Item
1.01. Entry into a Material Definitive Agreement.
On October 4, 2021 Saratoga
Investment Corp. (the “Company”), in its capacity as collateral manager and equityholder, and its wholly-owned
special purpose subsidiary, Saratoga Investment Funding II, LLC (“SIF II” or the “Borrower”),
as borrower, entered into a senior secured credit facility (the “Credit Facility”) with Encina Lender Finance,
LLC (“Encina”), acting as administrative agent and as collateral agent.
The Credit Facility is evidenced
by the Credit and Security Agreement, dated as of October 4, 2021 (the “Credit Agreement”), by and among the
Borrower, the Company, as collateral manager and equityholder, the lenders party thereto, Encina, as administrative agent for the secured
parties and the collateral agent, and U.S. Bank National Association, as collateral custodian for the secured parties and as collateral
administrator. The Credit Facility provides for borrowings in U.S. dollars in an aggregate amount of up to $50.0 million. During the first
two years following the closing date, SIF II may request an increase in the commitment amount from $50.0 million to up to $75.0 million.
The terms of the Credit Facility require a minimum drawn amount of $12.5 million at all times during the first six months following the
closing date, which increases to the greater of $25.0 million or 50% of the commitment amount in effect at any time thereafter. The term
of the Credit Facility is three years. Advances are available during the term of the Credit Facility and must be repaid in full at maturity.
SIF II may request an extension of the maturity date by an additional one year, subject to the agreement of the lenders.
Advances under the
Credit Facility are subject to a borrowing base calculation, with advance rates on eligible loans ranging from 50% to 75%. The
Credit Facility has numerous eligibility criteria for loans to be included in the borrowing base. Advances under the Credit Facility
bear interest at a floating rate per annum equal to LIBOR plus 4.0%, with a LIBOR floor of 0.75%, and with customary provisions
related to the selection by the Lender and the Company of a replacement benchmark rate. The Borrower must pay an unused fee on the
amount by which the commitment amount exceeds outstanding principal amounts on each day at a rate per annum equal to 0.75% if usage
is less than 50% of the commitment amount, or 0.50% if usage is less than or equal to 50% of the commitment amount. The
Borrower’s obligations to the lenders under the Credit Facility are secured by a first priority security interest in
substantially all of the Borrower’s assets. In addition, the Borrower’s obligations to the lenders under the Credit
Facility are secured by a pledge by the Company of its equity interests in SIF II, which is evidenced by the Equity Pledge
Agreement, dated as of October 4, 2021 (the “Equity Pledge Agreement”), by and between the Company and
Encina, as collateral agent for the secured parties.
In connection with the Credit
Agreement, the Company and SIF II entered into a Loan Sale and Contribution Agreement, dated as of October 4, 2021 (the “Sale
and Contribution Agreement”), pursuant to which the Company will sell or contribute certain loans held by the Company to
SIF II to be used to support the borrowing base under the Credit Facility. The Credit Facility permits loan proceeds and excess cash in
the Borrower’s collection accounts to be distributed to the Company on a weekly basis after payment of other outstanding amounts,
subject to compliance with various conditions, including the absence of a default or event of default, the absence of an overadvance against
the borrowing base and the absence of a violation of the financial covenants.
In connection with the Credit
Facility, the Company has made certain customary representations and warranties and is required to comply with various covenants, reporting
requirements and other customary requirements for similar financings. Pursuant to the terms of the Credit Agreement, the Borrower must
comply with the following financial covenants: (i) an Interest Coverage Test and (ii) an Overcollateralization Test.
The Credit Facility contains
customary events of default for similar financing transactions. Upon the occurrence and during the continuance of an event of default,
Encina may terminate the commitments and declare the outstanding advances and all other obligations under the Credit Facility immediately
due and payable, subject to certain grace and standstill periods outlined in the Credit Agreement.
The foregoing description
is only a summary of the material provision of the Credit Facility and is qualified in its entirety by reference to copies of the Credit
and Security Agreement, the Equity Pledge Agreement, and the Sale and Contribution Agreement, which are filed as Exhibits10.1, 10.2, and
10.3, respectively, to this Current Report on Form 8-K and incorporated by reference herein. Capitalized terms not defined herein shall
have the meanings assigned to such terms in the Credit and Security Agreement.