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Saratoga Investment Corp (NYSE:SAR)
Q4 2020 Earnings Call
May 11, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Saratoga Investment Corp.'s Fiscal Fourth Quarter and Fiscal Year 2020 Financial Results Conference Call. [Operator Instructions] Following managements remarks -- prepared remarks we will open the line for questions. [Operator Instructions].

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.

Henri J. Steenkamp -- Chief Compliance Officer, Secretary, Treasurer and Chief Financial Office

Thank you. I would like to welcome everyone to Saratoga Investment Corp.'s Fiscal Fourth Quarter and Fiscal Year 2020 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 fourth quarter and fiscal year 2020 shareholder presentation in the Events & Presentations 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 May 14. 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.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Thank you, Henri, and welcome, everyone. The past couple of months has been unprecedented in its impact across our business and the world. Coming off a record year of achievements and operating performance, we believe Saratoga is in a strong position heading into this calamitous health and economic environment. We look forward to summarizing these most recent results, as well as reviewing the solidity of our capital structure and liquidity on today's call. We are focused on ensuring the safety of our employees and the employees of our portfolio companies, while optimizing the management of our ongoing business activities. The company is working collaboratively with all our constituents to navigate the significant challenges presented by the COVID-19 pandemic.

For instance, we have taken the necessary steps to ensure that our personnel can effectively operate remotely. Our senior management team and staff remain fully engaged and capable of working remotely. We have not experienced any significant operational limitations and remain fully capable of providing any necessary support or service that our portfolio companies may require. We believe that our historically conservative approach to investing, leverage utilization, maintenance of solid levels of liquidity, conservative spillover management and some good fortune have put us in our strongest position to date of balance sheet strength going into this uncertain and challenging time. 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 effectively navigate the grave challenges presented by the coronavirus.

The quality of our underwriting reaffirmed further this year has propelled us to the top ranks of our BDC competitors over the long term. Our performance metrics for fiscal 2020 were remarkably strong and our accomplishments many, including the receipt of our second SBIC license, our full year return on equity of 23.6%, the $43 million of realized gains during the year, the 68% increase in total net asset value and the 15% increase in NAV per share, all of which furthers our momentum and provides a strong foundation for future growth and to deal with the challenges of this current market.

To briefly recap the highlights of the past quarter and year on slide two. First, we continue to strengthen our financial foundation this quarter by maintaining a high level of investment credit quality with 99% of our loan investments continuing to have our highest credit rating at year-end; generating a return on equity of 23.6% on a trailing 12-month basis, both significantly ahead of the BDC industry mean of 8.5% and reflecting the highest ROE in the BDC industry for the past year; increasing NAV by a net $42.9 million realized and unrealized gains this year or $4.60 per share, including the $11.2 million total realized gains previously discussed in Q3 on our Censis investment and the $31.2 million gain recognized on our Easy Ice investment in Q4; and as of year-end, we have registered a gross unlevered IRR of 13.5% on our total unrealized portfolio and a gross unlevered IRR of 16.9% on total realizations to date of $474 million.

Second, our assets under management remained steady this quarter at $486 million, relatively unchanged from Q3, with the Easy Ice repayment offset by new Q4 originations. For the year, our AUM is up 21% from $402 million as of last year-end. With $167.3 million of repayments this year, including the realized gains, we again demonstrated the ability of our origination platform to keep pace with ongoing redemptions with a record $205 million of new investments originated during fiscal 2020. We have continued to originate both new investments and follow-ons post quarter end, which Mike will discuss in more detail later.

Third, as we look ahead to the numerous challenges that the COVID-19 pandemic presents to the economy and particularly small businesses, balance sheet strength, liquidity and NAV preservation are paramount. Our current capital structure is the strongest in Saratoga's history with $304 million of equity, supporting $60 million of long-term covenant-free non-SBIC debt. This translates into regulatory leverage of 607%, substantially exceeding our 150% requirement.

Our liquidity and credit facilities of $260 million are available as of year-end to support our portfolio companies, with $175 million of the total dedicated to new opportunities in our SBIC II fund and not available to support other portfolio companies. The all-in cost of this new SBIC II debt is currently approximately 2.5%. Of note, we have $18 million of committed undrawn lending commitments outstanding to existing portfolio companies.

Finally, we are proud of our five year record of consecutive increases in dividends. However, in light of the dramatic uncertainties in the economy and in the future operating performance of the companies we invest in, we have the responsibility to ensure that we retain sufficient liquidity to support our portfolio companies and preserve NAV during these challenging times, while also remaining positioned to fund creditworthy new investments and small businesses in need. Saratoga's Board believes it is in the best near and long term interest of our shareholders to maintain a conservative and cautious approach to our dividend policy.

The Board of Directors has therefore decided to defer our dividend for the quarter ended February 29, 2020. We will continue to reassess this, at least on a quarterly basis, as we gain better visibility on the economy and portfolio company performance. I will also discuss our favorable spillover position later on in this call that provides flexibility for this liquidity enhancing decision.

Saratoga delivered strong return on equity performance this quarter and year, as noted above, and continued solid performance within our key performance indicators as compared to the quarters ended February 28, 2019, and November 30, 2019. Our adjusted NII is $6.8 million this quarter, up 38% versus $14.9 million last year and up 11% versus $6.1 million last quarter. Our adjusted NII per share is $0.61 this quarter, unchanged from $0.61 last quarter and down $0.05 from $0.66 last year, primarily reflecting the 49% increase in share count.

Latest 12 months return on equity is 23.6% this quarter, up from 10.6% last year and 17.6% last quarter. And our NAV per share is $27.13, up 15% from $23.62 last year and up 7% from $25.30 last quarter, Henri will provide more detail later.

Originations, for the most part, offset the Easy Ice repayment this quarter, but as you can see on slide three, AUM has steadily risen since we took over management of the BDC almost 10 years ago, and the quality of our credits remain high. We are working diligently to continue this positive trend as we deploy our available capital, while at the same time, being appropriately cautious in this changed credit environment.

With that, I would like to turn the call back over to Henri to review our financial results as well as the composition and performance of our portfolio.

Henri J. Steenkamp -- Chief Compliance Officer, Secretary, Treasurer and Chief Financial Office

Thank you, Chris. Slide four highlights our key performance metrics for the quarter ended February 29, 2020. When adjusting for the incentive fee accrual related to net capital gains in the second incentive fee calculation, adjusted NII of $6.8 million was up 11% from $6.1 million last quarter and up 38% from $4.9 million as compared to last year's Q4. Adjusted NII per share was $0.61, down $0.05 from $0.66 per share last year and unchanged from $0.61 per share last quarter. The decrease in adjusted NII per share from last year and the unchanged number from last quarter, while adjusted NII increased for both periods, was primarily due to a 49% increase in the number of weighted shares outstanding from last year and a 12% increase since last quarter.

Weighted average common shares outstanding increased from 7.5 million shares for the three months ended February 28, 2019, to 10.0 million shares and 11.2 million shares for the three months ended November 30, 2019, and February 29, 2020, respectively. This impact was offset by the 21% increase in AUM in Q4 this year compared to last year.

Adjusted NII yield was 9.3% when adjusted for the incentive fee accrual. This yield is down from 9.7% last quarter and 11.2% last year, primarily reflecting the impact of our growing NAV and the effect of our substantial undeployed cash on hand at year-end.

For this fourth quarter, we experienced a net gain on investments of $26.7 million or $2.39 per weighted average share, resulting in a total increase in net assets of $26.8 million or also $2.39 per share. The $26.7 million net gain on investments was comprised of $50.3 million in net realized gain and $2.1 million of net deferred tax benefit on unrealized depreciation in Saratoga Investment's blocker subsidiaries, offset by $5.7 million in net unrealized depreciation. The $30.3 million net realized gain primarily relates to the $31.2 million gain on the company's Easy Ice preferred equity investment, offset by the $0.9 million realized loss on the company's legacy M/C Communications investment.

The $5.7 million net unrealized depreciation reflects a couple of things: The $9.5 million reversal of previously recognized depreciation following the realization of Easy Ice; and $1.4 million unrealized depreciation on the company's CLO equity and related investments. This was partially offset by, first, the $1.4 million reversal of previously recognized depreciation following the realization of M/C Communications; second, seven other investments with appreciation of between $250,000 and $400,000; and third, numerous other investments with smaller appreciations.

In addition, during Q4, we recognized a $1.6 million loss on extinguishment related to the repayment of the 2023 SAB notes in December and January of this past year. This is reflected in its own line in the statement of operations within net investment income. Slide five highlights our key performance metrics for the year. When adjusting for the incentive fee accrual related to net capital gains, adjusted NII of $23.2 million was up 25% from $18.6 million last year. Adjusted NII per share was $2.49 per share, down $0.14 from $2.63 per share last year. The decrease is similar to the quarter with a 32% increase in weighted average shares outstanding, partially offset by AUM up 21% year-over-year, reflecting the higher adjusted NII. Adjusted NII yield was 9.9% for the year,this yield is down from 10.6% last year, primarily reflecting the impact of our growing NAV and the effect of our substantial undeployed cash at year-end.

For the full year, we experienced a net gain on investments of $42.5 million or $4.56 per weighted average share, resulting in a total increase in net assets of $55.7 million or $5.98 per share. The $42.5 million net gain was comprised of $42.9 million in net realized gain and $0.4 million of net deferred benefit on unrealized depreciation in Saratoga's blocker subsidiaries, offset by $0.8 million in net unrealized depreciation. Return on equity remains an important performance indicator for us, which includes both realized and unrealized gains. Our return on equity was 23.6% for the last 12 months, well above the BDC industry average of 8.5%, and we believe the highest ROE currently in the BDC industry. This is up from an LTM ROE of 10.6% last year.

Quickly touching on expenses for the year. Total expenses, excluding interest and debt financing expenses, base management fees, incentive management fees and income tax benefit increased to $5.7 million this year from $5.5 million in the same period last year, but remained unchanged as 1.1% of average total assets. We have also added the historical KPIs in slides 28 through 31 in the appendix at the end of the presentation that shows our income statement and balance sheet metrics for the past 10 quarters and the upward trends we have maintained. Of particular note is, slide 31 highlighting how our net interest margin run rate has more than tripled since Saratoga took over management of the BDC and also increased by 10% since last year.

Moving on to slide six. NAV was $304.3 million as of year-end, a $123.4 million or 68% increase from $180.9 million last year. Just for Q4, NAV was up $22.1 million or 8% from Q3. NAV per share was $27.13 at year-end, up 7% from $25.30 as of last quarter, and up 15% from $23.62 as of 12 months ago. So NAV has not only increased in total dollars, we have now had five sequential quarters of NAV per share increases, during which time, NAV per share has increased 17% and growth in nine of the last 10 quarters. You can see this on the previously referenced slide 28.

For the past year, $13.3 million of NII, $42.9 million of net realized gain and $0.4 million of deferred tax benefit on net unrealized depreciation in our blockers was earned, partially offset by $0.8 million of net unrealized depreciation and $20.1 million of dividends declared. In addition, $3.1 million of stock dividend distributions were made through the company's dividend reinvestment plan and 3.4 million shares were sold through the ATM equity offering for net proceeds of $84.7 million. Our net asset value has steadily increased since 2011, reflecting primarily our strong credit performance, the benefit of our history of consistent realized and unrealized gains and growing earnings and our accretive stock issuances.

On slide seven, you will see a simple reconciliation of the major changes in NII and NAV per share on a sequential quarterly basis. Starting at the top, NII per share remained unchanged at $0.61 per share as compared to last quarter. The significant increases were a $0.30 increase in other income, offset by a $0.24 decrease in the deferred tax benefit, both resulting primarily from the sale of the Easy Ice blocker and a $0.06 dilution from the full period impact of the increased shares from the ATM and DRIP programs.

Moving on to the lower half of the slide. This reconciles the $1.83 NAV per share increase for the quarter. The $0.01 generated by our NII in Q4 and the $2.39 net realized and unrealized gains were partially offset by the $0.56 dividend declared for Q3 with a Q4 record date and a $0.01 dilutive net impact of our ATM and DRIP programs in Q4.

Slide eight has the same reconciliation, but this time for the full year. Starting at the top, NII per share decreased $0.14 from $2.63 per share at fiscal 2019 from $2.49 per share as of fiscal 2020. The significant increases were a $0.19 increase in non-CLO interest income and a $0.50 increase in other income, both from higher AUM and a $0.10 increase in CLO interest income, reflecting the impact of the upsized CLO. These increases were offset by a $0.10 increase in base management fees, a $0.03 increase in operating expenses, a $0.14 decrease in deferred tax benefit after the sale of the Easy Ice blocker and a $0.66 dilution from increased shares from the ATM and DRIP programs.

Moving on to the lower half of the slide. This reconciles the $3.51 NAV per share increase for the year. The $1.42 generated by our NII in fiscal 2020 and $4.56 net realized and unrealized gains were partially offset by the $2.21 dividend declared for the year and the $0.26 mathematical timing to the share count impact of our ATM and DRIP programs for the year.

Slide nine outlines the dry powder available to us as of year-end, which totals $259.5 million. This consists of our available cash, undrawn SBA debentures and undrawn Madison facility. Our recently approved second SBIC license has added $175 million to our dry powder in the form of undrawn SBA debentures, with $100 million currently available for new and existing SBIC II portfolio companies based on the $50 million of capital already dropped down into SBIC II. The composition of this capacity also includes $39.5 million of cash, of which we used $26.4 million to originate net new or follow-on investments since quarter end. In addition, during this past Q4, we used some of our available cash to fully redeem our 6.75% SAB baby bonds. As a reminder, all our debt is long-term in nature, actually all three years plus.

Now I would like to move on to slides 10 through 12 and quickly review the composition and yield of our investment portfolio. Starting with slide 10, our $485.6 million of assets are invested in 35 portfolio companies and one CLO fund, and 71% investments are in first lien, of which 11% of that is in first lien last out positions. Our first lien composition is up significantly from 62% last quarter.

On slide 11, you can see how the yield on our core BDC assets, excluding our CLO, has dropped to just under 10% as LIBOR continued to decline this quarter and as of year-end. Our buyer friendly market continues to place downward pressure on yield. This has obviously changed since then. Our overall yield decreased to 9.3% from 9.8% last quarter, reflecting core asset yields decreasing from 10.1% to 9.8%, and our CLO yield decreased from 14.9% to 11.4%, all reflecting the reductions in LIBOR, and for the CLO, also a 2% tightened discount rate used for the CLO this quarter. When we look at the LIBOR floors in our core portfolio, LIBOR is now well below our lowest floor. All our investments have a floor of at least 1%, with half of them having floors above 1.5% in a range all the way up to 2.75%.

Turning to slide 12. During the quarter, we made investments of $44 million in two new portfolio companies and five follow-on investments and had $70.1 million of proceeds realized in two exits and refinancing plus amortization, with the proceeds also including our $30.3 million net realized gain for the quarter. Our investments remain highly diversified by type as well as in terms of geography and industry, spread over nine distinct industries with a large focus on business, healthcare and education services. We are often asked about the business services classification as this category represents investments in companies that provide specific services to other businesses across a wide variety of industries. As of quarter end, the business services classification currently includes investments in 21 different companies whose services range broadly from education to financial advisory, IT management to restaurant supply, human resources and many other services, 16 in total. This breakdown is provided in our featured presentation on our website.

Of our total investment portfolio, 6% consists of equity interest at year-end, which remain an important part of our overall investment strategy. During this past year, we had net realized gains of $42.9 million. For the past eight fiscal years and as demonstrated on slide 13, we had a combined $59.6 million of net realized gains from the sale of equity interest or sale or early redemption of other investments. As a reminder, up to this year, we had unused capital loss carryforwards that were carried over from when Saratoga took over the management of the BDC, resulting in these gains historically being fully accretive to NAV. Following the Easy Ice gains, these capital loss carryforwards are now fully utilized, and this quarter's gain resulted in a remaining $21.1 million net capital gain currently undistributed. This consistent performance highlights our portfolio credit quality, has helped grow our NAV and is reflected in our healthy long-term ROE.

That concludes my financial and portfolio review. I will now turn the call over to Michael Grisius, our President and Chief Investment Officer, for an overview of the investment market.

Michael J. Grisius -- Analyst

Thank you, Henri. I'll take a couple of minutes to describe the current market as we see it and then comment on our current portfolio performance and investment strategy in light of the unprecedented impact of COVID-19. While the last fiscal quarter of 2020 was very similar to the market environment that had persisted over the last couple of years, the impact of the pandemic has altered market dynamics considerably. New platform originations in our market have nearly come to a halt. Most M&A processes have been suspended, while buyers and sellers wait to better understand the impact of the pandemic.

As a result, the deals that are getting done in this current market are generally not with new platforms, but rather 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 considerably higher spreads and lower leverage thresholds. In addition, the underwriting bar is much higher than usual, reflecting the current economic uncertainty. Some institutions appear to be practically out of the market for new capital deployment altogether. As a result of current economic conditions, we have been actively engaged with our portfolio of companies. We have found that our portfolio companies are generally taking the right steps to help mitigate both near- and long-term effect of COVID-19 on their businesses.

Our lower middle market portfolio companies have also been actively evaluating the programs and relief under the Coronavirus Aid Relief and Economic Security Act, or CARES Act, stimulus package that may be available to assist them as they navigate the impact of COVID-19 on their businesses. Many of them have been able to avail themselves of the Paycheck Protection Program, or PPP loan relief. All of our loans in our portfolio are paying according to their payment terms, except our Roscoe investment, and there are no additional nonaccruals since year-end. We have modified or are in the process of modifying two loan agreements to account for underperformance due to COVID 19. When necessary, we have also amended our loan agreements to permit many of our borrowers to access unsecured PPP loans.

The impact of COVID-19 on our portfolio is uncertain. While virtually every business has had some level of impact in the near term, the ultimate impact of the coronavirus on any individual portfolio company remains unknown. An important reminder is that as of February 29, 2020, we valued our portfolio investments in conformity with US GAAP based on the facts and circumstances known by us at that time or reasonably expected to be known at that time. Due to the overall volatility that the COVID-19 pandemic has caused during the months that followed our year-end, any valuations conducted now or in the future in conformity with US GAAP could result in a lower fair value of our portfolio.

Now that said, there are certain attributes of our portfolio that we expect will help us as we navigate through this economic environment, and we remain confident thus far, in the overall durability of our portfolio. 71% of our portfolio is in first lien debt and generally supported by strong enterprise values in industries that we have -- that have historically performed well in stressed situations. We have no direct energy exposure. In addition, the majority of our portfolio is comprised of businesses that produce a high degree of recurring revenue and have historically demonstrated strong revenue retention. However, we do anticipate that the adverse effects of COVID-19 on market conditions and the overall economy, including, but not limited to, the related declines in market multiples, increases in underlying market credit spreads and company-specific negative impacts on operating performance will lead to unrealized and potentially realized depreciation being recognized in our portfolio in the coming quarters.

With respect to our own balance sheet, we believe that our historically conservative approach to investing, leverage utilization and maintaining significant levels of liquidity put Saratoga on solid footing even during this uncertain and challenging time. While no business can anticipate with clarity, how long this displacement in the market and global economy will last, we believe that our well-constructed capital structure will help us to navigate the challenges presented by the coronavirus. We believe sticking to our strategy has and will continue to serve us best, especially in the market we currently face. Our approach has always been to focus on the quality of our underwriting. And as you can see on slide 14, this approach has resulted in our portfolio performance being at the top of the BDC space.

A strong underwriting culture remains paramount at Saratoga. We approach each investment working directly with management and ownership to thoroughly assess the long-term strength of the company and its business model. We endeavor to appear as deeply as possible into a business in order to understand accurately its underlying strengths and characteristics. We always have sought durable businesses and invested capital with the objective of producing the best risk-adjusted accretive returns for our shareholders over the long term. Our internal credit quality rating remained at 99% as of year-end. We believe our underwriting approach has contributed to our successful returns and has also positioned us well for this current economic downturn. With net realized gains of $42.9 million this past year and $59.6 million since taking over management of the portfolio in 2010, we are also pleased with how our overall portfolio has performed. We believe these results reflect the strength of our underwriting approach, team and portfolio and the quality of opportunities that typically exist in our market.

Now looking at leverage on slide 15. Total leverage for the overall portfolio for investments underwritten using EBITDA was 4.33 times, significantly down from the previous quarter and well below the average year-to-date market leverage multiples, which are all well above 5 times across our industry. Through past volatility, we have been able to maintain a relatively modest risk profile throughout. We are seeing early signs that leverage is tightening in the current market. As we frequently highlight, rather than just considering leverage, our focus remains on investing in credits with attractive risk return profiles and exceptionally strong business models where we are confident that the enterprise value of the businesses will sustainably exceed the last dollar of our investment. We also believe these types of businesses will be more resistant to the current economic volatility. And while absolute leverage metrics are an important consideration, we also always evaluate leverage relative to the strength of an underlying business. For example, we have continued our expertise in lending to businesses across a widely diverse set of industries that deliver their services through a software platform. Good businesses utilizing a software-as-a-service platform can have terrific credit characteristics with exceptional recurring revenue, customer retention and gross margins.

As a result, the valuations for these businesses are high and the corresponding debt multiples are also higher than average. However, because the credit profile of some of these businesses are so strong, we believe we can achieve attractive risk-adjusted returns lending to good businesses of this type. And with often less dependence on in-person participation in these businesses, many of these business models will also be more resistant to the nature of the current economic downturn.

Due to the unique development since our fiscal year-end, the company has taken the unusual step of providing a post quarter end update. Subsequent to quarter end, Saratoga investment has executed approximately $38 million of new originations in two new portfolio companies and nine existing portfolio companies and has also had one repayment of approximately $8.5 million for net new investment originated of approximately $29 million as of May 6, 2020. This included numerous drawdowns of committed delayed draw facilities totaling $8.5 million that has reduced the company's outstanding exposure to committed delayed draw facilities to $9.1 million.

Now our team's skill set, experience and relationships continue to mature, and our significant focus on business development has led to new strategic relationships that have become sources for new deals. As you can see on slide 16, our number of deals sourced has dropped slightly, reflecting the difficult sourcing environment up to March 2020, combined with the immediate impact of COVID-19 during March. The 71 term sheets issued during the last 12 months is also down slightly for the same reasons, but notably, almost 20% of term sheets issued and three of our new portfolio companies over the past 12 months are from newly formed relationships. We have generally seen more deals from a greater variety of sources, reflecting solid progress as we expand our business development efforts. The breadth of our deal funnel has also evidenced how we continue to maintain our investment discipline. We say no to a lot of deals, but maintaining discipline is ingrained in our culture, and we will continue to say no if opportunities do not fit our credit profile. We know this is how we will preserve and grow the enterprise value of Saratoga for our shareholders and especially don't expect to change that in this current environment.

Our overall portfolio performance has been exceptional with Q4 and fiscal '20 again demonstrating this on slide 17. This year, we saw our Censis investment realized, resulting in a 12times return on our $1 million equity investment and an $11.2 million total gain. And our Easy Ice investment realized, resulting in a $31.2 million gain on $10.7 million of cost. The gross unleveraged IRR on realized investments made by Saratoga Investment management team is 16.9% on approximately $474 million of realizations.

On the chart to the right, you can also see that total gross unlevered IRR on our $458 million of combined weighted SBIC I, II and BDC unrealized investments is 13.5% since Saratoga took over management. There is no significant update to our Roscoe medical second lien investment that remains on nonaccrual. The $4.2 million second lien was marked up slightly to a fair value of $2.1 million this quarter with the equity investment remaining at zero. These marks continue to reflect both fundamental weakened performance as well as operational issues. We continue to work with the senior lenders and sponsor to pursue strategic alternatives in the near to medium term. Now with regards to Easy Ice and Easy Ice Masters repayments and sale, in addition to the realized gain discussed above, the transaction also generated $3 million of advisory fees and $1.4 million of prepayment premiums included in NII. This year was a great example of how a solid, high-quality portfolio interacts as a whole.

And moving on to slide 18, you can see our first SBIC license is fully funded with $231 million invested as of year-end. Our second SBIC license has already been funded with $50 million of equity, of which $48 million has been deployed with $3 million of cash and $100 million of debentures currently available against that equity. The operating results of the year, highlighted by the realizations of Censis and Easy Ice, demonstrate the strength of our team, platform and portfolio and our overall underwriting and due diligence procedures. Credit quality remains our primary focus. And while the world has changed since our last fiscal year-end, we remain intensely focused on preserving asset value, and we remain confident in our team and the future of Saratoga.

This concludes my review of the market and our portfolio. And I'd like to turn the call back over to our CEO. Chris?

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Thank you, Mike. As highlighted before and illustrated on slide 19, we paid a quarterly cash dividend for the past five years, a dividend that has increased each year, and with the exception of last quarter, has increased every single quarter. We lead the industry in dividend growth over the long term. However, in light of the massive uncertainties that currently exist in the economy and to ensure we retain sufficient liquidity to not only support our current portfolio companies during these challenged times, but also to create new important relationships for the near and long term through the provision of critically needed liquidity to small businesses. We believe it is in the best near and long term interest of our shareholders, our portfolio of companies and our constituent community to maintain a conservative approach to our dividend policy at this time of extreme uncertainty.

Furthermore, while many BDCs have spillover obligations representing taxable income yet to be distributed from prior years, we have historically managed our distributions, so we are current with all ordinary taxable income obligations, creating a kind of rainy day company liquidity. As a result of this historically conservative management practice, Saratoga investment is not required to pay current dividends related to historical earnings and has the flexibility to preserve precious liquidity in this challenging market environment. For these reasons, and as can be seen on slide 20, the Board of Directors has decided to defer our dividend for the quarter ended February 29, 2020. We will continue to reassess this decision on at least a quarterly basis as we gain more visibility on the economy and portfolio company performance.

Moving to slide 21. Our total return for the last 12 months, which includes both capital appreciation and dividends, has generated total returns of negative 36%, in line with the BDC index of minus 36%. This change primarily reflects the market volatility of the past six weeks. Our longer-term performance is outlined on slide 22, our next slide. Our five year return places us in the top three of all BDCs, with both the five and three year returns easily beating the BDC industry averages.

On slide 23, you can further see our outperformance placed in the context of the broader industry and specific to certain key performance metrics. We continue to achieve high marks and outperform the industry across diverse categories, including interest yield on the portfolio, latest 12 months NII yield, latest 12 months return on equity, year-over-year dividend growth and latest 12 months net asset value per share growth. Operating expense ratio was high this year as it includes a 20% incentive fee related to the $42.9 million net realized gain for the year, with the actual gain being recognized outside of operating expenses. Notably, our latest 12 months return on equity and net asset value per share outperformance reflects the growing value our shareholders have been consistently receiving with our average return on equity for the last five years being 13.2%.

Moving on to slide 24. All of our initiatives, decisions and achievements discussed today on this call are designed to make Saratoga Investment a highly competitive BDC that is attractive to the capital markets community. We believe that our differentiated characteristics outlined in this slide will help drive the size and quality of our investor base, including adding more institutions. Our differentiating characteristics include maintaining one of the highest levels of management ownership in the industry at 11%, which has decreased percentage-wise as a result of recently -- of recent equity issuances and not by shares sold by management. Access to low-cost and long-term liquidity with which to support our portfolio and make accretive investments; receipt of our second SBIC license providing sub-2.5% cost liquidity; a BBB investment-grade rating; solid historic earnings per share and NII yield; strong historic return on equity accompanied by growing NAV and NAV per share; high-quality expansion of AUM; and an attractive risk profile. In addition, our historically high credit quality portfolio contains minimal exposure to conventionally cyclical industries, including the oil and gas industry.

We remain confident that our experienced management team, historically strong underwriting standards and tested investment strategy will serve us well in battling through the substantial challenges in this current environment. And that our balance sheet, capital structure and liquidity will benefit Saratoga's shareholders in the near and long term.

In closing, I would again like to thank all our shareholders for their ongoing support. I would like to now open the call for questions.

Questions and Answers:

Operator

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

Timothy Hayes -- B. Riley FBR, Inc. -- Analyst

Hey, good morning, guys. Congrats on a really strong year, and I hope you're all doing well. My first question here, just a couple on kind of credit and company portfolio trends. How many of your portfolio companies have requested forbearance at this point? And I know that you made some comments about, I guess, payments so far. But have any missed payments in April or May at this point?

Michael J. Grisius -- Analyst

At this juncture, nobody has missed a payment. I think as we -- as I described in the prepared remarks, there are two portfolio companies for which we're actively -- we've amended their loan agreements to accommodate the effects of COVID-19. One of those amendments has been completed, and the other one is under way.

Timothy Hayes -- B. Riley FBR, Inc. -- Analyst

And what measures are you taking to modify loans? And on -- just from a high level, these two loans that you mentioned and then going forward, as forbearance request increase, are you -- is it more about kind of deferring principal or interest payments? Or are you reducing covenants? Just again, what measures are you taking to provide some relief?

Michael J. Grisius -- Analyst

Yes. No, those are good questions. And the answer is that it's too early to tell. I think, as I described, there are a couple of portfolio companies that were -- been more active in managing their loan agreements to accommodate the effects of COVID-19. Virtually, every business is being impacted to some degree, some more than others. But it's just so early to really tell what the impacts will be that it's difficult to answer that question. I will say this, we have -- most of the accommodations that we've made or the covenant modifications that we've made for our portfolio of companies have really been to allow for companies to access the PPP program, which is unsecured debt generally beneath us in the balance sheet and hopefully forgiven down the road, but those are modifications that we certainly have made. But for the -- by and large, throughout our portfolio, we have not, to date, except for the two that I mentioned, had to make any modifications to accommodate the ill effects of COVID-19. But I would point out that it's just really early. I think none of us really know what those effects are going to be. We're monitoring our portfolio very actively. That's what we're spending 90% of our time doing as a team. And so we feel very comfortable that we're on top of understanding their performance, but some of this is taking place in real time. So it's difficult to say how many more companies may need modifications. But so far, it's been just a few.

Timothy Hayes -- B. Riley FBR, Inc. -- Analyst

That's helpful. And then on the PPP program, I know you mentioned several portfolio companies are trying to tap that. Can you just size how -- approximately how many of your borrowers have applied for PPP funding? And how many have either been approved or received funds?

Michael J. Grisius -- Analyst

I can tell you that the majority of them have. If you think about the size standards that relate to the PPP program, that's our core market. So to the extent that any of them can qualify and feel like they can attest to potentially being impacted by COVID-19, then in most cases, they're applying. There are some restrictions on private equity funds accessing the PPP program. So that sometimes comes into play as well. But the majority of the portfolio has accessed the PPP program and has received PPP funding.

Timothy Hayes -- B. Riley FBR, Inc. -- Analyst

Okay. Good to hear. And then one more for me, and I'll hop back in the queue. If we can maybe just -- I know it's a Board decision, but touch on the [Technical Issues] liquidity right now. But I just want to maybe get a little bit more color on the decision here. If this reflects your view of the decision to defer the dividend reflects your view of earnings power or credit deterioration that you are starting to see occur or expect to occur kind of in the near to intermediate term? Or is this truly you guys just saying we have no idea what could happen. We need to be in the most defensive position as possible, and this is the first step in getting there.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Well, Tim, this is Chris. Thank you for that question. I think you answered it very well in the second thing you said. And also, I think if you listened to what Mike was saying about our portfolio, it's just too early to tell exactly what's going to happen. There's been a tremendous stimulus that's put into the system. The Fed's balance sheet, I don't know the exact number, but multi, multi, multitrillions of dollars have gone into the system to the Fed. You have the CAREs program, you have the PPP.

But I think it's important for all of us to remember that all this liquidity and stimulus is really important and welcome, but it's a bridge, not a solution. And until the economy comes back in some shape or form, we just don't know how it's going to affect all these businesses. Now obviously, if you're in retail or if you're in taxi business or restaurants or sporting events and things like that, clearly, it's a complete disaster right now. A lot of the other businesses that we're in, some of it recurring revenue, software-type businesses, there's essentially been like no impact, but that's not indicative of what's to come. So a lot of what's going to happen is going to be driven, and again, we're learning more every single day. We have more information, more visibility, and some of our companies had one real super negative scenario, but now with PPP, it's not so negative. But is PPP going to be continued around next quarter? Those are big questions.

There's so much that we just don't know. And now with states coming back and different businesses coming back slowly, we don't know what magnitude they're going to come back to. And then there's spillover. So even though we may not be directly in some of these real estate situations or retail or restaurants and things like that, the impacts of those may spill back over into other areas. Like dental practices may get affected for, I think, because people can't go to the dentist. And so there's a lot of knock-on effects and third, fourth, fifth, sixth derivative effects that are starting to work their way through the system, but they're just not evident as exactly how they're going to impact the companies. So in the absence of knowledge, right, we just don't know. And what we do know is we've got a portfolio of companies we really, really want to support. And we don't know what the magnitude of support they're all going to need. And so -- and the one thing we can know, though, is what is our capital position, what is our liquidity. And so what we're trying to do is just maximize the liquidity.

To quote Charlie Munger of Berkshire Hathaway. I mean he said, "When you're headed into the biggest typhoon anyone's ever seen, you want to make sure that you're in a position to emerge on the other side with a lot of liquidity." And so we've taken that to heart. We've talked a lot about our metrics and our best year ever coming off of that. But right after that, we're right into this. And in the absence of knowledge, we think conservatism makes a lot of sense.

And I would also just point out that this whole thing about spillover, I don't know how many people are really super focused on that or have been focused on that. But a lot of people are paying their dividends because they have to. In other words, they -- to maintain RIC status, a lot of BDCs are into -- deeply into spillover and they must pay their dividends by year-end to maintain RIC status. So the decision to pay a dividend is not necessarily a voluntary obligation in many instances. In our instances, because we have managed ourselves so that our taxes are on ordinary income, are current, we do have the flexibility to go into spillover and to preserve that precious liquidity. And so that's what we've elected to do at this point in time. Again, it's a dynamic decision. We're evaluating it continuously, certainly each quarter. And we will look to see what's available. We don't know if the capital markets for BDCs are going to be completely shut, partially shut, private, public all that. There's a lot of things that are so unknown.

And again, we've been in this business, as all of you have followed us, for the 10 years, it's our tenth year. So we got into the business just after the last downturn, and we're going into the next one. And so we've constantly -- we've continuously structured ourselves in a highly conservative mode. And going into this this, we have no secured drawn indebtedness. We have our Madison facility, but it's undrawn. All of our debt obligations are unsecured, covenant free, fixed rate, long-term with almost no current maturities to consider. So our balance sheet is structured very well. And the other piece to it is to make sure we have the liquidity. And also when you look at our liquidity, we have a big number there, but a lot of that big number is our SBIC II, which is a tremendous facility, but that is really only available for new investments. And that was a real follow-on investments in SBIC I or at the BDC Holding company, the SBIC II funding is not available for that. So we need to make sure that we're sufficiently liquid elsewhere that we can support our portfolio, number one; and be in a position to support businesses in needs that are to satisfy the kind of credit quality criteria that Mike elaborated on in his part that we got to make sure we can support those. So that's really the backdrop.

Timothy Hayes -- B. Riley FBR, Inc. -- Analyst

That's a lot of good color, Chris. Yes, go ahead, Mike.

Michael J. Grisius -- Analyst

Yes. Let me jump in here, and we'll spend a lot of time on this question, but it's an important one and a natural one for anyone to ask in this environment. I think one thing I would add to what Chris said is that if you step back, and we, as management, as we look at the situation, we continue to feel really good about the quality of our underwriting. Our track record, historically, supports how careful and measured we are as we invest in, make investments and grow our portfolio. Nothing related to COVID-19 has changed that confidence in our underwriting and what we believe is one of the premier underwriting teams in the business. But also our senior management team has been around for a long time. We've been through a lot of cycles, and we've seen a lot of things. And I can tell you, for sure, if you feel really good about your underwriting and you really feel good about the quality of the businesses in your portfolio in a normalized world, and we're not in a normalized world, then you ask yourself, well, then what is the primary risk? Well, the risk is the unknown. The risk is how does COVID-19 play out over the next several months?

Is this -- I don't think anyone feels like it's going to be a V recovery at this point. There was in one point a talk of that. All of that stuff is developing in real time. And so when we look at that and we assess the risk, it's really liquidity. Can these strong portfolio companies get to the other end of this experience and do so with enough liquidity to manage their business and get back to a level of normalcy that we expect to enjoy at some point. But we want to make sure to take every precaution to ensure that we, in turn, have liquidity to support them in case they need it, recognizing that the future of this COVID-19 scenario is just uncertain.

Timothy Hayes -- B. Riley FBR, Inc. -- Analyst

Yeah. That make sense, Mike. Guys, i appreciate the comments there and I hop back in the queue and thus, stay well.

Michael J. Grisius -- Analyst

Thank you very much.

Operator

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

Casey Alexander -- Compass Point Research -- Analyst

Good morning and congratulations on the Easy Ice outcome. It's a fabulous investment and fortunate on the timing of the sale. Couple of questions first for Mike. Mike, two questions. One, we've heard anecdotally, and I'd like to get your view on it, that unlike what most people projected, that lower middle market private equity sponsors are actually more cooperative in investing additional cash into their companies to help them get to the other side of the canyon than upper middle market companies have been. I'd be curious to hear what your experience has been and your dialogue with those lower middle market private equity sponsors that represent companies in your portfolio?

Michael J. Grisius -- Analyst

Our dialogue -- Good morning, Casey. Sorry. Just to jump right into the question. Our dialogue with our sponsors has been very healthy and constructive and very good. And by and large, we've seen lots of evidence of their willingness to support their portfolio investments as necessary. Can't really speak to how that compares to the larger end of the market, but we've seen our sponsors indicate that they're willing to be very supportive of their businesses, by and large.

Casey Alexander -- Compass Point Research -- Analyst

Okay. Secondly, you mentioned the PPP, but there's also the Main Street Lending Program, which for most middle-market portfolio companies with a 6 times leverage attachment point after the loan is not really much available to most middle-market companies. But given the attachment point, the average attachment point of your portfolio, it's likely broadly applicable to many of your portfolio companies and it doesn't carry the affiliation issues. Have any of your companies considered going after some of the Main Street Lending Programs?

Michael J. Grisius -- Analyst

We haven't seen that to date. That doesn't mean that, that couldn't change, but we haven't seen that to date. My understanding of that program, though, is it's less attractive in some other ways in that the loans are not expected to be forgiven down the road. So I think people are probably looking at that program slightly differently as a result. But the core group of our portfolio falls within the PPP loan size and less so the latter.

Casey Alexander -- Compass Point Research -- Analyst

Now, well, it's still cheaper than it's likely that they could get additional capital from you?

Michael J. Grisius -- Analyst

We have not seen much activity in that respect, and that could change. But we don't anticipate that to be a big factor in our portfolio.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Casey, if I can just jump in for a second as well. I also think that, that program is just in its infancy. I mean, it's, I guess, just come through its comment period, and there's a retention of 15%, I believe, now. And so there's still some moving parts inside of that. And we had one conversation with a major bank, and they were not up to speed on it. And I think probably several weeks from now, I think there'll be a lot more information on it. It's just -- it's really just in the very earliest stages. So again, more to come on that than today.

Casey Alexander -- Compass Point Research -- Analyst

Okay. Is it -- given your comments regarding liquidity, is it fair to say that you have not also availed yourself of the share repurchase program subsequent to the end of the quarter?

Christian L. Oberbeck -- Chairman and Chief Executive Officer

That's correct.

Casey Alexander -- Compass Point Research -- Analyst

Okay. Let me ask you a question. Because I go back to the days before you actually paid a quarterly dividend, and the company was very familiar with the 80-20 scheme that is available to BDCs of paying dividends. Why did you choose not to go with the 80-20 scheme and, thereby, not interrupt the dividend contract, so to speak, that you have with your investors?

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Okay. Well, Casey, I appreciate that question, and we did give a lot of consideration to that. I do recall, and I appreciate your having been with us back in those days and early followers and supporters of us. One of the elements of that is you get massive dilution effects in the stock. And not all shareholders necessarily participate pro rata in that. And so -- and then in terms of the dilutive effects, they go on for years, and they change all sorts of continuation metrics and things like that. So that is definitely something to consider. But we think that's more of a later resort rather than sort of an early one. With regard to the dividends, the cost of us deferring these dividends is essentially relative to the company.

Now I'm not talking about how the shareholders are viewing receipt or nonreceipt of the dividends. But for the company, the cost of deferring this right now is zero, where there's no cost to that. To the extent we build spillover, ultimately, that gets register after December 31 of this year, and then one would be paying 4% on that -- on whatever the spillover is. So ultimately, the cost of deferral in the future could be 4%. And again, in these days, that's not a very large number, relative to what the market costs are for baby bonds, for example, market-indicated prices for baby bonds. So it's essentially a zero cost alternative in the moment that we're in.

And I think that in terms of the dividends, I think we've been a real dividend player once we start doing the dividends. We just believe this COVID-19 pandemic is -- hopefully, we're overly conservative. But this is a completely unique scenario. And people are going back to -- some people going back to the '30s, some people going back to civil war. I mean there are -- people are struggling to come up with analogies for how severe this event is. And I just go back to the Berkshire Hathaway Annual Meeting this year. And one of -- a number of things Warren Buffett said, and if you notice, like basically, Berkshire Hathaway did not purchase -- they did not purchase anything. They did not buy the dip in March, and they have really not done anything, so far, in this downturn. In fact, they sold all their airline stocks. And these are some quotes from Warren Buffet. He said, "Look, our position will be to stay at Fort Knox." And then another quote, he said, "Just the $137 billion on hand isn't all that huge when you think about worst-case possibilities" And he also said, "We don't prepare ourselves for a single problem. We prepare ourselves for problems that sometimes create their own momentum." So I think these are very profound statements. And we are just very concerned about what it is that we don't know.

And if Berkshire Hathaway with $137 million -- $137 billion on hand is still worried, that informs how we think as well. And he piled into -- in 2008, bailed out Goldman, GE. I mean he was buying stocks, he sold a put on the market, but he's not doing anything right now. So we're kind of informed by that. And so what we're trying to do is, this is a singular event and we are trying to be as cautious as we can. And we said we're deferring our dividend. We're not cutting our dividend. We're not canceling our dividend. We're deferring. And we're just moving this obligation, creating liquidity for the company. We're moving it forward. And we have the flexibility to move it forward. We've earned that flexibility from our position. And from a shareholder standpoint, and we, as a management team, are the largest shareholder, the largest single share -- our management team is the largest single shareholder, this dividend is still in the company. This supports NAV.

It's not like it got spent in a different direction. This is still inside the company supporting the liquidity position, supporting the NAV, supporting the total return on Saratoga stock. And if you look at our total returns, and I know you have, and you're probably the best student or one of the best students out there of our total returns, we've been a total return firm for our entire existence. We certainly understand and appreciate the power of dividends and the need for dividends and the requirement for dividends and that a lot of retail investors really buy these stocks for the dividend, but they also buy it for the total return. And last year, we produced 15% NAV appreciation. So we're looking at the total return. And deferring the dividend, in this moment in time, costs the company zero and buys a lot of flexibility. And that's what we're thinking. This is a zero cost to the company obligation in terms of dollars and cents, and produces a sizable liquidity improvement.

Casey Alexander -- Compass Point Research -- Analyst

Well, I can appreciate that unusual times always tend to expand my vocabulary because the term deferred dividend, I'm not sure, has ever been presented to me before. Does deferred dividends mean that at the end of this fiscal year, you may look to see how things have gone true-up and revisit distributing the income that was created during this quarter? Or is it really an omission?

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Well, I guess I would say that's a possibility, but we wouldn't want to commit to anything. But I guess what I would just say, Casey, is that I feel like, to a certain degree, our -- you just take spillover, OK? So it's like reverse spillover. In other words, a lot of companies have spillover because they've actually not paid out dividends in the past that they could have, right? They've not stayed current with their tax obligations. They've been borrowing from the future. We haven't been doing that. So our dividend is actually -- and then RIC rules allow you to have an entire year of arrearages in effect of your tax position and your distribution position. So we are, in effect, creating spillover and viewing spillover kind of as an asset as opposed to as a liability.

So now with regard to catching up on all the dividends, as you know, the RIC rules, I mean the rule is for the RIC. You've got to pay out everything, and you got to pay out all the taxable income that you owe, it's just we don't know it right now. And so back to your question about catching up on the dividend, that is the possibility. But that is a possibility among many possibilities, depending on where we are -- at as we move into the fall. And I think that should we get a reasonable recovery and should we -- the capital markets open up for BDCs and the like, that would be a very different scenario than we're in right now. And so all things are on the table. And as I said, we, the management team, are the largest shareholders here, and we take that very, very seriously. We're partners with our investors. And not pursuing the dividend, that affects all of us personally as well. So we're trying to do what's best. Our responsibility is to the company, to maintain the company so that it comes out the other end of this strong and solid, and we also have responsibility to all the portfolio companies.

And the last thing we want to do is be in a position where we can't help fund and bridge, as Mike was describing earlier. Some of these companies may need a bridge in time. They're going to be fine in a year. But between now and then, they may need some assistance. We want to make sure that we're in a position to support our portfolio companies because at the end of the day, over the long run, that's what our franchise is. And in times like this, if you can be supportive, you're going to create not, only value for shareholders, but also franchise value through relationships with the sponsors and the grid sponsors that we're involved with.

Casey Alexander -- Compass Point Research -- Analyst

Let me ask you one more question. Did you consider a more thoughtful approach to this rather than catching? Because believe me, whether or not you know it, you have caught your investors by surprise. Did you think of a more thoughtful approach such as paying the dividend this quarter with the statement that this potential deferral was on the table depending upon how items played out. Because you've produced a record year, record NAV, super strong liquidity, super low leverage at the same point in time, you truly caught your shareholders by surprise by this.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Well, Casey, when you say more thoughtful, we did give a tremendous amount of thought. I think we are in kind of an incredibly unique circumstance and that our year-end, that wonderful year ended on February 29. And essentially, the next month in March was the beginning, and people that are reporting today, they're really reporting two months of regular way and one month of COVID. So a lot of these results do not reflect what's really going on. And so the next quarter is what's going to -- when people report on June, everybody is going to have a much different picture. I'm not going to say that's the picture because things will be going down and then they may be going up by that time, so we are in truly, truly extraordinary times, and I don't want to sound pedantic by saying that, everybody knows that. But that's what informed our position, Casey. We would love the luxury of going back into last year, but that's essentially -- it's almost like ancient history, in terms of what's actually going on right now. And we want to make sure that we don't -- we have to make our decisions inside the current moment. And this current moment, as I said, I don't want to lean on Warren Buffet, but he's got more credibility perhaps than many, many people in the marketplace. And they're just maintaining as much cash liquidity as they possibly can until they see some more information on the direction.

And so I mean, I think in one of your reports and you write very well, I mean, you said we're in a vacuum of information, and that's very well said. We are. We're in a vacuum of information. And in a vacuum of information, anything you do, you're better off not taking a step, you're better off holding back. And I certainly hope that we're proved wrong, that we shouldn't have done this, that would be wonderful. Unfortunately, we're probably in a position where you're going to see a lot more people doing what we're doing, but just they're going to do it later after they've gone through some very precious liquidity that they're going to regret having gone through.

Casey Alexander -- Compass Point Research -- Analyst

Is it safe to -- I'm just -- one last question. Is it safe to assume that any new investments will likely be restricted to the second SBIC subsidiary, considering that, that's where the majority -- and I mean new companies. I understand outside, but new companies would be restricted simply because that's what the liquidity is?

Michael J. Grisius -- Analyst

This is Mike.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Yes, go ahead.

Michael J. Grisius -- Analyst

I mean, it's just -- I think as Chris was starting to say, it's not necessarily the case. That isn't a playbook that we'll stick to 100%, but more than likely. Clearly, our desire to defer the -- the decision to defer the dividend this time is to preserve liquidity to support our portfolio if it's necessary. As it relates to new investments, I would say that the bar is a lot higher. You know that our bar is already very high to begin with. It's a lot higher in this environment, just purely because there's so much uncertainty as to which companies are going to continue to perform really well, which industries are going to be affected, how they're going to be affected and what really you can underwrite. But to answer your question more directly, more than likely, new investments in keeping with our desire to preserve liquidity would be considered out of that SBIC II.

Casey Alexander -- Compass Point Research -- Analyst

All right. Great. Thank you for taking my questions.

Michael J. Grisius -- Analyst

Okay. Thank you very much, Casey.

Operator

Thank you. Our next question comes from Mickey Schleien of Ladenberg. Your line is open.

Mickey Schleien -- Ladenberg -- Analyst

So, good morning, evening. Listen, I don't want to beat a dead horse, but I completely agree with Casey that you've caught everyone by surprise, and you can see that in the stock price. So I just want to follow up in terms of capital gain distributions. So as you noted, you have no undistributed ordinary income on a tax basis, if I'm not mistaken. But I want to confirm that you also have no remaining capital loss carryforwards. Is that correct?

Christian L. Oberbeck -- Chairman and Chief Executive Officer

We have gone through our capital loss carryforwards. And we do have a capital gain obligation under RIC rules. And we also have an alternative to retain that and do it through a deemed dividend. We have until the end of the year until December 15 to make that decision.

Mickey Schleien -- Ladenberg -- Analyst

And you're referring to Easy Ice and Censis, which I think Henri reiterated some numbers. I thought those gains were $31 million and $11 million, which amounts to about 37 -- $3.75 per share, but I might be wrong. Henri, what did you say in the prepared remarks?

Henri J. Steenkamp -- Chief Compliance Officer, Secretary, Treasurer and Chief Financial Office

Yes. So the actual gain was $31 million for Easy Ice. We also had some tax planning strategies and some other actions that we took that helped preserve some of that gain into NAV. And so as I shared in my prepared remarks, Mickey, the actual, I guess, carryforward in our long-term capital gain that we have is $21 million. And that's the amount that is classified as long-term capital gain. And as you know, that provides one with various options, as Chris mentioned, around how to distribute that. It also only needs to be distributed further out into the future.

Mickey Schleien -- Ladenberg -- Analyst

I completely understand, but that's still roughly $2 a share. So my question is, why not use that to sort of supplement the dividend, along the lines of what Casey was asking now, given that you'll either have to distribute that in cash or in a deemed distribution at some point.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

That's correct. And again, I think -- not to be -- not just trying to be slip-in or cavalier in any way, but I know, Casey and you both said it, we caught our investors by surprise. And I guess what I would say is that the COVID pandemic caught us by surprise and caught everybody else by surprise. I mean that surprise really ripened in March into a very substantial degree, and we're still living with it now and no one knows what the answer is to that. And so that's -- so our reaction -- our actions are a reaction to that event, which occurred post. And so anyway, going back to your question about this, we don't need to make that decision or make any payments relative to that. We're not required to do that until the decision by December 15. And actually, the payment, not by February 28, 2021. So there's some time there. So what -- all of our actions are consistent in that they're all consistently geared toward maintaining liquidity. And look we're not analysts, we're managers. But I must say if -- in looking at the BDC, and we read a lot of reports about a lot of BDCs and all that, our number one criteria for BDCs would not be their dividend. It would be their -- the quality of the NAV and their liquidity position. That's how we think a BDC should be judged at this particular moment in time.

Once we get back to some kind of what people might call normalized or at least predictable economic environment, that would -- things would be different. But right now, we're sort of in the second, third derivative of change right now. And there's really no stability. There's no fundamental anything. That's why there's no new deals out there. I mean, how do you do projections? You look at three years of history, it's not really relevant. And you look at projections, and no one can make projections. So we're kinding in this really sort of fraught moment with no -- with really not much to go on, which is tricky. And in those environments, what you want to make sure is you're prepared to go whatever direction you have to go. And the preparation is liquidity.

Mickey Schleien -- Ladenberg -- Analyst

I appreciate that, Chris. And in terms of NAV, I do have a question about the valuation of your CLO equity investment because I do follow that market pretty closely, and it's been extremely weak now for many, many, many quarters as investors. And this is pre-COVID. This was as a result of ratings agencies proactively downgrading across the board. And investors have made more pessimistic assumptions to project cash flows and generally have applied higher discount rates to determine what they feel CLO equity is worth. So can you help me understand why you actually lowered the discount rate to value your CLO equity investment? From what I can see, it went down from 15.9% to 14.2%, which is the opposite of what I would have expected.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Before you -- I'll have Henri answer that particular question. But I'd just like to say one overview on the CLO side of life. And clearly, as -- because you follow it, the CLO is a very highly complex instrument. And you have the credit quality of the underlying assets, broadly syndicated loans, which, obviously, there's a question mark with COVID around that. But historically, through all kinds of downturns, the fundamental credit quality of that asset class has proven to be quite resilient. Obviously, with notable exceptions in sort of retail and oil and gas and things like that. But in general, that's been a very strong asset class. But then as you rightly point out, inside the CLOs, you have different factors like ratings. And so the cash flows and the timing of the cash flows can be somewhat disrupted based on ratings and perceptions in time, although the whole instrument can self-correct. And ultimately, as it did in the last downturn, turn out to be quite robust on the other side. But in between, it can be quite messy. Henri, do you want to talk to the...

Henri J. Steenkamp -- Chief Compliance Officer, Secretary, Treasurer and Chief Financial Office

Sure. Sure, Mickey. I think there's two different terms, which -- there's, firstly, the discount rate, which you mentioned, but then there's also the weighted average effective interest rate, which is then used to calculate the interest income allocation of the equity distribution into our P&L. And it's actually this weighted average effective interest rate that went down from 14% to 11%. And a big driver of that was because we actually tightened the discount rate this quarter from 14% to 16%, it actually went up. And so the discount rate going up and a couple of other factors resulted in the weighted average effective interest rate, which is discounted by the discount rate going down to 11%. So discount rate actually went up 2%.

Mickey Schleien -- Ladenberg -- Analyst

Okay. So maybe I read the numbers in reverse. That's always a possibility, given how much is going on. And lastly, you may have mentioned it, but can you describe the new investment you made subsequent to the quarter and when that was made?

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Mike?

Michael J. Grisius -- Analyst

Yes, it was made at -- gosh, I don't know the exact date, but somewhere near the end of March.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

That's around middle of March actually. Yes.

Michael J. Grisius -- Analyst

Middle of March. Okay. And it's an investment in a software company that helps businesses monitor the efficiency of their IT networks. It's a business that is supported by an enormous amount of equity capital from one of the most well-heeled and well-funded and successful software private equity firms.

Mickey Schleien -- Ladenberg -- Analyst

So Mike, that sounds like something that, fortunately, doesn't sound like it has extreme COVID risk attached to it.

Michael J. Grisius -- Analyst

We are fortunate that a large portion of our portfolio is invested in businesses that are delivering their product through a SaaS platform, because largely, these businesses are not being affected as much as many other businesses that are human-facing. And most of those business models, and certainly the ones that we invest in, have really high revenue retention. And in many cases, the revenue retention is actually north of 100%. And so this newer investment has many of those characteristics. Now it is our experience in this environment, to the extent that those businesses are perhaps exposed to being affected by COVID-19, it's more likely to affect their growth rate, where it's a little harder to engage a new business to talk about buying a software product or even having a meeting, to that end. But yes, we're pleased that a really high chunk of our portfolio is invested in businesses that have a high degree of recurring revenue and high retention of that revenue.

Mickey Schleien -- Ladenberg -- Analyst

I understand, Mike. And I guess, I'll just finish with a comment. The confusion is, given what you just said, it would seem that there would be some level of dividend that you can support, notwithstanding what's happening with COVID. And that's what's confusing the market, and that's likely why the stock is behaving the way it is...

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Well, Mickey, if I can make just one observation. So that investment that Mike's talking about, not 100% of it because it has to do with some -- but almost like, I don't know, like, what, 85%, 90% of that investment went into SBIC II and was completely funded by debentures. There was no incremental -- there's like $1 million or $2 million perhaps that was required from the holding company for that. So that was not a consumer of liquidity. What -- our most important place to have liquidity is at the BDC level because that's what supports all the operations. And so anyway -- so that new investment went directly to the SBIC II.

Mickey Schleien -- Ladenberg -- Analyst

And Chris, SBIC II, if I -- I mean, there's a lot of companies reporting, but if I recall correctly, that's been capitalized so far with $50 million -- %50 million of equity. I know that initially, the SBA will actually lever that 1:1 and then sort of as things seasoned, it goes up to 2:1.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

So we can do 2:1. So we can do 2:1 there. And -- but we're basically limited -- Henri, correct me on the exact number. But it's really -- it's only third of your equity. It's only 2:1 on the equity you have invested. So we're limited to just a little over $15 million for investments in SBIC II, which is why there was a little bit that went over. But we do -- but we still have a incremental at a $75 million, $80 million to go, Henri?

Henri J. Steenkamp -- Chief Compliance Officer, Secretary, Treasurer and Chief Financial Office

Yes. That's right. So...

Christian L. Oberbeck -- Chairman and Chief Executive Officer

That require no capital. As long as the businesses meet the criteria for being an SBIC investment and our whole position would be sub, what is it, $15 million or $16 million, Henri?

Henri J. Steenkamp -- Chief Compliance Officer, Secretary, Treasurer and Chief Financial Office

$15 million, yes, at the moment.

Mickey Schleien -- Ladenberg -- Analyst

Okay. I understand. And I appreciate you time today. That's it from me. Thank you.

Michael J. Grisius -- Analyst

Thank you, Mickey.

Operator

Thank you. Our next question comes from Ben Rubenstein of Robotti. Your line is open.

Ben Rubenstein -- Robotti -- Analyst

Thanks. And songrats on Easy Ice. Impeccable timing. My question is regarding -- just looking forward in SBIC II, like in the pipeline, what type of yields are you seeing, just given -- I imagine there's a lot more small companies looking for capital and your competitors don't have the same liquidity position that you guys have. So just what type of yields are you seeing in the pipeline?

Michael J. Grisius -- Analyst

The answer -- this is Mike. The answer is that we feel like yields are increasing by at least 150 basis points and perhaps a good deal more. The effects of COVID-19 are evolving rapidly. And so we have certainly seen some indications that some of our typical competitors are really not realistically open for business. As a result, I think the supply demand equation has changed considerably. And our opportunity to deploy capital in new investments at much higher yield certainly exist. Where that is, it's a little too early to tell. I do want to emphasize, though, that we're being extremely cautious in that respect. We definitely are seeing opportunities already to deploy capital. And we're taking a hard look at those. But the bar, as I mentioned before, is really high.

We want to make sure that we've got enough visibility on what the impact of COVID-19 will be on a business before we make any new investment and really feel comfortable with that. And just things are changing so much and there's so much uncertainty out there that we're going to be extremely cautious. But we are excited by the notion that there will be an opportunity for us to deploy capital in a way that we think should be highly accretive for our investors.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

And if I could just add to that. We also -- our criteria is super, super solid credit characteristics. And so there is the possibility out there of investments that have additional credit support, not just from the company themselves. So there are ways to fortify the credit, which may result in not as robust a yield as one might expect, but a very, very solid credit profile. So we're looking at a number of those as well.

Ben Rubenstein -- Robotti -- Analyst

And then I guess, looking forward, hopefully, in the next few months, there's more clarity. I mean, if there's an opportunity to be aggressive, more aggressive, I guess, how do you -- what do you envision that looking like? Is it maybe taking more equity in future investments? Or would you look at different sectors? Or I mean, how do you -- if we kind of have a blue sky scenario and things look a lot better in five months, six months, how do you sort of take advantage of the liquidity position that you've built?

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Well, I think Mike -- as Mike said just earlier, we have -- our SBIC II, we've got a fair amount of liquidity. And the supply demand equation is probably going to be -- there's not enough deals right now to really understand what that really is. But the level of competition probably will have gone down quite a bit. And so again, I think we would anticipate coming out. And if you look at post-2008, right, 2009, '10, '11 were incredible years to put money out, rates were very strong, equity participation, some instances warrants and things like that. So I think the pricing environment will be -- can expand and be quite robust, given supply and demand. And as we come out of this thing, there's a substantial need for capital for a lot of companies that have great opportunities. So we want to be there for that.

Again, though, I think we don't want to be overly aggressive. I think with our structure, our cost of capital and the like, we don't have to really super stretch to be able to get solid returns. And so coming out, I think the solidity of the credit characteristics are going to be very, very important. Not to say we're not interested in equity because we absolutely are, but equity has generally been sort of a small fraction of the capital that we're putting out. So we're going to make sure that the larger fraction of that capital is very secure.

Michael J. Grisius -- Analyst

Just to add to that a little bit, and I think this is part of what Chris is saying as well is, first and foremost, we want to make sure that we don't lose money for our investors. And that's how we think about every investment. We know, having done this for such a long time, the way to make money in our business and for our shareholders is by constructing a portfolio where the chance of losing money in any of these investments is really low. And so we start with that premise, which is why the bar is, in this uncertain environment, so high. And then the next step is less related to kind of making broad macro bets about industries or let's go along with much higher equity positions or playing the market in that respect. We tend to look at all of our investments on a very company-specific and deal-specific basis.

And if it's an opportunity for us to invest debt and equity, and it's a really exciting one, and we feel very comfortable that the likelihood that we can lose money is low and the chance for us to make a really good risk-adjusted return is high, we're going to be all over those opportunities. And we are very much excited about the chance -- I mean, we'll see because there's a lot of uncertainty out there. The chance that we could be in the marketplace deploying capital in a very accretive way. But it's too early at this point to really tell how big that opportunity will be.

Ben Rubenstein -- Robotti -- Analyst

Great. Well, thanks and I appreciate you guys taking the questions.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Thanks, Ben.

Ben Rubenstein -- Robotti -- Analyst

Thank you.

Operator

Thank you. Next question comes from Bryce Rowe of National Securities. Your line is open.

Bryce Rowe -- National Securities -- Analyst

Thanks. Sorry to belabor the call. This might be a record in terms of BDC earnings call. Chris, I wanted to ask about the concept of preserving liquidity. I hear where you're coming from. So I was curious, have you considered deferring a portion of either management fees or incentive fees to help keep liquidity at the BDC?

Christian L. Oberbeck -- Chairman and Chief Executive Officer

I think that, clearly, that there are some parties that are doing that out there. That is not something that we have on the table at this moment that obviously, if liquidity goes to an extreme state, that is always something to consider. I think that if you look at our historic performance, it was pretty robust in the past year. And so I think that we've just received in terms of incentive fees has been properly earned in terms of performance. As we go forward, it's not known, much as many other things are not known. Exactly how this shakes out going forward is still a lot of a mystery. And so obviously, that is one component of liquidity and something to be considered, but not something that we are actively considering at this moment in time, although we could consider it in the future.

Bryce Rowe -- National Securities -- Analyst

Okay. That's fair. Second question. Second and only last question. You guys operated with a higher level of GAAP balance sheet leverage in the past, especially before you were able to use the ATM to raise as much equity capital as you have. Does -- with what's happened with COVID over the last couple of months, does that kind of inform you as to how much GAAP balance sheet leverage you'll use in the future? Does it change what we've seen in the past?

Christian L. Oberbeck -- Chairman and Chief Executive Officer

I guess, I wish I could answer that clearly. I mean, again it's sort of a piece, right? We just don't know what's going on right now. And so we want to be as conservative as possible. However, raising long-term capital and at a fixed rate as we have in the past through baby bonds and the like, could be an attractive alternative. I mean, right now, those markets are recovering, but they've been closed. I don't know if anyone's done a public baby bond, but there's been some private ones, FSK just did a private baby bond. So clearly, that source of capital is -- can be attractive and has been for us in the past. And as you rightly point out. And yes, so we are actively and openly looking at all sources of capital and liquidity for the future. And much as we are structured now, we're looking for the type of -- if we were to do some more leveraging, we would want it to be of the type and character that we have now.

And so I mean, basically, as -- like our SBIC debentures are some of the most attractive with sub-2.5% current interest 10-year maturity, no covenants. So we are availing ourselves of that leverage to the extent we have attractive investment opportunities, and we've had several of those we have done recently. To the extent something fits our criteria and we can finance it certainly in the SBIC II, that's absolutely something that would increase our leverage. So we do have significant leverage ability there. We do have our undrawn Madison facility, and that has -- that's an asset-based facility with criteria and we have availability under that. So to the extent that there are investments that are sound, solid investments that we believe fit all the criteria and will continue to fit all the criteria going forward that would fit in that, those are absolutely things that we would consider. So we really haven't changed anything about how we go about our investment process. What has changed is the information that's available about the investments, right?

And until we have more certainty there, according to the way we invest, it's very hard to make a decision, right? We're not speculators. We're investors and lenders. And so it's kind of -- there's a lot of science to it and a lot of fundamentals that need to be in place for us to pull the trigger. And so speculation is, especially if you're using leverage is, it can be very dangerous. And so we don't want to be speculators. We kind of feel that in this environment, you have to be very careful, anything you do for it not to be speculative.

Bryce Rowe -- National Securities -- Analyst

Yeah. Okay. Thank you for your time. I appreciate it.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Yeah. Thank you.

Operator

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Christian Oberbeck for any closing remarks.

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Okay. Well, again, we appreciate everyone who spent so much time on the phone and the clear thought and consideration they've given to the company over the years. And even -- and we welcome the more recent investors as well. We hope everyone understands where we're coming from. We are the largest shareholder block in the company, and we view ourselves as partners with our shareholders. And every decision we make is in that context. And so we very much appreciate your time today and your support as investors, and we hope you will continue to support us and invest along with us in the future. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 104 minutes

Call participants:

Henri J. Steenkamp -- Chief Compliance Officer, Secretary, Treasurer and Chief Financial Office

Christian L. Oberbeck -- Chairman and Chief Executive Officer

Michael J. Grisius -- Analyst

Timothy Hayes -- B. Riley FBR, Inc. -- Analyst

Casey Alexander -- Compass Point Research -- Analyst

Mickey Schleien -- Ladenberg -- Analyst

Ben Rubenstein -- Robotti -- Analyst

Bryce Rowe -- National Securities -- Analyst

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