Saratoga Investment (NYSE:SAR) executives said the company delivered continued net asset value (NAV) growth in fiscal third-quarter 2026 while managing through a “volatile macro environment” that has included declining short-term interest rates, tight credit spreads, and elevated portfolio repayments.
Quarter highlights: NAV growth, improved quarterly earnings, and net originations
Chairman and CEO Christian Oberbeck highlighted several quarter-to-quarter improvements, including stable NAV per share and higher adjusted net investment income (NAI). Saratoga reported quarter-end NAV of $413.2 million, up from $410.5 million in the prior quarter and $375 million a year earlier. NAV per share was $25.59, essentially flat sequentially ($25.61 last quarter) and lower than $26.95 a year earlier.
Saratoga also recorded net originations of $17.2 million in the quarter, as originations outpaced repayments. The company originated $72.1 million across three new investments and nine follow-ons, along with investments in BB and BBB CLO debt securities. Management said four new portfolio company investments were either closed or in closing after quarter-end, which it expects to improve run-rate earnings.
Interest rate and spread pressures weighed on portfolio yields
Executives repeatedly cited the impact of declining short-term rates and tighter spreads. Oberbeck said third-quarter NAI continued to reflect the last 12 months’ “trend in decreasing levels of short-term interest rates and spreads” on Saratoga’s largely floating-rate assets, alongside “continued high levels of repayments.”
Chief Financial and Chief Compliance Officer Henry Steenkamp noted the weighted average interest rate on the core BDC portfolio was 10.6% for the quarter, down from 11.3% in the prior quarter and 11.8% a year earlier. He said the yield reduction reflected SOFR decreases over the past year and “recent tighter spreads experienced on new originations versus historically higher spreads on repaid assets.”
Despite that pressure, Saratoga’s net interest margin increased to $13.5 million from $13.1 million last quarter, primarily due to a $0.5 million decrease in interest expense. Management linked the lower interest expense to repayments of a $12 million baby bond.
Credit quality and portfolio positioning
Management emphasized portfolio resilience. Oberbeck said Saratoga’s $1.016 billion portfolio (at fair value) is supported by “well-selected industry segments” and that all four historically challenged portfolio company situations have been resolved. Steenkamp added that Saratoga’s non-accrual rate stood at 0.4% of cost, which he said was “eight times lower than the industry average of 3.2%.”
The company ended the quarter with one investment on non-accrual status: Pepper Palace, which management said has been successfully restructured. Oberbeck said Pepper Palace represents 0.2% of fair value and 0.4% of cost.
Steenkamp reported that 83.9% of investments were in first-lien debt at quarter-end, including 29.7% in first-lien last-out positions. He also said the total portfolio fair value was 1.7% above cost, and the core non-CLO portfolio was 2.1% above cost.
Chief Investment Officer Michael Grisius said most portfolio companies are “healthy,” and added the portfolio has no direct energy or commodities exposure. He also said the majority of portfolio businesses generate recurring revenue and have demonstrated strong revenue retention.
Liquidity, leverage, and refinancing activity
Saratoga ended the quarter with substantial liquidity and investment capacity. Management reported $395.6 million of “dry powder,” including $169.6 million of cash, $136 million of available SBA debentures under its SBIC III license, and $90 million available under two revolving credit facilities. Oberbeck said this liquidity supports balance sheet strength and NAV preservation, which he described as “paramount” in the current environment.
Steenkamp said Saratoga repaid its $65 million Encina credit facility and refinanced it with an upsized $85 million facility led by Valley Bank. He said the terms were “substantially the same,” with a spread cost reduced by about 150 basis points and maturity extended to three years.
Steenkamp also noted Saratoga has $175 million of 4.375% 2026 notes maturing at the end of February 2026, and said the company is assessing liquidity, cash, and “various capital markets options” to determine the optimal repayment source. In addition, he said all $269 million of the company’s baby bonds (effectively all of its 6%+ debt) are now callable, providing an option to refinance and potentially protect net interest margin if rates continue to decline.
Dividend and shareholder return commentary
Management reiterated its monthly dividend framework. Oberbeck said Saratoga announced a monthly base dividend of $0.25 per share, or $0.75 per share in aggregate for the fiscal fourth quarter of 2026. He said that annualized dividend represented a 12.9% yield based on a stock price of $23.19 as of January 6, 2026. Oberbeck also said the company paid its latest $0.75 quarterly aggregate dividend in three monthly increments of $0.25, and distributed a $0.25 per share special dividend in December.
Oberbeck said the board will continue to evaluate dividend levels at least quarterly, factoring in company performance and broader economic conditions, including interest rates and macro trends.
On performance, Oberbeck said Saratoga’s total return over the last 12 months was 11% (including dividends and capital appreciation), compared with a negative 4% return for the BDC index, placing the company “in the top six of all BDCs for calendar 2025.” He also cited long-term total return since Saratoga took over management of the BDC in 2010 of 851%, compared with the industry’s 283%.
During the Q&A, executives said they are seeing a pickup in M&A activity, though they stressed the market remains highly competitive and spread levels are still tight. Grisius said the firm is increasing deal flow in part through expanded business development efforts and new relationships, while also maintaining a high underwriting bar. In response to a question about “spillover” income, management said it was approximately $2 per share at quarter-end.
About Saratoga Investment (NYSE:SAR)
Saratoga Investment Corp. is a closed-end, externally managed investment company that seeks to generate current income and total return through a diversified portfolio of private U.S. companies. Trading on the New York Stock Exchange under the ticker SAR, the firm primarily targets middle-market businesses across a broad range of industries, including industrials, healthcare, consumer products, financial services and technology. Its investment approach combines debt and equity instruments, providing flexible capital solutions such as first-lien and second-lien secured loans, mezzanine debt, preferred equity and common equity positions.
As an actively managed vehicle, Saratoga Investment works closely with portfolio companies’ management teams to support growth initiatives, operational improvements, and strategic transactions.
