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Saratoga Investment Corp (SAR 0.13%)
Q3 2022 Earnings Call
Jan 06, 2022, 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp.'s fiscal third quarter 2022 financial results conference call. Please note that today's call is being recorded.

[Operator instructions]. At this time, I would like to turn the call over to Saratoga Investment Corp.'s chief financial and compliance officer, Mr. Henri Steenkamp. Please go ahead, sir.

Henri Steenkamp -- Chief Financial and Compliance Officer

Thank you. I would like to welcome everyone to Saratoga Investment Corp. fiscal third quarter 2022 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 third quarter 2022 shareholder presentation in the Events and Presentations section of our investor relations website.

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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 January 13. 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 Oberbeck -- Chairman and Chief Executive Officer

Thank you, Henri, and welcome, everyone. Our fiscal 2022 third quarter performance continues to reflect the strength and resilience of our financial position and portfolio companies. Despite the unprecedented global impact and continuation of COVID-19 impacts, we feel very fortunate to have overcome its challenges thus far and to be in a position to benefit from the upside of the ongoing recovery and substantial increase in market activity. We believe Saratoga continues to be well-positioned for potential future economic opportunities and challenges.

Our existing portfolio companies are performing well, and our current business development activities allow us to find and evaluate a healthy level of new investments. Our AUM contracted slightly this quarter to $662 million as we originated $59 million in new platforms or follow-on investments offset by $66 million of repayments, including a $7.3 million realized gain on the sale of our GreyHeller investment and a $2.6 million realized gain on our Texas Teachers investment. These investment gains demonstrate how our strategy of taking equity positions in our portfolio companies when available and when it makes sense to us, has paid off well. With this quarter's $10 million of realized gains, increasing our total net realized gains earned to $61 million or approximately $5 per quarter end outstanding shares over the past four years.

We continue to bring new platform investments into the portfolio with two added this fiscal quarter, and all of our originations were made while again an extremely high credit bar we set for all investments. The performance of our existing portfolio also grew our NAV per share by 1% this quarter to $29.17. Again, a historical record for the BDC with this quarter's increase being the 16th increase in the past 18 quarters. To briefly recap the past quarter on Slide 2.

First, we continue to strengthen our financial foundation in Q3 by maintaining a high level of investment credit quality with over 95% of our loan investments retaining our highest credit rating at quarter end, up from 93% last quarter, generating a return on equity of 14.6% on a trailing 12-month basis and registering a gross unlevered IRR of 11.9% on our total unrealized portfolio with our current fair value 3% above the total cost of our portfolio and a gross unlevered IRR of 16.4% on total realizations of $753 million. Second, our assets under management decreased slightly to $662 million this quarter, a 1% decrease from $666 million as of last quarter. This remains a 21% increase from $547 million over the same time last year and a 19% increase from $554 million as of year end. Our new originations included two new portfolio companies and six follow-on investments, and our current pipeline remains robust to almost $120 million of net originations since quarter end.

Third, despite improving economic conditions, balance sheet strength and liquidity and NAV preservation remain paramount for us. Our current capital structure at quarter end was strong. $343 million of mark-to-market equity supported by $238 million of long-term covenant-free non-SBIC debt, $207 million of long-term covenant-free SBIC debentures and $12.5 million of long-term revolving credit borrowings. Our quarter end regulatory leverage of 237% substantially exceeds our 150% requirement.

We have $258 million of liquidity at quarter end available to support our portfolio companies with $76 million of the total dedicated to new and follow-on opportunities in our SBIC II fund. And a $144 million of cash that will be fully accretive to earnings when deployed, of which more than three-quarters has already been deployed since quarter end. The all-in cost of this new SBIC II that is currently less than 2% and the total committed undrawn lending commitments outstanding to existing portfolio companies are $21 million. And finally, based on our overall performance, including improved liquidity, the overall portfolio and financial performance and the recent deployments of cash, the board of directors increased our quarterly dividend by $0.01 to $0.53 per share for the quarter ended November 30, 2021, payable on January 19, 2021.

We will continue to evaluate the amount of our dividends on a quarterly basis as we gain improved visibility on the economy and fundamental business performance. This quarter saw a strong performance within our key performance indicators as compared to the quarters ended November 30, 2020, and August 31, 2021. Our adjusted NII is $6.1 million this quarter, up 10% versus $5.5 million last year and down 13% versus $7 million last quarter. Our adjusted NII per share is $0.53 this quarter, up from $0.50 last quarter and down from $0.63 last quarter.

Latest 12 months return on equity is 14.6%, up from 11% last year and up from 14.4% last quarter. Our NAV per share is $29.17, up 9% from $26.84 last year and up 1% from $28.97 last quarter. This is the highest quarterly NAV per share for Saratoga Investment since inception of our management in 2010. Henri will provide more detail later.

As you can see on Slide 3, our assets under managed steadily and consistently risen since we took over the BDC more than 11 years ago, and the quality of our credits remains high with no nonaccruals currently. Our management team is working diligently to continue this positive trend as we deploy our available capital into our growing pipeline while at the same time being appropriately cautious in this evolving credit environment. With that, I would like to now turn the call back over to Henri to review our financial results, as well as the composition and performance of our portfolio. 

Henri Steenkamp -- Chief Financial and Compliance Officer

Thank you, Chris. Slide 4 highlights our key performance metrics for the third quarter ended November 30, 2021. When adjusting for the incentive fee accrual related to net capital gains in the second incentive fee calculation, and for Q2 calculations, the interest on the redeemed SAF baby bond during the core period, adjusted NII of $6.1 million was down 13% from $7.0 million last quarter but up 10.1% from $5.5 million as compared to last year's Q3. Adjusted NII per share was $0.53, up $0.03 from $0.50 per share last year and down $0.10 from $0.63 per share last quarter.

Across the three quarters, weighted average common shares outstanding were 11.5 million for this Q3 and 11.2 million for both last quarter and last year's Q3. The increase in adjusted NII from last year primarily reflects the higher level of investments and result in higher interest and other income, with AUM up 21% from last year, offset by lower interest rates and tighter market spreads. The decrease from Q2 was primarily due to the non-recurrence of the $0.6 million Taco Mac interest reserve release last quarter, as well as the reduction in other income, resulting from lower advisory and prepayment fees generated by lower originations and repayments this quarter. Adjusted NII yield was 7.3%.

This yield is down 10 basis points from 7.4% last year and down 140 basis points from 8.7% last quarter. For this third quarter, we experienced a net gain on investments of $3.9 million or $0.34 per weighted average share and a $0.8 million realized loss on the repayment and termination of our Madison credit facility or $0.07 per weighted average share, resulting in a total increase in net assets from operations of $8.3 million or $0.73 per share or EPS. The $3.9 million net gain on investments was comprised of $9.9 million in realized gains and $2.5 million of deferred tax benefit on unrealized depreciation, offset by $6 million in net unrealized depreciation and $2.4 million of income tax expense generated from realized gains. The $3.9 million net realized gain comprises a $7.3 million realized gain on the sale of the company's GreyHeller investment and a $2.6 million realized gain on the company's Texas Teachers investment sale.

The $6 million net unrealized depreciation reflects, firstly, the $7.7 million and $2.6 million reversal of previously recognized depreciation on the GreyHeller and Texas Teachers' equity realizations, respectively, and secondly, a $2.6 million unrealized depreciation on the company's CLO equity investment, reflecting market volatility, partially offset by a 1.1% increase in the total value of the remaining portfolio, primarily related to improvements in market spreads, EBITDA multiples and/or revised portfolio company performance. All of the net reduction in the value of the non-CLO portfolio in the first quarter of last year has been more than reversed since May 31, 2020, and the overall portfolio of fair value is now 2.9% above cost. Return on equity remains an important performance indicator for us, which includes both realized and unrealized gains. Our return on equity was 14.6% for the last 12 months.

Total expenses, excluding interest and debt financing expenses, base management fees and incentive fees and income taxes decreased from $1.6 million to $1.2 million as compared to last year, reflecting certain optimizations realized during Q3 and fiscal 2022. This represented 0.6% of average total assets on an annualized basis down from 1.1% last year. We have also again added the KPI slides, starting from Slides 26 through 29 in the appendix at the end of the presentation that shows our income statement and balance sheet metrics for the past nine quarters and the upward trends we have maintained. Of particular note is Slide 29, highlighting how our net interest margin run rate has continued to increase in Q3 and has almost quadrupled since Saratoga took over management of the BDC and has also increased by 8% the past 12 months while still not yet receiving the benefit of putting to work a significant amount of Q3 undeployed cash.

Moving on to Slide 5. NAV was $342.6 million as of this quarter end, an $18.5 million increase from last quarter and a $42.7 million increase from the same quarter last year, primarily driven by realized and unrealized gains and, to a lesser degree, accretive ATM equity issuances. During Q3, no shares were repurchased, while 520,000 shares were sold for net proceeds of $15.2 million at an average price of $29.16. NAV per share as of 11/30 was $29.17, up from $28.97 as of last quarter and from $26.84 as of 12 months ago.

You will see we added our historical NAV per share to this chart this quarter, which highlights how NAV per share has increased 16 of the past 18 quarters. Our net asset value growth has been accretive, as demonstrated by the consistent increase in NAV per share. We continue to benefit from our history of consistent realized and unrealized gains. On Slide 6, 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, adjusted NII per share decreased from $0.63 per share last quarter to $0.53 per share in Q3, a 0.4% decrease in non-CLO net interest income and $0.09 combined decrease in CLO interest income and other income, a $0.01 increase in base management fees and a $0.01 net dilution were partially offset by a $0.05 from lower operating expenses. Moving on to the lower half of the slide. This reconciles the $0.20 NAV per share increase for the quarter. The $0.45 of GAAP NII, $0.34 of net realized gains and unrealized depreciation and $0.01 of net accretion were partially offset by a $0.01 net expense related to income and deferred taxes on realized gains and unrealized depreciation, the $0.52 dividend paid in Q3 and a $0.07 realized loss on extinguishment of date.

Slide 7 outlines the dry powder available to us as of November 30, 2021, which totaled $257.6 million. This was spread between our available cash, undrawn SBA debentures and undrawn secured credit facility. This quarter end level of available liquidity allows us to grow our assets by an additional 39% without the need for external financing with $144 million of it being cash and that's fully accretive to NII when deployed, and $76 million of SBA debentures with an all-in cost of less than 2%, also very accretive. As we've mentioned before, this past October, we closed a new three-year $50 million revolving credit facility with Encina Lender Finance.

This facility replaces our existing Madison facility and with a floating rate of LIBOR plus 4% with a 75-basis-point floor, has reduced our credit facility cost of capital by 100 basis points. We remain pleased with our available liquidity and leverage position, including access to liquidity and especially taking into account the overall conservative nature of our balance sheet and the fact that almost all of our debt is long term in nature with no non-SBIC debt maturing within the next three years and mostly fixed rate. Now I would like to move on to Slides 8 through 11 and review the composition and yield of our investment portfolio. Slide 8 highlights that we now have $662 million of AUM at fair value or $643 million at cost invested in 42 portfolio companies and one CLO fund.

Our first-lien percentage is 76% of our total investments, of which only 3% of that is in first-lien last-out positions. On Slide 9, you can see how the yield on our core BDC assets, excluding our CLO and syndicated loans, as well as our total asset yield, has dropped below 9% this year. This is partly due to continued tightening of spreads in our markets, but also due to a mix shift of some of our high-yielding assets were repaid this quarter. In addition, our equity position this fiscal year has almost doubled from 5.7% to 10.3% in Q3, but much of that increase is due to the appreciation in existing valuations from strong performance, while some of the equity increase is also in the form of preferred equity earnings, dividend income that is reflected in our other income line in the P&L rather than in interest income.

As a reminder, most investments have a 100 basis points or higher floor. The CLO yield also decreased to 11.6% quarter on quarter, reflecting current market performance. The CLO is currently performing and current. Turning to Slide 10.

During the third fiscal quarter, we made investments of $58.6 million in two new portfolio companies and six follow-on investments offset by $66.4 million in three repayments, plus amortizations, resulting in a net decrease in investments of $7.8 million for the quarter. On Slide 11, you can see the industry breadth and diversity that our portfolio represents. Our investments are spread over 34 distinct industries with a large focus on healthcare software, IT services and education and healthcare services, in addition to our investment in the CLO, which is included as structured finance securities. Of our total investment portfolio, 10.3% consists of equity interest, which remain an important part of our overall investment strategy.

For the past 10 fiscal years, including year-to-date Q3, we had a combined $72.9 million of net realized gains from the sale of equity interest or sale or early redemption of other investments. This quarter alone, we generated $9.9 million of realized gains from two of our realizations. And over two-thirds of these historical total gains were fully accretive to NAV due to the unused capital loss carryforwards that were carried over from when Saratoga took over management of the BDC. This consistent realized gain 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, chief investment officer, for an overview of the investment market.

Michael Grisius -- Chief Investment Officer

Thank you, Henri. I'll take a couple of minutes to describe our perspective on the current state of the market and then comment on our current portfolio performance and investment strategy. Since our last update, we see market conditions continuing to be increasingly aggressive, exceeding where they were pre-COVID-19, and very much a borrower's market. Liquidity conditions remain exceptionally robust.

We have seen significant transaction volumes and unusually high M&A activity tightening credit yields and greater leverage multiples and an aggressive capital deployment posture overall, especially going into year end. High demand for quality deals is pushing down spreads. Pricing and leverage metrics are among the most competitive levels we've ever seen. As a result, there is increasing pressure for investors to compete in other ways, such as accelerated timing to close and looser covenant restrictions.

That said, lenders in our market are still wary of thinly capitalized deals. And for the most part, are staying disciplined in terms of minimum aggregate base levels of equity and requiring reasonable covenants. Our underwriting bar remains high as usual, yet we continue to find many strong opportunities to deploy capital, as we will discuss shortly. The calendar year 2021 has been a strong deployment environment for us with a record origination pace.

Follow-on investments with existing borrowers with strong business models and balance sheets continue to be an important avenue of capital deployment, as demonstrated with six follow-ons this past fiscal quarter, six in the previous and nine in the quarter before. We have seen this pace continue subsequent to fiscal quarter end with further investments in two new portfolio companies and nine follow-ons. Most notably, we have invested in 23 new platform investments since the onset of the pandemic. Portfolio management continues to be critically important, and we remain actively engaged with our portfolio companies and in close contact with our management teams.

We have found that they have generally positioned themselves to benefit from the uptick in general economic activity as the economy has recovered. All of our loans in our portfolio are paying according to their payment terms. And so in addition to not having any new nonaccruals through COVID, we have 0 nonaccruals across our whole portfolio. We also recognized $3.9 million in net realized and unrealized gains this quarter, which means that our overall portfolio has more than recovered the unrealized depreciation associated with COVID last year.

And the fair value of Saratoga's overall assets now exceeds its cost basis by 2.9%. We believe this strong performance reflects certain attributes of our portfolio that bolster its overall durability. 76% of our portfolio is in first-lien debt and generally supported by strong enterprise values in industries that have historically performed well in stress situations. We have no direct energy or commodities 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. Our approach has always been to stay focused on the quality of our underwriting. And as you can see on Slide 13, this approach has resulted in our portfolio performance being at the top of the BDC space with respect to net realized gains as a percentage of portfolio at cost. We are at the top of the list of only eight BDCs that had a positive number over the past three years.

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 peer deeply -- 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 reflects the impact of COVID and shows 95% of our portfolio at our highest credit rating as of quarter end. Part of our investment strategy is to selectively co-invest in the equity of our portfolio companies when we're given that opportunity and when we believe the equity -- in the equity upside potential. It has been our experience that there is significant overlap between those businesses that meet our strict underwriting requirements and those that possess attributes that make them attractive equity investments. This equity co-investment strategy has not only served as yield protection for our portfolio, but also meaningfully augmented our overall portfolio returns as demonstrated again this quarter with our Texas Teachers and GreyHeller realizations.

We intend to continue this strategy. Now looking at leverage on Slide 14, you can see that industry debt multiples were relatively unchanged from calendar Q2 to Q3, yet remain at historical high levels. Total leverage for our portfolio was 4.13 times, a slight increase from last quarter, reflecting primarily the additional capital we have provided our existing portfolio companies and not increase leverage levels from our new platforms. Through past volatility, we have been able to maintain a relatively modest risk profile throughout, although we never consider leverage in isolation.

Rather focusing on investing in credits with attractive risk return profiles and exceptionally strong business models, where we are confident the enterprise value of the businesses will sustainably exceed the last dollar of our investment. In addition, this slide illustrates our consistent ability to generate new investments over the long term despite ever-changing and increasingly competitive market dynamics. During the first four calendar quarters, we added 12 new portfolio companies and made 35 follow-on investments. Moving on to Slide 15.

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. Our top-line number of deal source remains robust, but has dropped the past two years, initially due to COVID, but more recently, reflecting our efforts to focus on attracting a higher percentage of quality opportunities. Most notably, the 67 term sheets issued during the last 12 months is markedly up from last year's pace, showing that we are generating more shots on goal. What is especially pleasing to us is that almost half of our term sheets issued over the past 12 months and seven of our 12 new portfolio company investments are from newly formed relationships, reflecting notable progress as we expand our business development efforts.

But there are a number of factors that give us measured confidence that we can continue to grow our AUM steadily in this environment, as well as over the long term. First, we continue to grow our reach into the marketplace, as is evidenced by several investments we have recently made with newly formed relationships. Second, we have developed numerous deep, long-term relationships with active and established firms that look to us as their preferred source of financing. 81% of the term sheets issued are for transactions involving a private equity firm.

Third, we continue to see plenty of investment opportunities in industry segments that are experiencing long-term secular growth trends and within which we have intentionally developed expertise. And this is supported by our origination pace subsequent to quarter end. We have executed approximately $130 million of new originations in two new portfolio companies and nine follow-ons and had repayments of approximately $11 million in one exit for a net increase of almost $120 million. As you can see on Slide 16, our overall portfolio credit quality remains solid.

The gross unleveraged IRR unrealized investments made by the Saratoga Investment management team is 16.4% on $753 million of realizations. In this quarter, we realized a $7.3 million realized gain on the sale of our GreyHeller investment and a $2.6 million realized gain on our Texas Teachers investment for a combined Q3 IRR of 22.2%. On the chart on the right, you can see the total gross unlevered IRR on our $619 million of combined weighted SBIC and BDC unrealized investments is 11.9% since Saratoga took over management. The two largest unrealized depreciations remaining due to COVID are in our Nolan Group and C2 Education Investments.

Both of which are more dependent on in-person human interaction and remain our only yellow-rated investments. We do not believe the remaining unrealized depreciation changes our view of their fundamental long-term performance. Even with those current markdowns, our overall portfolio value is now almost 3% above its total cost. Our investment approach has yielded exceptional realized returns.

Moving on to Slide 17, you can see our first SBIC license is fully funded. Our second SBIC license has already been fully funded with $87.5 million of equity, of which $207 million of equity and SBA debentures have been deployed. There is still $3 million of cash and $76 million of debentures currently available against that equity. When comparing this quarter to much of last year, the way the portfolio has proven itself to be both durable and resilient against the impact of COVID-19 and the subsequent market adjustment really underscores the strength of our team, platform and portfolio and our overall underwriting and due diligence procedures.

Credit quality remains our primary focus, especially at times with such high activity levels as we are seeing now. And while the world is in continuous flux, we remain intensely focused on preserving asset value, and remain confident in our team and the future for Saratoga. This concludes my review of the market, and I'd like to turn the call back over to our CEO. Chris? 

Christian Oberbeck -- Chairman and Chief Executive Officer

As outlined on Slide 18, the board of directors declared a $0.53 per-share dividend for the quarter ended November 30, 2021, payable on January 19, 2022. This reflected a $0.01 or 2% increase from last quarter. The board of directors will continue to evaluate the dividend level on at least a quarterly basis, considering both company and general economic factors. Moving to Slide 19.

Our total return for the last 12 months, which includes both capital appreciation and dividends, has generated total returns of 46%, above the BDC index of 32%. Our longer-term performance is outlined on our next slide. Over three and five-year returns -- our three- and five-year returns place us in the top 14 and top seven, respectively, of all BDCs for both time horizons. Over the past three years, our 71% return exceeded the 50% return of the index.

While over the past five years, our 122% return greatly exceeded the index's 58% return. On Slide 21, you can further see our outperformance placed in the context of the broader industry and specific to certain key performance metrics. We continue to focus on our long-term return on equity, NAV per share performance, NII yield and dividend growth, which are both consistent and at the top of the industry and reflects the growing value our shareholders are receiving. Not only are we one of the few BDCs to have grown NAV, we have done it accretively by also growing NAV per share in 16 of the past 18 quarters.

Moving on to Slide 22. All of our initiatives discussed 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 performance characteristics outlined on 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 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 a sub-2% cost liquidity; a BBB-plus investment-grade rating and active public and private bond issuances; solid historic earnings per share and NII yield; strong and industry-leading historic and long-term return on equity accompanied by growing NAV and NAV per share, putting us at the top of the industry for both, a 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 time and market tested investment strategy will serve us well in battling through the challenges in the current and future environment. And that our balance sheet, capital structure and liquidity will benefit Saratoga shareholders in the near and long term. In closing, I would again like to thank all of our shareholders for their ongoing support.

And I would now like to open the call for questions. 

Questions & Answers:


[Operator instructions] Our first question comes from Casey Alexander with Compass Point.

Casey Alexander -- Compass Point -- Analyst

Hi. Good morning. And I think you guys are doing a great job, but I do have a few questions for you. My first one is for Henri.

Henri, you redid the credit facility this quarter. But there are BDCs that are smaller than Saratoga that have credit facilities from traditional banks that are still at significantly lower cost than the Encina line that you guys did. What is this lender finance credit facility program give you that a traditional bank at a lower rate would not?

Henri Steenkamp -- Chief Financial and Compliance Officer

Yeah, sure. Casey, it's a good question, and it's a very important one that we obviously have very intentionally considered and constructed our balance sheet in this way. So the traditional credit facility that you see from banks and that most, if not all BDCs have -- generally have covenants that have BDC level covenants in them. So things like tangible net worth, EBITDA, multiple quarters of negative bottom lines, etc.

And the facility can be triggered and repayment can get triggered through the BDC level covenants. We've constructed our balance sheet from the start, from the time when Saratoga took over as a balance sheet that was going to not have covenants that could put the franchise as a whole at risk if you potentially had an event that was just specific this SPV, this credit facility entity. And our facility is structured in a way that, again, similar to the Madison facility, which was like that as well, doesn't have any firmwide BDCwide covenants. It's a really, really important feature to us.

And yes, we are paying up for it, but it provides us flexibility so that we have cash available if we need but doesn't put any -- either the franchise, the business as a whole letters because of something very specific to the market that could happen in the SPV itself. So it's really choosing structure above price for us. And especially because we have the SBIC capacity and our unsecured lending rates have come down so much, it still enables us even with this higher rate in this facility to achieve our cost of capital goals that we want to. 

Christian Oberbeck -- Chairman and Chief Executive Officer

Yeah. If I could just weigh in a little here on that as well. And just add to Henri's very thorough explanation, Casey, if you remember back the dark days of March of '20 and April of '20, there were a number of BDCs that -- and probably the very successful ones that wound up getting out of formula with their low-cost lines of credit and some of them had to make some very substantial capital contributions to avoid default or modify their facilities in a really extreme moment. At that time with the Madison facility, and we didn't have any of those concerns.

Obviously, we had a lot of other concerns. But the concerns about our capital structure and having defaults and those things were not something we had to worry about at that moment. And that's always been very important to us. Your point is well taken that there are lower-cost approaches to financing, but those come with lots of formulaic requirements.

I think Henri outlined some of the covenant ones. There's also diversity. There's also like mix of what you have in your portfolio and things like that. And at some point in time, facilities like that may make more sense to us than they do right now.

But we've been working very hard forever from the very beginning at having a capital structure that allows us unfortunately, for whatever reason is, we live in an era of lots of calm and then some massive down spikes. And we just want to make sure that we're insured against the massive down spike and really not only defensively but also offensively. I mean, we were able to investing right through that very dark period in that second quarter of '20 and made some very good investments and built some very strong relationships by being ready and able in a really adverse environment to just continue with our business. And so that's really kind of the thinking behind it.

And again, your point is well taken about optimization of cost, cost of financing, but we're also trying to optimize safety and concern. And not to go too far into it, but what we were able to do in that quarter because of our financial structure, has paid enormous dividends to Saratoga in terms of investments we were able to make at that point in time that we think way more than offset whatever excess cost we had in that facility.

Casey Alexander -- Compass Point -- Analyst

All right. Thank you for that answer. My next question, again, kind of back to Henri and maybe Henri, Mike sort of everybody. But in this quarter, in the fiscal third quarter, you made a fairly aggressive use of the ATM.

$15 million is a fair amount for an ATM in one quarter. So I can assume that you knew you had in the pipeline a lot of deals that are going to be closing in December because that clearly is what happened. But would you characterize your usage of the ATM in this quarter as a normal rate, above normal rate? Would you -- as you see originations moderating over the rest of the year, there would be less aggressive use of the ATM? I'd just like to get some sort of nuance around the usage of the ATM in that particular quarter.

Christian Oberbeck -- Chairman and Chief Executive Officer

Sure. Casey, that's a very good question and a very important one. I think on a very high level, if you look at the overall BDC industry, and I know you're an expert in it, the periods of time when BDCs have been able to raise equity capital has not been continuous, right? And there's periods of time where you can raise money and then there's actually longer periods of time where you can't raise equity money because of trading below NAV and market conditions and the like. So on one level, we're looking at kind of a long-term horizon, which is our broad-based growth trend.

And our broad-based growth trend is significantly up. Our relationships are building. I think as Mike went through in his presentation, we're developing a lot of relationships and a lot of deal flow. I think that the level of our recent months shows not only our relationships to generate the deal flow, but also our ability to execute.

And so we believe in the long run, a stronger and more robust equity base is important for us to achieve our growth objectives and our natural growth inside the market that we're in. And so part of it is really taking advantage of the market's receptivity to equity raises when it's available. So that's one thing. So we're not -- we weren't really tying it specifically to this next quarter and this next set of originations.

It was really much more of a broad-gauged what kind of equity levels are appropriate over our next one, two, three, four years as we look out into the future. In terms of what we intend to do going forward, part of it's going to be driven by market receptivity and part of it's going to be driven by how we see the environment in terms of originations and our capital structure. 

Casey Alexander -- Compass Point -- Analyst

OK. Well, I would just kind of interject into that that ATMs are sort of the spigot for available near-term liquidity, but you don't want the ATM to become so much supply that retards the potential appreciation of the stock. That's something that shareholders have to be aware of as well. Mike, my next question is for you, which is I'm going to ask you to put on your telescopic goggles and try to give us a feel for how far does yield compression go? And at what point in time does it potentially bottom out? Or does it bottom out? Are we moving to a new paradigm of yields that are going to embed themselves in the lower middle market?

Michael Grisius -- Chief Investment Officer

Casey, that's -- if I had a crystal ball. Look, I think it's a fair question. And certainly, we've seen yield compression. And over the years, I've often tried to look forward and think about that from a macro level.

And one of the things that I've learned over the years, thankfully, is that for us, the way we look at it is we want to make sure that we're seeing plenty of deal opportunities where we can deploy capital in a way that's accretive for our shareholders. And if you look at the yields that we booked new deals at this past quarter, which is averages north of 8%, let's say, somewhere 8%, 8.5%. We can deploy capital at that level very accretively for our shareholders, especially as our cost of capital has come down. I think our cost of capital in the SBIC is less than 2%.

Henri mentioned where the institutional bonds are priced debt, etc. That's something that we can continue to do in a way that's very accretive for our shareholders. I would say this, too, that in really hot markets, and we're in one now for sure, and it's a reflection of there being such a long period, except for COVID -- the COVID scare, where there hasn't really been a massive disruption in the markets and the economy in general. There are people that are doing deals right now that never saw a downturn.

We are competing with people that were probably in high school when the last recession happened, unfortunately. But this management team has been through a number of cycles. And so we're really careful about making sure that we're preserving our capital base, and we believe firmly that you make money in credit by not losing money. We've been successful at doing that so far.

So that's kind of a bit of a long-winded way of saying that we're not going to put ourselves in a position where we're going to stretch for yield. In hot markets, you've got to make sure that you continue to focus on credit quality and getting the best assets in your portfolio, certainly at a spread that is accretive for your shareholders, but not making the mistake of saying, oh, we need to have a yield that's x because that's where BDCs typically get a yield. And if in so doing, you end up expanding your risk profile quite considerably, which would be the case in this market, that wouldn't be a wise move. So that's the approach that we've taken.

I think fortunately, the way we've constructed our balance sheet there could still be more compression in yields, and we're comfortable that we could deploy that capital very accretively. And the comments I make on accretive capital deployment are, of course, without taking into account the returns that we typically get on our equity co-investments, which, as I mentioned, getting 16.4% unlevered returns on realized investments of over $750 million, that's also happening not just by spread, but by much of what we've done in terms of investing in equity in a way that's been very beneficial to our shareholders. So hopefully, that gives you a perspective of how we think about it. Hard for us to try to time or predict too much where spreads are going to go.

Casey Alexander -- Compass Point -- Analyst

OK. Thank you for that, Mike, and I have one more question, and I apologize if I'm co-opting the call just a little bit. But a couple of years ago, when COVID hit, this is for you Christian, a couple of years ago when COVID hit, the company had kind of a dramatic response, and of course, there were shutdowns at that time. Two years, we roll forward here, and we're dealing with the omicron variant and Saratoga has a much more measured response, almost feels like you're on the offense to a great extent.

Is that because Saratoga now has a playbook, the portfolio companies have a playbook, the private equity sponsors have a playbook, and these variants and inconveniences are just that an inconvenience and you guys put the playbook to work and you know what you're going to do?

Christian Oberbeck -- Chairman and Chief Executive Officer

Well, Casey, I wish that were exactly the case. But I guess I'd say a couple of things. I think when the whole COVID thing hit, there was this massive shock to the system, a massive decline in the stock market and massive dry-up of liquidity and all sort of the things reminiscent of like 2008 going on in the marketplace, and plus a tremendous amount of mystery around what COVID would do. I mean, was it the black death, where we were going to have 30% fatalities.

I mean, there's just a whole bunch of things that were completely unknown. I think as we fast-forward to today, there's a lot more experience. There's a lot more -- there's the vaccines. There's the treatments.

There's the herd immunity. There's a lot of things going on that have made this less of a mystery and more of something that's kind of a quantifiable manageable risk, if you will. Omicron, I mean, I think everybody is still learning about that. I mean, that's sort of coming on as real fast and furious.

So to say that we have a playbook for omicron is maybe that's -- we're just not in a position to say we do have one. The early data, I mean, I'm not saying anything that and -- so we're certainly not an expert on this field. But I mean, it looks as if the marketplace in general is viewing omicron as something that we're going to get through the pandemic moving to endemic. I mean, there's a whole lot of thinking around that line with the information we have at hand.

And so -- but in terms of the response, in terms of our playing offense, I think, again, back -- going back to that time, in '20, everything kind of dried up and all the incoming calls to us were about how do we rescue our capital structure kind of thing, where now we're sort of in an environment where massive acquisitions, growth. And so we are responding to a lot of what the market is presenting to us, obviously using all the credit skills we have to try and structure things that we think take advantage of the moment but also protect us if there is a reversal in the future. And I think if you look at our credit metrics, if you look at our attachment points and all those types of things and the types of companies we're financing, we feel pretty good about our portfolio as we did back then. But -- so -- yes, I would just say that also, I think financially, I think we're in a stronger position than we were back then.

And our knowledge base is better, and the world is better. I think there's more tools to apply against something that's better understood for the moment. 

Michael Grisius -- Chief Investment Officer

Chris, let me just jump in a little bit to help augment that. The one thing to think about, Casey, less of a reaction to the COVID environment and having a game plan around it, most of the success that we're having recently in deploying capital at a greater pace is really just a reflection of investments that we've made in the franchise over the years. One of the things that we've done, and we're very proud of is we've built some very deep relationships with groups that we invest capital with and support their portfolio companies. So much of what we've done really well is getting that repeat business from existing relationships.

And you can see that, especially in our follow-on activity where we find good businesses to support and then the owners of those businesses come back to us for more capital. And that really is a great underpinning of support for our balance sheet, and it's been an avenue for growth for us. What's especially exciting about what we're doing now and there's still work to do, and that also excites us because we think the upside is quite substantial is that in this environment, vis-à-vis going back a few years ago, we've really been successful in growing our relationship set. And that takes quite a while.

We do a lot of vetting of these relationships, many of them we've been courting for years. And so I think just to reiterate, I think we've had 12 new portfolio companies this past calendar year and seven of them are with new relationships. And so if you were to go back a few years, separate and apart from anything related to COVID, etc., we wouldn't have had seven new portfolio companies with new relationships. And that's just a reflection of the investments that we've been making in building the franchise and are continuing to do. 

Casey Alexander -- Compass Point -- Analyst

Guys, thank you for taking my questions. I apologize to the other analysts for having so many questions. But in this case, this was stuff that I just really, really wanted to know about. So thank you very much.

Henri Steenkamp -- Chief Financial and Compliance Officer

Thank you, Casey.

Michael Grisius -- Chief Investment Officer

Thanks, Casey.


Our next question comes from Sarkis Sherbetchyan with B. Riley Securities.

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

Hi. Good morning, and thank you for taking my question here. Just wanted to kind of get an understanding and maybe a balance between your comments on this being essentially a borrower's market, the tighter spreads, the aggressive leverage multiples and it being pretty competitive out there relative to if we kind of look at the comments on the $130 million in new originations after quarter end. I just want to kind of get a sense for how are you underwriting in this environment, given that you mentioned that your bar remains high and balancing that with the comments in just kind of the environment in general?

Michael Grisius -- Chief Investment Officer

Well, it's the challenge that we face all the time in our business. And I sort of use the term that we've always got one foot on the gas and one foot on the brake as opposed to one on the gas and then taking it off the gas and on the brakes. You're always trying to manage growth, but trying to keep your underwriting bar really high. And I think we've done a really good job of it over the years.

It's one of the reasons our growth has been candidly slow and steady over the years. We continue to turn down far, far more deals than we do, and many of the other players in the marketplace that you know are going ahead and doing some of those deals. It doesn't mean that we always make the right decision, but we think our track record speaks for itself. So we have remained disciplined.

We have not changed our underwriting bar at all. We certainly are seeing more deals in this marketplace, and we're seeing more quality deals in this marketplace. But I think most importantly, we're seeing deals from relationships that we didn't have before. And so that now has enabled us to cast a wider net, if you will, or a higher quality net.

And as a result, it's enabled us to deploy more capital while keeping our underwriting bar the same as it has been. Now if you look at -- just to put a finer point on the post quarter end production, most of that was with follow-ons with existing portfolio companies. And that really has been a recipe for success for us. I do want to make a point there.

We'll do a number of deals that are sub $10 million or $15 million initial investments. Many of our competitors won't bother with deals that size. But we'll do the extra work to get that capital deployed in really good businesses, and that's been an avenue for us to deploy more capital over time. Many of our larger deals were ones that started off quite a bit smaller.

So that's a little -- a lot of even that post quarter end production is a little less reflective of super active M&A market, which there certainly is one and more reflective of us deploying capital in existing portfolio companies. 

Christian Oberbeck -- Chairman and Chief Executive Officer

Yeah. If I could just add a little to that. I think -- and I've got you principle from the very beginning in our credit process has been, as Mike said, underwriting first and price second. And we recognize there's a correlation, there's a risk-adjusted return equation, but in the weighting of that risk adjusted, you have price and risk.

And I think one of the things that we've been very careful about is making sure that we're -- we will -- we would rather underwrite a super solid credit for less price than less credit for more price. And I think that principal has been guiding us throughout this. So even though it's "a borrower's market", I think, as Mike articulated, there's a number of companies that we finance that don't have quite as many they're not auctioning the whole process. There's a lot of value add to our partnership with them in terms of helping them execute on their deals that's not pure price.

So it's a relationship, it's service, it's confidence, it's a lot of things like that. So we're able to have sort of a value-added pricing, if you will, in what we do with quite -- most of what we do for that matter. So yes, we have to reflect a larger market, but we also reflect the quality and nature of what we're providing within the circumstances and the deals that we're looking at. But again, I think the thought to leave you with is that even in sort of "a borrower's market," there is a lot of selection going on in our shop toward the credit quality side of it. 

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

That's very helpful. And one final one from my perspective. I think if I look at Slide 11 and the industry snapshot, I think you mentioned 34 industries in that table. If we look at the industries and sectors today that you're looking at and/or underwriting in, has anything shifted in where you're willing to invest or go or maybe take on more size in certain industries versus where you've historically been? Any comments around that?

Michael Grisius -- Chief Investment Officer

Well, I think you'll notice in that slide that there's one, a lot of diversity, but -- and it's across a number of industries. And the common credit characteristics across them are still the same. We're looking for businesses that really offer a compelling value proposition to their customers in a way that we think is sticky, they're leaders in their fields. The end markets that they're operating in have good positive dynamics that are led by really strong management teams.

And so they can be in a lot of different industries, but they have those common characteristics. We have always -- I shouldn't say always, but over sort of the last five years, let's say, we made a distinct effort to develop expertise in three particular areas. We still are generalists, and we want to see businesses that have all the elements that I just described. But in addition to that, we've developed expertise in healthcare, education and then more broadly investing in SaaS business models.

And those are areas that we feel we have very, very strong underwriting capabilities in. You'll see us continue to deploy capital in those areas because, one, those industries generally and a SaaS is more of a business model than an industry, but nonetheless, they're less cyclical for one. And if you have a business that can bring a greater level of productivity or a greater outcome to those end markets, you're generally going to take share in those end markets because they are notoriously unproductive and not -- there are industries that have been under invested in that respect. And so if you're a business that's coming to market in a way that is helping take costs out of the system or driving greater productivity in those particular end markets.

And SaaS, I would say that's true just in general, that's a lot of what that business model is offering. You're going to do well generally regardless of the direction the economy takes. So hopefully, that gives you a sense of how we think about it as well. 

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

Yes, it does Thank you much.

Michael Grisius -- Chief Investment Officer

Thanks, Sarkis.


Our next question comes from Bryce Rowe with Hovde Group.

Bryce Rowe -- Hovde Group -- Analyst

Thanks. Good morning. I wanted to kind of follow up and maybe ask the question around post quarter end activity a little bit differently and wanted to get a feel for if you think about that activity having already been closed or booked here in the period post quarter end. Mike, maybe you could speak to kind of what the pipeline building process might be from this point forward? And then how to think about more broadly, you mentioned a more broad-based growth trends given the business development you have done over the last several years.

How does that kind of translate into what you think from a portfolio activity or origination activity going forward, maybe on an annual-type basis as opposed to taking your balance quarterly?

Michael Grisius -- Chief Investment Officer

Yes. No, I'm glad you -- go ahead.

Christian Oberbeck -- Chairman and Chief Executive Officer

Let me just jump -- go in before at a high level, and then I'll pass it on to the team here. I think that obviously, doing the level of net originations we did at the end of the quarter was extraordinary in our history. I think it's a testament to our team that both they were able to originate all that and that they were able to execute all that in such a short period of time. So I think that's something that we are very proud of having gotten to the level of being able to generate that and execute that.

So I think that's a very important sort of proof of capability, if you will, of our franchise. So I think that shows what we're capable of doing. Now one of the things we're not able to do is to predict what's coming our way. And so looking at any given quarter or any given month or any given week, one of our weeks was $50 million a week.

Are we going to do 52 of those? We'd love to do 52 of those. But that's probably not in the cards right now. So what we need to do from the market standpoint is we need to be ready, willing and able to react and address and proactively go after what fits our criteria when it's available. And so it happens to be a very robust time.

Why is it so robust right now? There's a lot of theories out there and you're in the investment business, you've heard tons of them, right? Part of it is pent-up demand from '20 because there wasn't very much that happened then. And so there's some pent-up demand. There's the threat of tax changes in Washington. There's a robust economy.

There's antitrust, let's get our deals done now before -- I mean, there's just so many things going on that have sort of lift the fire under sort of M&A fever, if you will. And there's tremendous records being set in M&A from the smallest of companies all the way to the most senior. There's demographic trends with baby boomers saying, OK, this is a good time. I'm 65 years old, I want to take some money off the table.

I mean, there's just so many factors contributing to why people might be wanting to sell right now. And then in a changed environment, maybe next year, that kind of can dissipate. That's not something that we're in a position to predict. But what we try and do is be in a position to handle what comes at us.

And if it does continue, we're going to be there to be able to execute on that. And if it doesn't, we're going to be prepared for that as well. And so that's kind of our broad look. And Mike, I'm sorry if we're cutting you off.

I think you had something to say as well.

Michael Grisius -- Chief Investment Officer

No, no, no. That's -- it's a terrific way to describe the macro perspective. And so all else equal, if the macro environment stays where it is, we feel good about our pipeline. We feel good about the investments that we've made in our infrastructure and relationships.

So we feel that our capacity to invest capital barring any changes in the macro trends is very solid and probably greater than what it has been historically. We, as you know, don't put a -- I'm glad to hear you ask the question more on an annual basis because we certainly don't think about investing quarter to quarter ever. That's the first way you get into trouble. I think as you know, I can't remember how many years ago, but there was one quarter where we did -- actually did no deals.

And that's kind of what you want from an investor, right? Somebody who just says, if I'm not seeing a good deal opportunity, I'm not going to do it just because that's what we do for a living. So we feel good about our ability to deploy capital. And probably given the investments that we've made at a bit greater pace than we have historically, but we're always going to be watchful market trends, and we're certainly not going to make any decisions that would be related to where we lower our underwriting borrower. We're going to be just as disciplined in that respect.

Bryce Rowe -- Hovde Group -- Analyst

OK. That's helpful. And certainly appreciate the approach and the perspective. Maybe a question here for Henri on the revenue side of things on the income statement.

Henri, it looks like you guys booked some more dividend income here in the quarter. I'm assuming that's related to the preferred equity investments that were made earlier in the year. It looks like both of those now have been repaid. Just kind of curious how you think about that line item going forward.

Is there another source of dividend income that you're seeing right now? And then also wanted to just get any level of commentary you have around the CLO, the CLO yield, given your comment about market volatility and seeing that yield kind of move around as much as it has over the last year, year and a half? Thanks.

Henri Steenkamp -- Chief Financial and Compliance Officer

Sure, Bryce. So to your first question, yes, we had three investments that had preferred equity that was paying a dividend income. And two of them have been repaid during the I think on this quarter on the previous quarter. So we're down to one investment.

Artemis Wax investment that has still preferred equity that pays dividends. So you're going to see that dividend income line come down, but there is still one investment that you will see dividend income from. For the rest and for the most part, other dividend income comes in at occasions from some other investments, but not that material or significant as you had on the preferred equity side. So that will simplify that line because I know that's a little bit more complicated.

And then, secondly, the second question was on -- sorry, Bryce. Second question was on --

Bryce Rowe -- Hovde Group -- Analyst


Henri Steenkamp -- Chief Financial and Compliance Officer

CLO, Sorry, yeah. So as you know, the CLO valuation has a lot of different variables that go into it. And one of the variables that impact the valuation and then also impacts the weighted average effective interest rate that drives our interest income on the CLO equity is market performance. And there were really two changes that impacted our cash flows this quarter from market perspective.

One was the change in the LIBOR curve. LIBOR effectively increased 35 basis points through the quarter. And it creates a timing difference between the time period that our assets reset at the LIBOR resets for the assets, which is more on a quarterly basis versus where on our liability side it resets on a monthly basis. So that created a reduction in our cash flows because of the LIBOR curve change.

And then secondly, we also saw a couple more investments that were deemed in default because we deem investments that are trading below -- I think it's 80 as being in default just for valuation purposes, doesn't mean they are in default, just for valuation purposes. And so we saw an increase in those assets during the quarter, again, from a market perspective and a marketing perspective. So the combination of those two decreased the cash -- the projected cash flows over the life of the CLO, which then drives the weighted average effective interest rate down. So obviously, depending on what the market does over the next two months through the end of February, that could drive a change in the interest rate again.

And obviously, as you know, the test is as of quarter end. So it's sort of not really relevant to what the market is doing now, it's really where the market is at the point in time at the end of February.

Bryce Rowe -- Hovde Group -- Analyst

Got it. Great. That's good color. Thanks.

That's all for me.


Our next question comes from Mickey Schleien with Ladenburg.

Mickey Schleien -- Ladenburg Thalmann -- Analyst

Yes. Good morning, everyone. Perhaps a question for Mike. One of your new investments this quarter was in LFR, which is in the restaurant sector.

And as we all know, that can be very difficult to underwrite. So could you describe what attracted you to LFR? And in particular, how much leverage is there in this deal?

Michael Grisius -- Chief Investment Officer

Mickey, thanks for the questions. Obviously, these are private companies, so we don't get into too much of the details -- on the great details in particular, of the business. But I can say that in this case, we obviously have a good experience in the restaurant space. And the underwriting bar was quite high.

This is a business that drives the majority of its cash flow as a franchisor. It's a business that's been around successfully since the '60s. It's unit economics for its underlying franchisees are stronger than most of its competitors in the space. And we did an awful lot of diligence to get very comfortable that we're in a good spot, a very good spot in the balance sheet relative to our debt.

So -- and it's generally in the scheme of looking at the deal relative to franchisor leverage multiples. It's very much on the low side of where you typically see a franchisor get leveraged.

Mickey Schleien -- Ladenburg Thalmann -- Analyst

Appreciate that, Mike. Henri, just curious, I suspect that may be due to timing, but why did you fund some of your investments this quarter with SBA debentures when you have so much cash on the balance sheet?

Henri Steenkamp -- Chief Financial and Compliance Officer

That's a good question. Mickey, it's always a balance. We tend to try to sort of balance funding in the SBIC versus outside the SBIC when we have excess cash, like we had this quarter. But at the same time, once you fund outside the SBIC, you can't later put the investment into the SBIC.

And so we try to never make decisions on funding with just a short-term view or short-term lens, we try to focus on sort of where we're going to get the highest return over the long term. And so in this quarter, where we had excess cash, we sort of balance that, whereas normally, if you're -- if you don't have so much efficient cash, it will just automatically always go into the SBIC because that's the highest return.

Mickey Schleien -- Ladenburg Thalmann -- Analyst

Right. I understand. And Henri, what -- if I'm not mistaken, there was a reversal for professional fee accruals. Can you just clarify that? And what's the outlook for that line item?

Henri Steenkamp -- Chief Financial and Compliance Officer

Sure, yeah. We've always tried to optimize costs. And this year, as we have been growing, we've actually been growing and building not just on the sort of the origination side but also on the expense line item side and the actual back office side. And so we've optimized some of our processes and optimize some of our vendors in a way where some of our accruals were higher than they were needed to.

And so we had a release of some of the expenses reflecting the activity sort of over the first nine months or so of the year. I think sort of going forward, definitely this quarter's not a run rate to be used going forward. It's probably more appropriate to use sort of the run rate from a quarterly perspective than we had in prior quarters. But our sort of optimization has allowed us to release some of the accruals we had, and it was really across accounting, legal and valuation. 

Mickey Schleien -- Ladenburg Thalmann -- Analyst

I appreciate that, Henri. And my last question. A lot of moving parts. So difficult for us to triangulate what -- where you stand undistributed taxable income.

Can you give us a sense of where that number is and how you intend to manage that?

Henri Steenkamp -- Chief Financial and Compliance Officer

Yeah. I think on the -- I haven't run the latest rig calc as of right now, but I think we went into the year, if you recall, with about quarter and a half spillover. That's obviously been covered completely. We most likely based on our current dividend rate and our earnings rate will have a spillover, I think, going into the end of February and I guess, into March into next year.

But we'll sort of say that the biggest set of that is during our year-end period. But you can expect it to be a spillover at the end of February.

Mickey Schleien -- Ladenburg Thalmann -- Analyst

I understand. Those are all my questions for today. appreciate your time. Thank you. 

Henri Steenkamp -- Chief Financial and Compliance Officer

Thanks, Mickey.


Our next question comes from Robert Dodd with Raymond James.

Robert Dodd -- Raymond James -- Analyst

Hi, guys. A question about origination mix. I'm more interested in the future, obviously. I mean, you've done a lot of follow on investments.

I mean, those are great, right, because you know the company as well, the underwriting comfort is probably higher. But can you give us any idea? Is -- given you've done so many and I think something approaching two-thirds or three-quarters of your portfolio companies and follow-on in the last 12 months, something like that. Should we expect there to be any less follow-ons in '22? Or do you expect that pace to stay elevated in those portfolio companies maybe to be serial acquirers? And on that, I mean, if there is a change in mix, would that change the dynamics of spread compression or yield conversion? Are you getting the same spreads on a follow-on as the existing loan to that business and lower spreads on new investments? Or is there any dynamic at play there?

Christian Oberbeck -- Chairman and Chief Executive Officer

Maybe I'll take that on a high level. To begin with, I think what you're touching on is a really important part of our investment strategy. I think a lot of our investments, I think, as Mike was mentioning in his portion, we do a lot of small deals. We start out with sometimes as low as $5 million or $10 million of initial investment, but we're often investing in growing companies and companies that grow through acquisition.

And so that's a very important part of what we do. And we think it's very helpful for us on pricing as a matter of fact, because we get in and we establish pricing when the companies are smaller. And then as they grow, we are better able to maintain perhaps some of our pricing than we would have if they were kind of going out to market de novo. So we think it's a helpful strategy, but it's also really what we do.

I mean, that's part of what our appeal is that we'll get involved with a company that's got growth plans that are coming into fruition, sometimes growth by acquisitions, sometimes it's internal funding, sometimes it's more aggressive internal funding. And so we are the type of partner where we're kind of in an active dialogue with our growth investments on what they need and when they need it. And then from their standpoint, they don't want to take down more money on the front end than they need to. They don't want to pay more interest and fees etc.

So there's kind of sort of a partnership exercise going on between the investee and us as to when to fund, what they need when. And so they want some just-in-time funding. And so there's kind of a combination of things, but it's much more a reflection of our investment strategy and the types of companies we're investing in, than some -- than sort of a market phenomenon, if you will. And now in terms of what proportions will have, I think our objective -- our growth objective is to have more new platforms because new platforms then lead to more follow-on investments in those platforms.

And so -- and then more investment opportunities with the sponsors of those new platforms. So we're very interested in the new platforms, and we're also very interested in supporting our existing portfolio. Mike, do you have something to add to that? 

Michael Grisius -- Chief Investment Officer

Yeah. I think you covered it, by and large, but it's a very good question. There's a sequence that you may -- and a bit of a pattern that you may see in our portfolio over time along those lines, where we'll make an initial investment and many of our initial platform investments are on the smaller side. And we intentionally are looking for opportunities to invest in some of these smaller companies where we know we're going to do the hard work at the front end, and then we'll have -- there's nothing better than getting a call from the owner of a company that's doing really well, and they're looking for more capital to execute on an acquisition that makes sense or to fuel their further growth.

And so there's a pattern there. Now you're right, at some point, especially for the private equity-owned platforms, they're going to look to exit and you've seen that pattern as well where we get to a certain size. And oftentimes, at some point, they exit that deal. It's one of the reasons why we are anxious to try to co-invest in the equity when we get that chance.

But reloading our balance sheet with new platform opportunities is a key to making that game plan work. And we've been successful so far and expect that we're going to continue to do that. 

Robert Dodd -- Raymond James -- Analyst

Got it. I appreciate that color. One more I got to ask, I mean, you increased the dividend this quarter, $0.53, earned that dividend this quarter, even in a quarter where prepay and activity was quite low. So clearly, that dividend is -- looks very solid to me.

Looking to December, obviously, significant AUM growth, much more activity so we should see income. I mean, I would expect -- the dividend coverage is not going to be a question. The question is, so what's the framework, Christian, as a member of the board. You said the board evaluates the dividend at least quarterly.

Can you give us any color on what lead -- what -- expectations might be the long word for it. But what the framework is for another dividend increase, given what appears to be continuing to -- continued expansion in earnings power --

Christian Oberbeck -- Chairman and Chief Executive Officer

Yeah, yeah. I mean, I think that's an excellent question. That's something that we are constantly evaluating ourselves. I think probably the base level principle here is as a BDC registered investment company, we have requirements for dividends, they don't always have to be cash dividends, but there's a dividend requirement that -- and I think Henri touched on it, we have our year end in February and then we've got tax filing in November.

And so we need to be in compliance. There's some flexibility around spillover amount, so you can, in effect, push forward some of your tax obligation. But there's a limit to how far you can push it forward. So our first principle here is what are our underlying requirements for payout.

And so we look at that. And then the second is liquidity. And then as you may recall, back in March of '20 when the impact of COVID was so heavily felt both in the markets and in the country and the world, we had 0 spillover at that moment. And so that was a store of liquidity, if you will, that we could have gone to sort of four quarters' worth of liquidity from that source had we needed it.

We did avail ourselves of some of that liquidity, which created some of the spillover. So we look at spillover, we look at our cost, spillover is like a 4% cost of capital. You got an excise tax of 4% on anything you have in spillover. So there's a cost to spillover and then we have a cost to all of our other financing.

So we look at it in that context. And we also look at it as our -- what are our sources of liquidity if things go against us or go against the marketplace in general. And then we also want to have a dividend rate that is sustainable in the future barring crazy events. And so what we're trying to do is establish a trajectory and a level of our dividends that our investors can have confidence that are sustainable.

So those are kind of the main factors that go into it. And as you can well imagine, every quarter is a slightly different picture when it comes time to make that declaration. And so that's what goes into it. And we do a fresh relook at everything certainly every quarter and actually more often than that. 

Robert Dodd -- Raymond James -- Analyst

Got it. I appreciate that. Thank you.


That concludes today's question-and-answer session. I'd like to turn the call back to Mr. Oberbeck for closing remarks.

Christian Oberbeck -- Chairman and Chief Executive Officer

Well, we appreciate everyone's time and attention to Saratoga, and I want to thank everyone for joining us today, and we look forward to speaking with you next quarter.


[Operator signoff]

Duration: 87 minutes

Call participants:

Henri Steenkamp -- Chief Financial and Compliance Officer

Christian Oberbeck -- Chairman and Chief Executive Officer

Michael Grisius -- Chief Investment Officer

Casey Alexander -- Compass Point -- Analyst

Sarkis Sherbetchyan -- B. Riley Financial -- Analyst

Bryce Rowe -- Hovde Group -- Analyst

Mickey Schleien -- Ladenburg Thalmann -- Analyst

Robert Dodd -- Raymond James -- Analyst

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