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Saratoga Investment Updates 1 Key Risk Factor
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Saratoga Investment Updates 1 Key Risk Factor

Shares of specialty finance company Saratoga Investment Corp. (SAR) have gained 23% over the past year. SAR provides customized financing solutions to middle-market businesses in the U.S.

SAR’s recent third-quarter results fell short of expectations on both its top-line and bottom-line fronts. Revenue increased 15.5% year-over-year to $16.5 million but fell short of analysts’ expectations by $485,600. Earnings per share at $0.45 fell short of expectations by $0.09.

SAR has generated an LTM return on equity of 14.6%, adjusted NII per share of $0.53, and NAV quarterly growth of $0.20 per share. Significantly, assets under management of the company increased 21% over the prior year to $661.8 million.

Furthermore, SAR has declared a Q3 dividend of $0.53 per share, payable on January 19, 2022. With these developments in mind, let’s have a look at what’s changed in SAR’s key risk factors that investors should know.

Risk Factors

According to the TipRanks Risk Factors tool, Saratoga Investment’s top risk category is Finance & Corporate, contributing 69% (compared to a sector average of 60%) to the total 81 risks identified. In its recent quarterly report, the company has added one key risk factor under the Finance & Corporate risk category.

SAR noted that prior to December 31, 2021, it used LIBOR as a reference rate in floating-rate loans extended to portfolio companies. LIBOR is the basic rate of interest used in lending transactions between banks on the London interbank market, and is widely used as a reference rate across the globe.

With the phasing out of LIBOR, there remains substantial uncertainty regarding potential changes to specific USD LIBOR tenors, acceptance of alternative reference rates, and other reforms.

After the replacement of LIBOR, some or all of SAR’s credit agreements may bear a lower interest rate. This, in turn, could adversely affect the value and liquidity of SAR’s investment in its portfolio companies and may also result in disputes and litigation with counterparties and borrowers.

Smart Score

Saratoga scores 9 out of 10 from TipRanks’ Smart Score rating system implying the stock can potentially outperform the market expectations.

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