BDC REPORTER: Saratoga Investment's Conference Call on May 30th was short on questions. Nothing asked about the several under-performing loans on the books (up from zip the prior year); nothing about the state of the Company's CLO investment, which accounts for the largest portion of it's earnings but has a finite life; nothing about how Saratoga might deploy the huge amounts of cash raised from raising unsecured Notes and SBIC monies, and what returns we might expect from those monies in this ultra-competitive market.
THE DIVIDEND QUESTION: However, one analyst did ask about when the Company might resume paying a cash dividend. We received a relatively clear and straightforward answer: Saratoga intends to pay out earnings, once again, 20% in cash and 80% in additional common stock. This has been the pattern for the last 3 years, and makes Saratoga the only BDC taking advantage of emergency rules instituted by the IRS during the Great Recession to help keep Regulated Investment Companies solvent. Nonetheless, management actually made a good case that retaining the cash income in the Company has helped it's growth over the past 2.5 years under the new management team. Certainly, the Company is very small in terms of assets and had no chance to access the equity markets, so keeping earnings in-house rather than paying them out in cash to shareholders makes sense.
WHEN WE GROW UP,EVERYTHING WILL CHANGE: However, that argument is growing thin with the recent granting of a license to borrow 10 year money from the SBIC and a recent public offering of unsecured Notes on favorable terms (for a BDC with only $150mn in total assets). Management seemed aware of that fact and suggested that when all the capital available to the Company is deployed, and total assets are in the "high $200millions", Saratoga might see it's way to paying out all it's earnings in cash again. No commitment was made, but you get the drift.
Disclosure: I am long SAR.