Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Saratoga Investment Corp's, Fiscal First Quarter 2021 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 and Compliance Officer, Mr. Henri Steenkamp. Sir, please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's fiscal first quarter 2021 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 first quarter 2021 shareholder presentation in the Events and Presentation 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 1:00 p.m. today through July 16. 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. This past quarter, with a full three months of the COVID-19 impact has been challenging for our portfolio companies and Saratoga. Despite the unprecedented impact of COVID-19 across our businesses and the world, we believe Saratoga and our portfolio companies are positioned well at this point in time to weather this calamitous health and economic environment. We look forward to presenting our most recent results and revealing the solid structure of our capitalization and recently improved liquidity on today's call. We continue to focus on ensuring the safety of our employees and the employees of our portfolio companies, while optimizing the management of all our ongoing business activities. The company is working collaboratively with all our constituents to navigate the significant challenges presented by the COVID-19 pandemic. We want to especially thank our professional staff and employees that worked so tirelessly through the past month, as well as our shareholders who have stood by us in these difficult times. We believe that our historically conservative approach to investing, leverage utilization, maintenance of solid levels of liquidity and serve the spillover management and some good fortune have put us in a strong position with the balance sheet strength to face these uncertain and challenging times. While no business can anticipate with clarity how long the displacement in the market and global economy will last, we have confidence that our capital structure, liquidity, organization and management experience will enable us to efficiently and effectively navigate this challenging current and uncertain future environment. To briefly recap the past quarter on slide two. First, we continue to strengthen our financial foundation this quarter by maintaining a relatively high level of investment credit quality, with over 90% of our loan investments retaining our highest credit rating after incorporating the…

Thank you, Chris. Slide four highlights our key performance metrics for the quarter ended May 31, 2020. When adjusting for the incentive fee accrual related to net capital gains in the second incentive fee calculation, adjusted NII of $5.8 million was down 15.3% from $6.8 million last quarter and up 24.5% from $4.6 million as compared to last year's Q1. Adjusted NII per share was $0.51, down $0.09 from $0.60 per share last year and down $0.10 from $0.61 per share last quarter. The increase in adjusted NII from last year primary reflects the higher level of investments, and results in high interest income with AUM at cost up 27% from last year. The decreased NII from last quarter is primarily due to the non-recurring one-off impacts from last quarter's sale of Easy Ice. The decrease in adjusted NII per share from last year was primarily due to the high number of shares outstanding this year. Weighted average common shares outstanding increased by 44.8% from 7.7 million shares last year Q1 to 11.2 million shares for the past three months ended February 29, 2020 and May 31, 2020 respectively. Adjusted NII yield was 7.9%. This yield is down 220 basis points from 10.1% last year and 140 basis points from 9.3% last quarter, reflecting primarily the impact of our growing NAV, the reduced LIBOR over this period and the effect of a currently un-deployed capital. For this first quarter we experienced a net loss on investments of $31.7 million or $2.82 per weighted average share, resulting in a total decrease in net assets resulting from operations of $22.7 million or $2.02 per share. The $31.7 million net loss on investments was comprised of $32.0 million in net unrealized depreciation on investments offset by $0.3 million of net deferred tax benefit…

Thank you, Henri. I'll take a couple of minutes to describe the current state of the market as we see it, and then comment on our current portfolio performance and investment strategy in light of the continued impact of COVID-19. While the first couple of months of 2020 were very similar to the market environment that has persisted over the last couple of years, the impact of the pandemic has altered market dynamics considerably. When we last spoke, new platform originations in our market had nearly come to a halt. Most M&A processes had been suspended, while buyers and sellers waited to better understand the impact of the pandemic. While most M&A processes are naturally still on hold, we are now beginning to see some new loan inquiries. The deals that are getting done in the current market are less frequently with new platforms and more often with existing portfolio companies that are either pursuing growth initiatives or seeking liquidity. The new capital that is being deployed in this market is generally at lower leverage thresholds and marginally higher spreads. In addition, the underwriting bar is much higher than usual reflecting the current economic uncertainty. Now all that said, we think it’s an excellent time to invest in new portfolio companies and we are actively seeking such opportunities. We believe that compelling risk adjusted returns can be achieved by deploying capital in support of those highly select businesses that have demonstrated strength and durability in the midst of this difficult environment. We have invested in three new platform investments since the onset of the pandemic, including one just this week. But from a competitive standpoint, lenders seem to be generally open for business, although some institutions appear to be practically out of the market for new capital deployment altogether. This…

Thank you, Mike. As outlined on slide 17, following Saratoga Investment’s recent baby bond raise and the current performance of its portfolio, the Board of Directors has decided to declare a $0.40 per share dividend for the quarter ended May 31, 2020. This dividend has been calibrated at this level relative to the prior $0.56 per share dividend to reflect on the one hand our relatively strong quarterly results, recently improved liquidity profile and on the other hand the lack of short and long term visibility in the context of how the massive recent liquidity infusions, domestically from PPP loans, Fed interventions and fiscal stimulus will ultimately play out in the economy and business operations. The Board of Directors will continue to reassess this on at least a quarterly basis. Moving the slide 18, our total return for the last 12 months which includes both capital appreciation and dividends has generated total returns of minus-26%, below the BDC index of minus-22%. Latest 12 months total return was impacted by COVID-19, which has caused volatility, severe market dislocations and liquidity constraints in many markets, particularly impacting the smaller BDCs with latest 12 month returns for BDCs with NAV below $300 million between negative 23% and negative 62%. Our longer term performance is outlined on our next slide 19. Over three and five year of returns our three and five year returns place us in the top 10 and 15 respectively of all BDCs for both time horizons. Over the past three years, our zero percent return actually exceeded the negative 15% return of the index, while over the past five years a 50% return exceeded the index's negative 4% return. On slide 20, you can further see our outperformance placed in the context of the broader industry and specific to certain…

Thank you. [Operator Instructions]. Our first question comes from Tim Hayes with B. Riley FBR. Your line is now open.

Hey, good morning guys. Hope you're all doing well? My first question here, do you have an estimate of just how much of the unrealized depreciation was due to credit spread widening versus fundamental performance?

Good morning, Tim. I would tell you that about – now this is a rough estimate. About two-thirds of the write-downs in our portfolio were attributed to spread widening and about a third can be attributed to either reduction in performance or expected reduction in performance at this point.

Okay, got it, that's helpful. And you know of that, the third bucket that's related to fundamental performance, you know are there any common threads here, whether it's you know performance of companies at the CLO versus the BDC level or if it's sponsored versus non-sponsored companies or just you know the types of industries that are more exposed to kind of what’s going on right now.

I would say it's the latter. It's such unprecedented times. As you sure can appreciate, when we're evaluating companies we certainly weren't saying, ‘oh! Let's run a scenario where the world shuts down.’ But I would say that the businesses that are being most affected in our experience are those that require a fair amount of human interaction. So I think we referenced for instance C2 and Knowland. Those are businesses that we feel really good about, they are fundamentals, nothing has changed and really across the portfolio this experience hasn't caused us to change our view of you know the fundamental strong credit characteristics of our portfolio. But in those specific cases, they do require – in Knowland’s case that's a company that provides a really excellent value proposition to customer base that's in the lodging sector, and that's certainly being impacted right now. In C2’s case its tutoring services and as you can tell, people have more visibility on school attendance and in sync with that high school kids attending tutoring in person. You know they'll still be working through that, but we feel fundamentally that both of those businesses are very strong and you're going to wait to see how, and what the COVID impact will be overtime.

That's helpful, I appreciate that Michael. Were these credits, where Knowland or C2, were they of that 10% bucket or roughly 10% bucket that was downgraded on your internal metrics or can you maybe touch on what other companies if not those, you know that you had downgraded internally and if it's more again just a function of near term headwinds given that the human interaction needed for these businesses or if it's reflecting longer term outlooks for some of these companies?

The downgrades that changed from last quarter are reflecting the current environment, not necessarily reflecting any fundamental change in the long term outlook for the business, really just reflecting the particular businesses that are experiencing a bit more difficulty in this environment. I don't know if that – does that address your question?

Yes. No, that is helpful and you know I know the culprits you kind of alluded to earlier, the ones that have been non-accrual for a while, Roscoe and Taco Mac and My Alarm, but are there any others that are now more on your watch list given kind of the longer term outlook for these business rather the near term disruptions that you can point to?

There's no specific business beyond the couple that we mentioned that we would you know put into that category necessarily, but I would caution you that as we think about the world right now, there's so much uncertainty. I think we've done a really good job assembling a portfolio that has super strong recurring revenue characteristics. But having said that, you look at certain end markets in the economy, education would be one. We are all looking to see how the education market's going to deal with COVID come the fall. We think our business models that are you know serving that end market should hold up really well, but there's just uncertainty around that. We are not pointing to any specific one, but we're all kind of watching and managing that very actively.

Got it, got it, okay. I appreciate the comments there. And then, this might be a better one for Chris, but you know – and I know it's a board decision and I appreciate the prepared remarks on the dividend. Good to see it kind of reestablished, but you know, can you just give us a little more context around the $0.40 level here, and you know obviously based on adjusted NII this quarter, very strong dividend coverage at this point. You know, is it at a level that reflects certain credit scenarios where you see earnings power kind of dropping and you know $0.40 can be sustained in most of the scenarios or is this just kind of almost an arbitrary number where you think you can maybe even grow it in borrowing a material degradation in kind of the economic outlook.

Okay, well look, I think that's a very good question. As you can imagine, you know as a team and with the board we spend a lot of time deliberating as exactly where to set it, sort of coming back from our conversation. Really you know if you think about it just two months ago, the amount of change that's occurred both in the environment and within our grasp of our portfolio. I think as Mike touched on, you know the team has been very close with all of our portfolio companies and really going through budgets and current performance and all that type of thing and so while there was a tremendous amount of mystery just two months ago, I think now we have a lot more clarity as to how the companies are actually weathering and performing this and again as Mike touched on, the PPP loans and Fed Stimulus and all that type of thing has been enormously helpful to bridging what could have been a very calamitous decline. There is also substantial unemployment payments out there and everything. So we're right now riding kind of a liquidity wave that was you know brought about by the government to help bridge our way through this. And so as businesses are adjusting in this environment, you know things look pretty good. I think the concern we have, you know what we're trying to be concerned about going forward is the excess unemployment. You know compensation is going to run out July 31. The Fed has – I don’t know how unlimited their balance sheet is to do the things they have been doing. The PPP loan has been extended, but it has a finite amount of capital allocated to it at this point in time. So it's not…

Got it. I appreciate the color on that Chris, it's very helpful, and certainly can appreciate the uncertainty as well factoring into that precision. So thanks again for the comments guys, appreciate it.

Thanks Tim.

Thank you.

Thank you. Our next question comes from Casey Alexander with Compass Point. Your line is now open.

Hi, good morning. My first question is for Mike. Mike, can you tell us, I think investors would really like to know the new investments that you made in this environment. What was particular about those investments under such uncertain conditions that gave you the confidence to put that money out to those quarters and if you can kind of you know discuss the industries that they were in, sort of the multiples for new investments and what drove your thinking that this was – that the company could confidently put that money out?

Good morning, Casey; a good question. The underwriting that we applied for those new portfolio companies is the same that we’ve applied historically as we've assembled this portfolio. What's changed is everyone knows in this environment is that many companies are facing a lot of uncertainty in their revenue stream and as a result many new deals are just you know not happening. The deals that are happening and the ones that we did in this case were in businesses that have proven themselves to be performing and continuing to perform very well in this environment, and their outlook for continued growth is still very strong. In addition, in all three cases the capital structure is we think exceedingly strong and so the risk adjusted returns that I think our shareholders will benefit from here are really outsized. In all three cases their businesses that are delivering their service through a software platform and I think we and our shareholders are benefiting from our expertise in that area. One of the things that we've seen, not 100% of the time but by and large throughout our portfolio is that most of our SaaS businesses or software related businesses aren't being affected as greatly as other businesses as I referred to earlier that require a lot of human interaction. And in fact in this environment some of them are getting an additional boost because companies that were you know in a prior environment evaluating efficiency tools and ways to introduce more productivity tools to their business models are now seeing the value of that in an even greater way. So in all three cases, without getting into lots of details about each one, you know common elements are continued strong performance, outlook for that as well and really strong capital structures and we're in a – as a consequence position in the balance sheet that we think offers a terrific risk adjusted returns.

Okay secondly, it would seem to me that in highly uncertain economic times, with little visibility such as Chris discussed, this would be a time where you would be sticking with kind of your go-to relationships as opposed to striking up new relationships. Where these new relationships see it, there's some uncertainty as to how they may react if things start to go sideways. Can you explain what gives you the confidence to develop new relationships in a period of time like this?

Great question. The thing that hopefully you can recognize is that the business development efforts in our space are very detailed and the diligence that we do on relationships is quite exhaustive, so most of the deals and relationships that we developed have a very long gestation period. It would be great if we could go to visit a company that has a terrific reputation, we've seen the deals that they've done, they performed exceedingly well, you know how they’ve reacted in tough times, you show up in their office and then they start giving you deals; it tends not to work that way. Most of those firms want to get to know you as a lender as well and that period of time is fairly lengthy. So the new relationships that we're referring to are ones that we have been spending a lot of time getting to know and have done quite exhaustive due diligence on those relationships. I would add to that and this is an important point, because we certainly compete with people that don't look at the world the same way. We turn deals down with our best relationships all the time and it goes back to what I've referenced about discipline. We do not just follow sponsors or you know private equity firms that we have good relationships with and whatever they want us to do, we do. We're careful to develop that relationship in a way where if we see a business that is a really strong one, we want to be the go-to provider there and get the last look and support them there very you know actively. But we also want to develop those relationships where if we look at the fundamentals of the business and we're not comfortable with the financing…

Okay. Michael, thank you very much for those answers; it's really good color and I certainly appreciate it. My last question is for Chris, and Chris I apologize if this sounds contentious, but this is a question that I've been asked by several institutions and I simply do not have the answer for it, which is, at the last quarterly conference call, you went to great length to express the lack of visibility in the environment and the uncertainty of the environment, and then beginning one day after the call yourself and several other insiders began making insider purchases of the stock, which seems like contradictory behavior, and I would appreciate if you could give us some color on your thoughts on the insider purchases, so that we can put this within the context of your comments.

Sure, well thank you for that question Casey. I’d just like to add one thing to what Mike said, just to complete maybe some of the firm's thinking on that. I think Mike articulated very well that we all, across our management team, you know this environment and performing as Mike said, in this environment is one of the best opportunities to create new long lasting relationships and deepen our relationships with our – you know deepen the quality of the relationships with our existing partners in this field and… So we are very encouraged by the developments there and we're very encouraged by the quality and the nature of how all these investments are being discussed, where you know it's not so much a bidding exercise much more collaborative and the like. And so we're setting a foundation here, now, today, which will be with us for many, many years and pay many, many long term dividends by being in a position to play ball if you will right now. As the insider purchases, you know I'm not going to speak for Henri. Henri’s on the call, you can ask Henri. A couple of things; you know as you can see from the form, you know the Form 4 filings, you know I basically – a chunk of my ownership was transferred to certain members of our management team. 35,000 shares were transferred to another – to a group of our managers to further you know empower their – you know their compensation and their incentives and alignment with shareholders. And so what I did – what I wanted to do, sort of in a minimum was maintain my ownership levels you know in the spirit of time and so I went up – I forget the exact number.…

Chris, thank you very much for addressing my question, I really appreciate it and thank you to the whole management team for taking my questions.

Sure, my pleasure. Thank you.

Thank you. Our next question comes from Bryce Rowe with National Securities. Your line is now open.

Thanks and good morning. I wanted to ask about, I guess slot number seven that references $7 million of net repayments so far since the end of May, and just was curious if that $7 million included the new platform company that you all spoke to that was added this week?

Yeah, that's right Bryce. So you know what we've done last quarter and we you know concluded to do it again this quarter was just to give some color on sort of where our portfolio is, especially in the context of you know the increased liquidity that we have, and so yes, you’re right. That number includes a new portfolio company that we've been closing this week.

Okay, and if maybe Henri or Mike, could you kind of reconcile that with some of the comments you made in your prepared remarks about you know this environment expecting lower levels of repayments. Just curious you know, what's driving the repayments in an environment like this to get you to a net repayment position at this point in the quarter?

I think it’s just one deal that paid off and consistent with what we've been expressing, that one portfolio company is one that was performing very well in this environment, and so there is a sale process that had stalled at one point, but because the company's performance continued to be very strong, that sale process was re-energized and there was just a change of control that resulted in us getting paid off through that change of control. So I think if there's a theme there, it's – you know as I’ve expressed, for those companies that are distinguishing themselves in this environment, there are still transactions being done. The percentage of those businesses that are out there in this environment is much lower than what we all would have been looking at four months ago, but you know that's the dynamics that’s at play.

Got it, okay. And Mike, maybe you could kind of take this one too. With two new portfolio companies that you added in the May quarter, one looks to be priced at about a 6% type of coupon and that was done in the first half or in the middle of March, whereas the second portfolio company has a 10% yield and that was done in April. So I'm kind of curious if that's – you know where you're seeing pricing today in that 10% level or is there just something at play with respect to each of those companies that would have allowed for a relatively low 6% rate versus what is now you know going to be a higher rate versus the weighted average portfolio yield.

That's a good question. I mean the first one with the 6% rate, we think still offers a terrific risk adjusted return with a sponsor group that we've been courting for some time, one of the premier software investment firms in the country. I think if that deal were priced today, you know the pricing would be wider than that and our hope is that there'll be an opportunity for a re-pricing of that in the future, that's the deal that we had. You know it was kind of an unusual timing, because we had COVID really starting to accelerate at the point that we were closing it and for a variety of reasons felt like you know proceeding with the closing was the right thing for us to do and for the long term relationship and so forth, but we're excited to be you know in that investment. Certainly the other deal that closed subsequent to that is more reflective of the pricing that we're seeing in this environment. I think as I mentioned, one thing that we've seen is that the attachment point, the leverage level that people are requesting and we have an opportunity to invest in this environment is much improved relative to four month ago, pre-COVID, but we haven't seen as much widening in pricing. Certainly there's some of that, but there is capital on the sidelines waiting for those opportunities and so I think the way we think about it is that the risk adjusted return on opportunities for those very select circumstances where we can put capital to work in a new portfolio company is much greater, but the spreads we have not seen widen to a really high degree. They certainly have widened, but not as much as we would have hoped.

Okay, that's helpful. And just one more for me; I think that portfolio – you had a comment in the press release Mike that referred to portfolio management and so I was kind of wondering maybe just broadly how have you gone about the process of managing the portfolio as a team and then what kind of trends have you seen, you know whether it be week-to-week or month-to-month from your portfolio companies as we’ve progressed through this COVID period. I assume that you’ve gathered some pretty good intelligence along the way.

Well, I would – just to give you some context, I would say in the ordinary course, and this obviously fluctuates depending on you know particular portfolio companies, etc. But in the ordinary course, we probably spend about two-thirds of our time combing through new deal opportunities, trying to find new investments to grow up our shareholder value, and about a third of our time actively managing our portfolio. With the onset of COVID, that switched to 95%. One could argue, 110% of our time just getting really close to ongoing events with our portfolio. We shifted to the point where we had weekly portfolio management meetings, where we literally as a team went through each and every portfolio company that we have, looking at things like what is their liquidity position, what's their updated outlook on their performance, how are they being affected and we've been doing that ever since the onset and continue to do that. Now, how has that changed? Initially as you can imagine, people were as I referenced, availing themselves to PPP loans. We were helping a lot of the portfolio companies to make sure that they were getting that done timely and to the extent that we had to make modifications to our loan documents to accommodate that, we were doing things of that nature as well. I should point out too, it's important to note. Where we play in the market place, we’re typically on a first name basis with our management teams. So managing our portfolio companies at that level is something that's natural for us and natural for the management teams to expect. So we have an open dialogue with the management team and the ownership groups as well. That shifted. Clearly things have settled down, we've got much more visibility on the portfolio and the portfolio performance and we're continuing to monitor it extremely carefully and actively just given all the uncertainty out there, but I think you know at this point we're probably still spending more than half our time just making sure that we're on top of things. We don't want to be surprised by anything, but at the same time we are starting to see new loan enquiries and we're spending some more time on that. Does that address – I don't know, hopefully that addresses your question.

No, that does. I mean in those, I guess that active management period, I was just curious what you've seeing you know from an EBITDA cash flow perspective, from your portfolio of companies. I mean I get that the PPP funds have helped in a lot of ways, but kind of was curious what you've seen from a fundamental revenue perspective, you know at those portfolio companies you know where it fits?

Right. I mean it’s going to vary. The impact of COVID will vary depending on the company and I think as I've referenced, you know the companies that are more greatly affected are ones where there's human interaction or something of that nature that's going to affect their revenue stream. We are and our shareholders are benefiting from our underwriting approach, which is there's a common theme in our portfolio. It’s we really gravitate to businesses that have really strong recurring revenue dynamics, so we haven't seen as much impact. I think the reference I made to two-thirds of the valuation being decreased in value and a portfolio being driven by just widening spreads, and about a third of that 6% devaluation being driven by either you know performance or expected reduction in performance is generally indicative of what we’re seeing.

Alright, thank you for the color and I appreciate it.

Thanks Bryce.

Thank you. Our next question comes Mickey Schleien with Ladenburg. Your line is now open.

Good morning, everyone. Glad to hear everyone's doing well. Kind of tough to go this late into the call, but I still have a handful of questions I'd like to ask.

No worries Mickey.

Hey Mike, I think you alluded to this, but I'll ask the question a little bit differently. Where would you say spreads are today in your market, the lower middle market today versus you know May 31 in general?

I would – if I had to pick a – I'll give you a range, 50 to 100 basis points wider, but it's not completely apples to apples, because at the same time we're finding opportunities to put ourselves in a lower leverage point in the balance sheet, so four deals, yeah, yeah.

Okay, but that conceivably that could continue to pressure net asset values then if you were to close the books today, correct?

I think Mike is talking versus really March, the beginning of COVID, right Mike.

Right – no, no, so that's a good thing to clarify. [Cross Talk]

From May?

Right, right. So we're not seeing further widening – yes, so the valuations are reflecting a mark-to-market relative to prevailing spreads in the market place. We haven't seen any shift or significant shift in spreads from that valuation. I was referencing – what I meant to reference was for our end of the market, if we were to deploy new capital in a new deal, we would find ourselves generally in a more conservative spot in the balance sheet and that all else equal, the pricing would likely be you know 50 to 100 basis points wider.

Yeah, from pre-COVID.

From pre-COVID, not from the valuation point, that's right.

Okay, and going back to the logic monitor question, I understand it may have an attractive business profile and that's hard to find in this kind of market, but at a 6% rate, the math doesn't work very well for Saratoga. If I’m not mistaken, that's the lowest yielding investment in the portfolio. So could you just expand on your comments as to why do that deal at all, given the yield characteristic?

Well, the vast majority of the capital that was deployed in that deal was through our new SBIC license and the position we are in the balance sheet, the strength of the company, to us made us conclude that the risk adjusted return was quite nice and still accretive to our shareholders. And as importantly, the relationship opportunity we think is a very important one for us as a firm, and so the combination of those things at the time that was priced pre-COVID we felt like made a lot of sense. I also indicated to you that there is some likelihood, not certain, but there's some likelihood that there's a chance that that pricing could be revisited.

Right, right, okay that makes sense. And on Scepter [ph] hospitality, I think you’ve also referred to that, but that adds to your hospitality allocation on top of Knowland and I would probably you know group Village Realty into that, and everybody knows that that's a highly challenged industry right now. What specifically about Scepter [ph] gave you the comfort to go ahead in what is maybe besides airlines, the industry that’s suffering the most.

Well I would say this, and we have to – hopefully you can appreciate as it relates to Scepter [ph], wecan't get into all the details because it's private business and let’s just put it at that. But I would say that there is very significant credit support associated with that deal. So the combination of the business's performance, as well as the credit dynamics associated with it, made us very comfortable that the risk adjusted returns there were really strong.

In terms of credit dynamics you are talking about the deal structure and the support by the sponsor or something else?

Both.

Okay. Mike you mentioned a third new investment. I think that that's the one subsequent to the quarter, correct?

That's right, correct.

Can you tell us what industry that's in?

I think our preference would be not to get into. I mean it's a business that is delivering its services in a SaaS model and it’s a business that’s holding up very well in this environment. But given the recency of it, it's not something that we disclosed publicly yet. I'd rather not get into too many of the details. I don't think the ownership would be pleased with that. I don’t even think it’s been announced in the marketplace yet.

That's fine. A SaaS business which is your, you know sort of sweet spot, I understand. And touching on the education segment, I think you said C2 was performing well, but you have others like EMS LINQ and GoReact. Another industry where frankly I don't – I have a hard time forming a thesis on what's going to happen with K through 12 or universities for that matter given the spike in the curve? What is your thesis on those businesses and how are you – what are you assuming in terms of the valuations of those businesses for the potential for the schools to reopen in the fall?

Okay, so let me clarify one thing. So C2 is one that we wrote down in a fairly material way and that is experiencing some challenges because of what we referenced, that it's a tutoring model and so there's some human interaction that's involved. We are optimistic that that will work out really well and the business models is demonstrated strength over the years, and it has terrific ownership, sponsorship as well. As it relates to the other education related businesses, the vast majority of this, not all of them, but the vast majority of those are also software related businesses and the products that are being offered there are ones that are still fundamental to the efficiency or they are typically bringing greater efficiency to the school system in a lot of ways when you look at the use case of the software. And in the long term prospects for those businesses, we continue to feel really, really good. Near term there is some uncertainty, but just in terms of how schools will reopen and how they are managing that, none of us really knows. You can see that you're changing weekly, but it has been our broader experience and we're seeing this right now that typically people don't decide if there is some uncertainty about reopening, and says that they are going to shut off all of their software. It just is – it becomes fundamental to how they operate as institutions. So we haven't really seen – had that experience or seen that in this environment. Our expectation or certainly our hope is that there won't be a material impact on that sector, but it's something that we're watching very carefully.

Okay, I understand. A couple of questions on the CLO. So my understanding is that the bulk of CLOs make their distributions quarterly and it's typically the first month of the quarter which would have been April. I'm not sure if that's the case for your CLO. But obviously based on your comments that the CLO was passing all its tests, if I'm not mistaken, how does it look in terms of its test going into the next distribution? And do you expect to reduce the estimated yield given the level of loans that are rated B-minus in the market with more downgrades and higher defaults expected?

Yeah, that’s right Mickey. You’re absolutely right. It's a – the measurement date is once every three months and actually April was a measurement date, but also yesterday was a measurement date. So July 8 is a measurement date and that determines whether it passes all of its test, which our CLO did. So as of yesterday, you know it met all of the tests and so there is no issue for the next three months and its specifically to Q2. Obviously there'll be a new measurement date and it's a single day test then in three-months’ time. With regards to the effective interest rate, that's an output from the actual valuation, the weighted average effective interest rate and so you know obviously they were pretty conservative assumptions as you saw with regards to our valuation as of May 31. From a downgrade perspective, not too much has changed since we did the valuation through today, but obviously we need to keep monitoring it over the next couple of months until we get to that, then firstly the next valuation date on August 31, which will drive the interest rate and then the measurement date in October that will drive the payment for Q3.

Okay. So Henri based on what you just said, it seems that at least in the very near term the CLO does not need another additional equity injected into it.

Yeah, correct. As of today, yes.

Okay, and then going back to the cash drag question, I certainly appreciate tapping into liquidity when it’s available, but you do have a very low level of discretionary unfunded commitments. I think I saw it was $8 million or $9 million. So that’s not really an overwhelming amount for you. You've now declared a dividend, so the drip will start again and I would imagine you know smart shareholders are going to take advantage of the share price. It would seem to me and maybe you know this question for Chris, the best use of the cash, at least some of it is to buy back the stock, not only to offset the drip dilution, but just to reinvest in the portfolio given the level of confidence that you have in it or am I – you know am I missing something?

Mickey, I think that's a very good question. I think as we are trading at a very substantial discount to you know NAV, I think you heard Mike mention earlier that a lot of the markdowns in our portfolio are mark-to-market more spread based. Two-thirds of the mark down of roughly is – you know it is based on spread marks as opposed to fundamental credit quality marks. So we have a lot of confidence in our NAV and the new investments we are making. So yes we do feel our socket is substantially undervalued and we do have the ability to repurchase stock as you’ve noted. The questions obviously that one needs to consider is how much of this liquidity is needed for what purposes. I think as we talked about in our last call, we have our SBIC 1 which is largely fully invested and to the extent companies in that portfolio have incremental needs for capital, we need to supply that from outside that entity, with you know essentially holding company capital. So we need to keep some powder dry to support those investments, and we did have one repayment in there which gave us a little extra room and helped our liquidity so that we do have some incremental capital available inside that, in that SBIC 1 which is helpful. And then SBIC 2, we still have another – we’ve invested $50 million and there's another $37.5 million of equity to go in which gets levered two-to-one at sub-2% rate. So the return on equity investment in the SBIC 2 can be extremely high and you know so we have to gauge when and how we put more equity into that entity. We always still have borrowing capacity there. And then we also have a lot…

No, I agree with that Chris. I guess my last question, my follow-up to that would be, at a minimum wouldn't it make sense to at least try to buy back shares on the open market to offset the likely dilution from the drip given. You know you've got a lot of experience with your shareholders. You know more or less the ratio of shareholders that are going to elect for cash versus stock and at this price it could be meaningfully dilutive to NAV and it would seem to make sense to at least try to offset that.

That's clearly a consideration. In terms of how much of a drip there is, I mean that has varied fairly substantially over the different quarters for different reasons, but we do understand that concern and I understand that that dilution again to NAV and then to NAV per share to earnings per share, issues and all that you know does have consequence. So that’s absolutely something that we are aware of and watching.

Okay, that's it for me. I appreciate your patience on what’s probably one of the longest earnings calls for you, but very, very helpful. Thank you.

Well, thank you Mickey.

Thanks Mickey

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Christian Oberbeck for closing remarks.

Okay. So we want to thank everyone for joining us today, and we look forward to speaking with you next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.