Certainly could have exited the deal prior to the transaction and choose to pursue this course with the confidence that they could grow enterprise value significantly and generate higher returns. So the long run outlook is good from the owners, but the current situation is pretty soft.

Sure. No, certainly I appreciate the color. And then just lastly just a comment to go back to the stack repurchase as well too. I certainly appreciate a lot of the things that you guys are doing and wipe the DRIP given the 5% discount and all that, but just looking obviously, if you just assumed roughly $0.50 run rate for earning, that’s about a 9% ROE for you guys. So you can basically get to a low double digit, at least sort of return from buying back your stock as opposed to obviously issuing for the new shares. Just wanted to maybe reiterate my advice to perhaps at least to offset some that dilution, because I think you are doing a lot of the right things. I appreciate the value and would just like to – I personally feel that your investment is a great value and I think it would make the story even more compelling if that was enacted at least partially to offset some of the dilution from an app perspective for those that choose to take the stock and the DRIP.

Well, we appreciate the input. We will and we continue to and we have been actively considering that and just one final comment on that subject is that we are also looking to balance the sort of maybe the shorter run opportunistic, opportunities of purchasing the stock at a discount with the longer run fundamental growth of the company and so that’s one thing in terms of our capital allocation. We do appreciate your input and we’ve heard it from a number of other parties as well. So we understand that there is a lot of input coming about offsetting some of the dilution and that is something that we actively consider.

Great. Thanks guys and congrats again on another strong quarter.

Thank you.

Thanks Andrew.

Thank you. [Operator Instructions]. The next question comes from [Indiscernible]. Your line is open. Please go ahead.

Hi Chris and everybody else there. I too applaud you for what you guys have done in the last couple of years, upgrading the portfolio and actually more recently doing that as probably things get more aggressive in the high yield and this private lending market and you guys have done a great job. I guess Mike, I have two questions, one of which relates to both those last comments about NAV and buybacks. I mean with this 30% NAV discount, I too would like to see you guys consider that more aggressively. Obviously that’s offset by the liquidity in the stock, which if we could figure out a way to get more shares outstanding without diluting the whole package, I think that would help to narrow that NAV just by itself, getting some more institutional investors or something like that. So that, it’s a statement, but it’s sort of a reiteration of what’s everybody else and it was one of my questions and maybe a solution. My other question just relates to legacy positions, and any that are on your radar screen or any of the new investments over the last couple of years that you might be weary of or anything that could be on your watch list, that could maybe result in as you see these companies that you made loans to result in a potential write-down in some of the NVA.

As it relates to the portfolio, the values that we are holding them at now reflect our assessment of the value of those investments. So we take a very comprehensive approach to that valuation and we look at the opportunities for the business; their historical financial performance etcetera and so that’s all reflected in what you see in the valuations and the marks there. I think the prior caller asked, certainly Elyria is a business that’s continuing to evidence softness in its business. I think the owners have a long term positive outlook on being able to build that business and grow its enterprise value, but in the present moment they are experiencing softness, so we are watching that one very carefully.

But importantly on Elyria is the capital structure right is because of the conversion, restructuring that took place. While we do have a debt instrument, that’s at the very senior end of the scale. So there is really no risk in that investment of ours and because of the capital structure being all equity after that, the impact of the softness isn’t – we are not being driven by like bank restructuring type of actions that might further diminish equity value. We are structured to handle the softness and get to as Mike described, the sort of this long term business. The company does have a tremendous franchise. It’s just that at this point in time it’s got some cyclical characteristics to it and there’s some sector issues and it has some exposure to different sectors that are weaker now than they have been, but can recover. So sorry that’s just a comment on the structure of Elyria. But generally across our portfolio, our credits are in good shape and part of that, our structure, we’ve been very careful to try and be first dollar lenders or if not absolute first dollar lenders, there might be a small revolver ahead of us and we think that’s a very good position to be in this type of environment, where we are trying to avoid having a lot of debt ahead of us in case the type of softness that you described occurs. Going to your question number one; again, this is a subject we are hearing a lot of feedback on we are taking it very seriously. But in what you said is kind of a bit of a dilemma that we’ve been wrestling with and by the way you have phrased your question, you are too. It’s that one thing…

And I’ll just add, while we’ve been sort of balancing it and as we are balancing it, we’ve been reinvesting this cash in our SBIC and as our assets in the SBIC as we previously mentioned have gone from 42% to 56% of our total assets or a 14% increase, our NII yield overall has gone from 7% to 8.8% in a year, so almost 200 basis points. So it does show sort of while we are balancing this, it does show how the power of deploying that cash in the SBIC really impacts the NII yield this far.

And let me add to that. What we are really excited about is that we look at that 8.8% that Henri referenced and if you benchmark that against most of BDC peers, it compares very favorably and especially favorably given how much dry powder we have; how much room we have to continue to grow our SBIC portfolios. So we have lot of optimism that as we continue to deploy capital through the SBIC that you should see that NII yield grow considerably.

Thanks very much. I don’t think this is necessarily a value question or anything else, it’s figuring out how to unlock it and maybe I’ll give you guys a call offline and I have an idea. Thank you.

One thing I should add, because I just realized your asking about portfolio. The other deal which should be mentioned is Targus. So if you are looking at the quarter-over-quarter numbers that was one that was written down a bit and that’s a legacy portfolio investment that makes essentially cases for...

For the computers.

Notebook computers and tablets and so forth and its very dependent on new product launches and that end market is softer than it was and so that write-down is reflecting the softness in that end market.

How much is that investment, because I don’t have it in front of me.

And just while we are talking about that, both Targus and Elyria which are our softer ones, those are legacy investments.

Right. Thanks guys. I appreciate it.

Thank you.

Thank you. And our next question comes from Joshua Horowitz from Palm Ventures. Your line is open. Please go ahead.

Thank you. Hi Michael, hi Chris, hi Henri. Congrats on a great quarter, terrific execution. I just want to say, you guys have done a tremendous job, really hitting all the goals and targets that you’ve spoken about over the last years and you are to be commended for that, so thank you. I guess we are talking about oil and gas and saying we have very little exposure to it. Michael maybe you can answer this question, what is the next oil and gas that we are going to be talking about a couple of quarters from now and we are going to say, Wow! Thank God we avoided that sector. Are you seeing as we in our equity portfolio, sort of mini-bubbles taking place in the market place that you are avoiding because of multiples.

That’s a great question. I mean we are always thinking about that as it relates to very business in the end markets and oil and gas in particular is just so obvious that these businesses had become so profitable, so fast, that you could just see that it wasn’t sustainable and it made us very nervous and so we didn’t invest in that space. The experience that we’ve had and we are starting to see a bit and we are being cautious in this respect is more in the building product space. So you can see the housing market starting to come back and a lot of the companies that are selling to that end market are experiencing pretty significant upticks in their revenues and cash flow. I think we’ve even got a legacy portfolio, legacy cabinets that’s experiencing a really nice rebound as well. But as we look as new investment opportunities, we are very cautious in that end market, because we just, we’ve seen those cycles. We feel like if there is company in that space that has a differentiated product in some way that’s not just riding the wave of the ups and downs in the housing markets, but instead really has something that’s unique and has a defensible product position, we’ll obviously look at that very carefully and likely pursue those deals, but we are pursuing that end market with caution.

And not to be too much unjust, but fortunately we don’t invest in biotech, so that’s one bubble I think we’ll be side stepping.

Great. We are seeing a lot of frothiness in the restaurant sector. The multiples seem crazy to us. I don’t know if you are being shown any deals in that space as well. Maybe you could comment.

The restaurant sector in general and we’ve got a couple of investments in that sector is a sector that we are very careful with. So we do invest in that sector, but we proceed with an awful lot of caution. The fact that people are paying a lot for those businesses is one thing and its fine if an equity sponsor wants to pay a big price for the company. We just look at it from a debt perspective and really try to make sure that we are positioning ourselves in a spot in the balance sheet where we feel like our money is safe.

Thank you very much and congrats again on the great results.

Thanks Josh.

Thank you.

Thank you. I’m showing now further questions at this time. I would like to hand the conference back over to Mr. Christian Oberbeck.

Okay, well thank you everyone for joining us today. We look forward to speaking with you next quarter.