Saratoga Investments' Income Dips, But Valuation Gains Drive Asset Growth

TL;DR

**SAV's income is down, but smart portfolio moves are boosting net assets – watch for sustained income growth.**

AI Summary

SARATOGA INVESTMENT CORP. (SAV) reported a mixed financial performance for the six months ended August 31, 2025. Total investment income decreased significantly by 22.8% to $62,944,373 from $81,681,525 in the prior year period, primarily driven by a substantial drop in interest income from non-control/non-affiliate investments, which fell from $66,945,491 to $49,162,112. Net investment income also saw a sharp decline of 40.9% to $19,222,765 from $32,532,403. However, the company experienced a positive shift in realized and unrealized gains, moving from a net realized loss of $54,643,724 and a net change in unrealized appreciation of $42,659,586 in the prior year to a net realized gain of $2,954,030 and a net change in unrealized appreciation of $4,671,690. This turnaround in investment valuations led to a net increase in net assets from operations of $27,217,398, up from $19,928,077, despite the lower investment income. Total assets increased to $1,206,211,434 from $1,191,543,857, while net asset value per share slightly decreased to $25.61 from $25.86.

Why It Matters

For investors, this filing reveals a critical shift in SAV's performance drivers: while core investment income is under pressure, potentially due to lower interest rates or portfolio rebalancing, strong realized and unrealized gains are bolstering net assets. This indicates a successful navigation of market conditions in terms of asset valuation, which could be a positive signal for long-term holders. However, the decline in net investment income suggests potential challenges in generating consistent cash flow from its loan portfolio, impacting dividend sustainability. Competitively, if other BDCs are maintaining or growing investment income, SAV's strategy might be seen as more reliant on market appreciation rather than steady lending returns, which could influence its risk profile compared to peers.

Risk Assessment

Risk Level: medium — The risk level is medium due to the significant decline in total investment income by 22.8% and net investment income by 40.9% for the six months ended August 31, 2025. While net assets increased due to realized and unrealized gains, a sustained drop in core income generation could impact future profitability and dividend capacity, as evidenced by the decrease in net asset value per share from $25.86 to $25.61.

Analyst Insight

Investors should scrutinize the composition of SAV's investment portfolio and the drivers behind the realized and unrealized gains. Consider if these gains are sustainable or one-off events. Monitor future filings for signs of stabilization or recovery in interest income, as this is crucial for long-term dividend coverage and overall financial health.

Financial Highlights

debt To Equity

N/A

revenue

$62,944,373

operating Margin

N/A

total Assets

$1,206,211,434

total Debt

$240,000,000

net Income

$27,217,398

eps

N/A

gross Margin

N/A

cash Position

$105,660,178

revenue Growth

-22.8%

Revenue Breakdown

Key Numbers

• $62.9M — Total Investment Income (Decreased 22.8% from $81.7M in the prior year period.)
• $19.2M — Net Investment Income (Decreased 40.9% from $32.5M in the prior year period.)
• $2.95M — Net Realized Gain from Investments (Shifted from a $54.6M loss in the prior year period.)
• $4.67M — Net Change in Unrealized Appreciation (Contributed to overall asset growth.)
• $27.2M — Net Increase in Net Assets from Operations (Increased from $19.9M in the prior year period despite lower income.)
• $1.21B — Total Assets (Increased from $1.19B as of February 28, 2025.)
• $25.61 — Net Asset Value Per Share (Slightly decreased from $25.86 as of February 28, 2025.)
• 16,103,948 — Outstanding Common Shares (As of October 7, 2025.)
• 22.8% — Decrease in Total Investment Income (Indicates pressure on core revenue generation.)
• 40.9% — Decrease in Net Investment Income (Highlights a significant drop in profitability from operations.)

Key Players & Entities

• SARATOGA INVESTMENT CORP. (company) — Registrant
• $62,944,373 (dollar_amount) — Total investment income for six months ended August 31, 2025
• $81,681,525 (dollar_amount) — Total investment income for six months ended August 31, 2024
• $19,222,765 (dollar_amount) — Net investment income for six months ended August 31, 2025
• $32,532,403 (dollar_amount) — Net investment income for six months ended August 31, 2024
• $27,217,398 (dollar_amount) — Net increase in net assets from operations for six months ended August 31, 2025
• $1,206,211,434 (dollar_amount) — Total assets as of August 31, 2025
• $1,191,543,857 (dollar_amount) — Total assets as of February 28, 2025
• $25.61 (dollar_amount) — Net asset value per share as of August 31, 2025
• $25.86 (dollar_amount) — Net asset value per share as of February 28, 2025

FAQ

Risk Factors

• Interest Rate Sensitivity [high — financial]: The company's net investment income is sensitive to changes in interest rates. A significant portion of its income is derived from interest-earning investments. Fluctuations in interest rates can impact the value of its portfolio and its ability to generate income, as evidenced by the 22.8% decrease in total investment income.
• Market Volatility and Investment Valuation [high — market]: The company's financial results are affected by the fair value of its investments, which can fluctuate due to market conditions. While the current period saw a positive shift in realized and unrealized gains ($2.95M realized gain and $4.67M unrealized appreciation), the prior year experienced a net realized loss of $54.6M, highlighting the inherent volatility.
• Leverage and Debt Obligations [medium — financial]: Saratoga Investment Corp. utilizes leverage through revolving credit facilities and various notes payable. As of August 31, 2025, total debt, including revolving credit facilities and SBA debentures, amounts to $240,000,000, plus significant note payables. Changes in interest rates or inability to service this debt could pose a financial risk.
• Dependence on Key Investments [medium — operational]: The company's performance is significantly tied to its investment portfolio, particularly non-control/non-affiliate investments which generated $49.16M in interest income. A substantial decline in income from these investments, as seen in the 22.8% decrease in total investment income, directly impacts overall profitability.
• Regulatory Compliance [low — regulatory]: As a business development company (BDC), Saratoga Investment Corp. is subject to specific regulatory requirements. Failure to comply with these regulations could result in penalties or restrictions, impacting operations and financial performance.

Industry Context

Saratoga Investment Corp. operates as a business development company (BDC) in the financial services sector. BDCs typically invest in small and medium-sized private companies, providing debt and equity capital. The industry is sensitive to interest rate environments and overall economic conditions, impacting investment income and portfolio valuations. Competition among BDCs for attractive investment opportunities can be significant.

Regulatory Implications

As a BDC, Saratoga Investment Corp. is subject to regulations under the Investment Company Act of 1940. This includes requirements related to asset coverage, leverage, and reporting. Compliance with these regulations is crucial to avoid penalties and maintain operational legitimacy. Changes in regulatory frameworks could also impact the company's business model and profitability.

What Investors Should Do

1. Monitor interest rate trends and their impact on SAV's investment income.
2. Analyze the drivers of realized and unrealized gains/losses.
3. Evaluate the company's debt structure and leverage levels.
4. Assess the performance and outlook of non-control/non-affiliate investments.

Key Dates

• 2025-08-31: End of Six-Month Period — Reporting period for the 10-Q, showing a decrease in investment income but a positive swing in realized/unrealized gains.
• 2025-02-28: Prior Fiscal Year End — Comparison point for asset values and net asset value per share.
• 2025-10-07: Outstanding Common Shares Date — Provides the number of outstanding shares as of a recent date for per-share calculations.

Glossary

Net Investment Income

The income generated from a company's investments after deducting operating expenses. (A key measure of profitability for investment companies, which declined significantly by 40.9% for SAV.)

Net Realized Gain/Loss

The profit or loss realized from the sale of an investment. (SAV shifted from a substantial net realized loss in the prior period to a gain of $2.95M, positively impacting net assets.)

Net Change in Unrealized Appreciation

The increase or decrease in the fair value of investments that are still held by the company. (Contributed positively to SAV's net assets, showing an increase of $4.67M.)

Net Assets

The total assets of a company minus its total liabilities. For investment companies, this often represents the book value available to shareholders. (SAV reported a net increase in net assets from operations of $27.2M, despite lower investment income.)

Net Asset Value Per Share (NAV per share)

The market value of a company's assets minus its liabilities, divided by the number of outstanding shares. (SAV's NAV per share slightly decreased to $25.61 from $25.86, indicating a minor dilution in per-share value.)

Non-control/Non-affiliate investments

Investments where the company does not have control or significant influence over the investee, and the investee is not affiliated. (This category represents the largest portion of SAV's investments and was the primary driver of the decrease in interest income.)

Year-Over-Year Comparison

Compared to the prior year period, Saratoga Investment Corp. experienced a significant 22.8% decrease in total investment income, primarily due to a sharp drop in interest from non-control/non-affiliate investments. Net investment income also fell by 40.9%. However, the company demonstrated resilience through a positive turnaround in investment valuations, moving from a substantial net realized loss to a net realized gain and adding unrealized appreciation. This shift resulted in a higher net increase in net assets from operations, despite the lower core income. Total assets saw a modest increase, while net asset value per share experienced a slight decrease.

Key Financial Figures

• $0.001 — ich registered Common Stock, par value $0.001 per share SAR The New York Stock Exchan

Filing Documents

• ea0258170-10q_saratoga.htm (10-Q) — 8050KB
• ea025817001ex31-1_saratoga.htm (EX-31.1) — 7KB
• ea025817001ex31-2_saratoga.htm (EX-31.2) — 7KB
• ea025817001ex32-1_saratoga.htm (EX-32.1) — 4KB
• ea025817001ex32-2_saratoga.htm (EX-32.2) — 5KB
• 0001213900-25-097022.txt ( ) — 42139KB
• sar-20250831.xsd (EX-101.SCH) — 108KB
• sar-20250831_cal.xml (EX-101.CAL) — 57KB
• sar-20250831_def.xml (EX-101.DEF) — 521KB
• sar-20250831_lab.xml (EX-101.LAB) — 864KB
• sar-20250831_pre.xml (EX-101.PRE) — 544KB
• ea0258170-10q_saratoga_htm.xml (XML) — 12925KB

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements as of August 31, 2025 (unaudited) 27 Item 2.

Management's Discussion and Analysis

Management's Discussion and Analysis of Financial Condition and Results of Operations 109 Item 3.

Quantitative and Qualitative Disclosures

Quantitative and Qualitative Disclosures About Market Risk 148 Item 4.

Controls and Procedures

Controls and Procedures 150 PART II. OTHER INFORMATION 151 Item 1.

Legal Proceedings

Legal Proceedings 151 Item 1A.

Risk Factors

Risk Factors 151 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 151 Item 3. Defaults Upon Senior Securities 151 Item 4. Mine Safety Disclosures 151 Item 5. Other Information 151 Item 6. Exhibits 152

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Consolidated Financial Statements

Item 1. Consolidated Financial Statements Saratoga Investment Corp. Consolidated Statements of Assets and Liabilities August 31, 2025 February 28, 2025 (unaudited) ASSETS Investments at fair value Non-control/Non-affiliate investments (amortized cost of $ 886,285,227 and $ 886,071,934 , respectively) $ 898,724,347 $ 897,660,110 Affiliate investments (amortized cost of $ 50,318,387 and $ 38,203,811 , respectively) 52,755,641 40,547,432 Control investments (amortized cost of $ 76,035,288 and $ 75,817,587 , respectively) 43,815,022 39,870,208 Total investments at fair value (amortized cost of $ 1,012,638,902 and $ 1,000,093,332 , respectively) 995,295,010 978,077,750 Cash and cash equivalents 105,660,178 148,218,491 Cash and cash equivalents, reserve accounts 95,144,529 56,505,433 Interest receivable (net of reserve of $ 244,970 and $ 210,319 , respectively) 8,617,063 7,477,468 Management fee receivable 278,769 314,193 Other assets 1,215,885 950,522 Total assets $ 1,206,211,434 $ 1,191,543,857 LIABILITIES Revolving credit facilities $ 70,000,000 $ 52,500,000 Deferred debt financing costs, revolving credit facilities ( 833,266 ) ( 1,254,516 ) SBA debentures payable 170,000,000 170,000,000 Deferred debt financing costs, SBA debentures payable ( 3,621,941 ) ( 4,041,026 ) 8.75 % Notes Payable 2025 - 20,000,000 Discount on 8.75 % notes payable 2025 - ( 9,055 ) Deferred debt financing costs, 8.75 % notes payable 2025 - ( 374 ) 7.00 % Notes Payable 2025 12,000,000 12,000,000 Discount on 7.00 % notes payable 2025 ( 2,622 ) ( 68,589 ) Deferred debt financing costs, 7.00 % notes payable 2025 ( 348 ) ( 8,345 ) 7.75 % Notes Payable 2025 - 5,000,000 Deferred debt financing costs, 7.75 % notes payable 2025 - ( 19,685 ) 4.375 % Notes Payable 2026 175,000,000 175,000,000 Premium on 4.375 % notes payable 2026 164,326 287,848 Deferred debt financing costs, 4.375 % notes pay

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