Saratoga Investment (SAR) has just reported its quarterly results, which ended on August 31, 2022. We were curious about the status of Knowland Technology Holdings (aka Knowland Group) - still the only portfolio of the company on non-accrual. Last time we discussed the company on July 7, we said the following:
"Knowland and SAR, according to the latter, might agree to converting the cash interest payments to pay-in-kind, which might allow the BDC to resume recognizing income. This quarter, though, the BDC reversed 5 months of interest while placing the debt on non accrual. The fact that SAR is considering such a move is bullish from a credit standpoint.
Clearly, Knowland – the only non accrual on SAR’s books – will be worth tracking because of the current and future material impact on the BDC’s earnings and net asset value. We’ll revert with any development we pick up from the public record, or when SAR reports its next quarterly results.
Based on the most recent valuation, nothing much has yet been resolved at Knowland. The $15.9mn invested in second lien debt has been marked down from a $10mn FMV at the end of May to $9.7mn, and remains non performing.
We've had a fresh look at the public record and found nothing to explain the decreasing value. At this point, though, some sort of realized loss seems more likely than not. Given the second lien status of the SAR debt, a complete write-off must be a possibility, but for the moment our OUTLOOK - as shown in the Company File for Knowland - is for a 50%-75% realized loss when everything gets resolved.