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. During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, we will open the line for questions. 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.
Thank you. I would like to welcome everyone to Saratoga Investment Corp.'s 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. 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.
Thank you, Henri, and welcome everyone. Our fiscal 2022 third quarter performance continues to reflect the strength and resilience of our financial position at 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 Teachers of Tomorrow
We continue to bring new platform investments into the portfolio, with two added this fiscal quarter, and all of our originations were made while maintaining 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 two. First, we continued 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.
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 at 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 with 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 Two fund.
$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 Two debt is currently less than 2%, and the total committed undrawn lending commitments outstanding to existing portfolio companies are $21 million. 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 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 twelve 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 three, our assets under management have 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 non-accruals 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.
Thank you, Chris. Slide four 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 call period, adjusted NII of $6.1 million was down 13.0% 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 resultant 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 Tuckahoe 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, our EPS. The $3.9 million net gain on investments was comprised of $9.9 million in net realized gains and $2.5 million of deferred tax benefit on unrealized appreciation, offset by $6 million in net unrealized appreciation 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 Teachers of Tomorrow investment sale. The $6 million net unrealized appreciation reflects, firstly, the $7.7 million and $2.6 million reversal of previously recognized appreciation on the GreyHeller and Teachers of Tomorrow equity realizations respectively. Secondly, a $2.6 million unrealized appreciation 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 Q1 of last year has been more than reversed since May 31, 2020, and the overall portfolio 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 slide 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 our significant amount of Q3 undeployed cash. Moving on to slide five.
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 six, 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 0.04 Decrease in non-CLO net interest income, a 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 Benefit 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 appreciation. The 0.52 dividend paid in Q3 and a 0.07 realized loss on extinguishment of debt. Slide seven 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 it 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 + 4% with a 75 basis points 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 eight through 11 and review the composition and yield of our investment portfolio. Slide eight 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 nine, you can see how the yield on our core BDC assets, excluding our CLO and syndicated loans, as well as our total assets yield has dropped below 9% this year. This is partly due to continued tightening of spreads in our market, but also due to a mix shift as some of our high yielding assets were repaid this quarter. In addition, our equity position this fiscal year has almost doubled from 5.7%- 10.3% in Q3. 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 deferred equity earning 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-over-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 54 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 interests, 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 interests or sale or early redemption of other investments. This quarter alone, we generated $9.9 million of realized gains from two of our realizations. 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.
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 and 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. 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 ends, 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. In addition to not having any new non-accruals through COVID, we have zero non-accruals across our whole portfolio. We also recognize $3.9 million in net realized and unrealized gains this quarter, which means that our overall portfolio has more than recovered the unrealized appreciation associated with COVID last year. 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. 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're at the top of a 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 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 Teachers of Tomorrow 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 increased 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 sourcing remains robust, but has dropped the past two years, initially due to COVID-19, 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. 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. This is supported by 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 on realized 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 Teachers of Tomorrow 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 appreciations remaining due to COVID-19 are in our Knowland 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 appreciation 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 are 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. 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?
Thank you, Mike. 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 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 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 15%, 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% cost liquidity, a BBB+ 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's 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 a call for questions.
Thank you. If you'd like to ask a question at this time, please press the star then the number one key on your touch-tone telephone. To withdraw your question, press the pound key. Our first question comes from Casey Alexander with Compass Point.
Hi, good morning. 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 significantly lower cost than the Encina line that you guys did. What does this lender finance credit facility program give you that a traditional bank at a lower rate would not?
Yeah, sure. Casey, that'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. 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. Things like tangible net worth, you know, EBITDA, you know, such as multiple quarters of negative bottom lines, et cetera. The facility can be triggered and repayment can get triggered through these BDC level covenants. We've constructed our balance sheet from the start, you know, 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 to, you know, this HPB, this credit facility entity. Our facility is structured in a way that, again, similar to the Madison facility, which was like that as well, doesn't have any, you know, firm-wide, BDC-wide covenants. It's a really important feature to us. Yes, we're paying up for it, but it provides us flexibility so that we have cash available if we need. But doesn't put, you know, any the franchise, the business as a whole at risk because of something, you know, very specific to the market that could happen in the HPB itself.
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.
Yeah. If I could just weigh in a little here on that, as well to just add to Henri's, you know, very thorough explanation. You know, Casey, you know, if you remember back the dark days of, you know, March of 2020 and April of 2020, 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. You know, at that time, you know, 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 type of things were not something we had to worry about at that moment. That's always been very important to us. You know, your point is well taken that there are lower cost approaches to financing, but those come with lots of formulaic requirements. You know, 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. You know, at some point in time, you know, facilities like that may make more sense to us than they do right now.
We've been working very hard, you know, forever, from the very beginning at having a capital structure that allows us, you know. Unfortunately, for whatever reason it is, we live in an era of lots of calm and then some massive sudden down spikes. We just wanna make sure that we're insured against the massive down spike. Really not only defensively but also offensively. I mean, as you know, we were able to keep investing right through that very dark period in that second quarter of 2020 and you know, 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.
That's really kind of the thinking behind it. Again, your point is well taken about optimization of costs, you know, of cost of financing, but we're also trying to optimize, you know, safety and concern. Not to go too far into it, but you know, 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 costs we had in that facility.
All right. Thank you for that answer. My next question, again, kind of back to Henri, and maybe Henri, Mike, sort of everybody. In this quarter, in the fiscal third quarter, you made fairly aggressive use of the ATM. $15 million is a fair amount for an ATM in one quarter. I can assume that you knew you had in the pipeline a lot of deals that were gonna be closing in December, because that clearly is what happened. Would you characterize your usage of the ATM in this quarter as a normal rate, an above normal rate? Would you know, as you see originations moderating for, you know, 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.
Sure. Casey, you know, that's a very good question and a very important one. I think, you know, on a very high level, if you look at, you know, the overall BDC industry, and I know you're an expert in it. You know, the periods of time when BDCs have been able to raise equity capital has not been continuous, right? 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, you know, trading at below NAV and market conditions and the like. On one level, we're looking at kind of a long-term horizon, which is our broad-based growth trend. Our broad-based growth trend is significantly up. Our relationships are building.
I think as Mike went through in his presentation, you know, we're developing a lot of relationships and a lot of deal flow. I think that the level of our recent months, you know, shows, you know, not only our relationships to generate the deal flow but also our ability to execute. We believe in the long run, you know, 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. Part of it is really taking advantage of, you know, the market's receptivity to equity raises, you know, when it's available. That's one thing.
We're not really tying it specifically to you know, this next quarter and this next you know, set of originations. It was really much more of a broad gauge. You know, what kind of equity levels are appropriate over our next you know, one, two, three, four years as we look out into the future. You know, in terms of you know, what we intend to do going forward, you know, part of it's gonna be driven by market receptivity, and part of it's gonna be driven by how we see the environment in terms of originations and our capital structure.
Okay. Well, I would just, you know, kind of interject into that ATMs are, you know, sort of a spigot for available near-term liquidity, but you don't want the ATM to become, you know, so much supply that it 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 gonna 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, you know, does it potentially bottom out? Or does it bottom out? Are we moving to a new paradigm of yields that are gonna embed themselves in the lower middle market?
Boy, oh boy, Casey, that's quite. If I had a crystal ball, look, I think it's a fair question, and certainly we've seen yield compression. Over the years, I've often, you know, tried to look forward and think about that from a macro level. One of the things that I've learned over the years, thankfully, is that, you know, for us, the way we look at it is we wanna make sure that we're seeing plenty of deal opportunities where we can deploy capital in a way that's accretive for our shareholders. If you look at the yields that we book new deals at this past quarter, which is, you know, averages north of 8%, let's say somewhere 8.5%.
We can deploy capital at that level very accretively for our shareholders, especially as our cost of capital's come down. I think our cost of capital in the SBIC is less than 2%. Henri mentioned where the institutional, you know, bonds are priced at, et cetera. 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, where, you know, the COVID scare, where there hasn't really been a massive disruption in the markets, in 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. This management team has been through a number of cycles. 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. That's kind of a bit of a long-winded way of saying that we're not gonna put ourselves in a position where we're gonna stretch for yield.
In hot markets, you've gotta 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, you know, we need to have a yield that's X because that's where BDCs typically get a yield. 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. That's the approach that we've taken. I think, you know, 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.
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, you know, as I mentioned, you know, getting 16.4% unlevered returns on realized investments of over $750 million. You know, that's also happening not just by spread, but by, you know, much of what we've done in terms of investing in equity in a way that's been, you know, very beneficial to our shareholders. Hopefully that gives you a perspective of how we think about it. It's hard for us to try to time or predict too much where spreads are gonna go.
Okay. Thank you for that, Mike. I have one more question, and I apologize if I'm co-opting the call just a little bit. 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 the 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 gonna do?
Well, Casey, I wish that were exactly the case. I guess I'd say a couple things. I think when the whole COVID thing hit, you know, there was this massive shock to the system, a massive decline in the stock market and massive dry up of liquidity. You know, all sorts of things reminiscent of like 2008, you know, going on in the marketplace. Plus a tremendous amount of mystery around what COVID would do. I mean, was it the Black Death, where we're gonna have 30% fatalities? I mean, there's just a whole bunch of things that were completely unknown.
I think, you know, as we fast-forward to today, you know, there's a lot more experience, there's a lot more, you know, 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, you know, less of a mystery and more of something that's, you know, kind of a quantifiable, manageable risk, if you will. Omicron, I mean, you know, I think everybody's still learning about that. I mean, that's sort of coming on us real fast and furious. To say that, you know, we have a playbook for Omicron is maybe you know, that's, you know, we're just not in a position to say we do have one. You know, the early data, I mean, I'm not saying anything that.
We're certainly not an expert on this field, but I mean, you know, it looks as if, you know, the marketplace in general is viewing Omicron as, you know, something that, you know, we're gonna 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. But in terms of the response in terms of our playing offense, I think, you know, again, going back to that time, you know, in 2020, everything kind of dried up and all the incoming calls to us were about, you know, how do we rescue our capital structure kind of thing. Where now, you know, we're sort of an environment where massive acquisitions, growth.
you know, we are, you know, responding to, you know, a lot of what the market is presenting to us, obviously using all the credit, you know, skills we have to try and structure things that we think, you know, take advantage of the moment, but also protect us if there is a reversal in the future. I think if you look at our credit metrics, if you look at, you know, our attachment points and all those types of things and the types of companies we're financing, you know, we feel pretty good about our portfolio as we did back then. yeah, I would just say that also I think, you know, financially, I think we're in a, you know, in a stronger position than we were back then.
Our knowledge base is better and the world is better. I think there's more tools to apply against something that's, you know, better understood for the moment.
Hey, Chris, let me just jump in a little bit too.
Okay.
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 the 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. 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.
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-a-vis going back a few years ago, we've really been successful in growing our relationship set. That takes quite a while. We do a lot of vetting of these relationships. Many of them we've been courting for years. 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.
If you were to go back a few years, separate and apart from anything related to COVID, et cetera, we wouldn't have had, you know, seven new portfolio companies with new relationships. That's just a reflection of the investments that we've been making in building the franchise and are continuing to do.
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. Thank you very much.
Thank you, Casey.
Thanks, Casey.
Thanks, Casey.
Our next question comes from Sarkis Sherbetchyan with B. Riley Securities.
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, you know, this being essentially a borrower's market, you know, the tighter spreads, the aggressive leverage multiples, and it being pretty competitive out there relative to if we kind of look at the comments, the $130 million in new originations after quarter end. 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?
Well, it's the challenge that we face all the time in our business. I sort of use the term that we've always got one foot on the gas and one foot on the brakes 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. I think we've done a really good job of it over the years. It's one of the reasons our growth has been, you know, candidly slow and steady over the years. We continue to turn down far more deals than we do. 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, you know, we think our track record speaks for itself. You know, 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 higher quality deals in this marketplace. I think most importantly, we're seeing deals from relationships that we didn't have before. That now has enabled us to kind of cast a wider net, if you will, or a higher quality net. 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.
That's a lot of even that post quarter end production is a little less reflective of, you know, a super active M and A market, which there certainly is one, and more reflective of us deploying capital in existing portfolio companies.
Yeah, if I could just add a little to that. I think you know, a guiding principle from the very beginning in our you know, credit process has been, as Mike said, you know, underwriting first and price second. We recognize there's a correlation you know, you know, there's a risk-adjusted return equation. But in the weighting of that risk-adjusted, you have price and risk. I think one of the things that we've been very careful about is making sure that we're you know, we would rather underwrite a super solid credit for less price than less credit for more price. I think that principle has been guiding us throughout this.
Even though it's, quote, 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, you know. 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. It's not pure price, you know. It's relationships, it's service, it's confidence, it's a lot of things like that. We're able to, you know, have sort of a, you know, value-added pricing, if you will, in what we do with quite a, you know, with most of what we do for that matter.
Yes, we have to reflect our larger market, but we also reflect the quality and nature of what we're providing, you know, within the circumstances and the deals that we're looking at. Again, I think the thought to leave you with is that, you know, our even in a, you know, sort of, quote, a borrower's market, there is a lot of selection going on in our shop, towards the, you know, the credit quality side of it.
That's very helpful. Thank you. One final one from my perspective. You know, 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?
Well, I think you'll notice in that slide that there's a lot of diversity, but it's across a number of industries, and the common credit characteristics across them are still the same. You know, 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 field. The end markets that they're operating in have good positive dynamics. They're led by really strong management teams. They can be in a lot of different industries, but they have those common characteristics. We have always, you know, 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 wanna see businesses that have all the elements that I just described. In addition to that, we've developed expertise in healthcare, education, and then more broadly, investing in SaaS business models. 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 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 gonna take share in those end markets because they're notoriously, you know, unproductive and not. They're industries that have been under-invested in that respect. 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 gonna do well generally, regardless of, you know, the direction the economy takes. Hopefully that gives you a sense of how we think about it, as well.
Yep, it does. Thank you much.
Thanks, Sarkis.
Our next question comes from Bryce Rowe with Hovde Group.
Thanks. Good morning. Wanted to kind of follow up and maybe ask the question around post-quarter end activity a little bit differently. Wanted to get a feel for, you know, 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. Then, you know, how to think about more broadly. You mentioned, you know, a more broad-based growth trends given the business development that you all have done over the last several years.
How does that kind of translate into, you know, what you think from a, you know, portfolio activity or origination activity, going forward, maybe on an annual type basis as opposed to thinking about, you know, quarterly?
Yeah. No, I'm glad you.
Mike, let me just go in at that high level and then I'll pass it on to the team here. You know, I think that you know, 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, you know, in such a short period of time. I think that's something that you know, we're very proud of having gotten to the level of being able to generate that and execute that.
I think that's a very important, you know, sort of, you know, proof of capability, if you will, of our franchise. 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. You know, looking on any given quarter or any given month or any given week, you know, one of our weeks was $50 million week. Are we gonna do 52 of those? We'd love to do 52 of those, you know, but that's probably not, you know, in the cards right now.
What we need to do from the market standpoint is we need to be ready, you know, willing and able to, you know, react and address and proactively go after what fits our criteria when it's available. It happened to be a very robust time. Why is it so robust right now? You know, there's a lot of theories out there, you know, you're in the investment business, you've heard tons of them, right? Part of it is pent-up demand from 2020 because there wasn't very much that happened then. There's some pent-up demand. There's the threat of tax changes in Washington. There's, you know, a robust economy.
You know, antitrust, so let's get our deals done now before the. I mean, there's just so many things going on that have sort of lit the fire under sort of M and A fever, if you will. There's tremendous, you know, records being set in M and A from the smallest of companies all the way to the most senior. There's demographic trends with, you know, baby boomers, you know, saying, "Okay, this is a really good time. You know, I'm 65 years old. I wanna, you know, take some money off the table." There's just so many factors contributing to why people might be wanting to sell right now. In a changed environment, you know, maybe next year that kind of can dissipate. That's not something that we're in a position to predict.
What we try and do is be in a position, you know, to handle what comes at us. If it does continue, you know, we're gonna be there to be able to execute on that. If it doesn't, we're gonna be prepared for that as well. That's kind of our, you know, our broad look. Mike, I'm sorry for cutting you off. I think you had something to say as well.
No. That's it a terrific way to describe the macro perspective. All else equal, if the macro environment stays where it is, you know, we feel good about our pipeline. We feel good about the investments that we've made in our infrastructure and relationships. 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. As you know, 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 no deals. 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 gonna do it just 'cause you know, that's what we do for a living." 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, we're always gonna be watchful of you know, market trends and, you know, we're certainly not gonna make any decisions that would you know, be related to where we lower our underwriting bar. We're gonna be just as disciplined in that respect.
Okay. 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 know, 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, and it looks like both of those now have been repaid. Just kind of curious how you think about, you know, that line item going forward. Is there another source of dividend income that you're seeing right now?
Wanted to just get any level of commentary you have around, you know, the CLO, the CLO yield, you know, given, you know, your comment about market volatility and seeing that yield kind of move around as much as it has over the last year and a half. Thanks.
Yeah, sure, Bryce. 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, I think one this quarter, one the previous quarter. We're down to one investment, the Artemis Wax investment that has still preferred equity that pays dividends. You're gonna 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, you know, comes in, you know, on odd occasions from some other investments, but not that materially significant as you had on the preferred equity side. That'll simplify that line because I know that's a little bit more complicated.
Secondly, what was the second question on? Sorry, Bryce.
CLO.
The second question was on CLO. Sorry, yes. As you know, the CLO valuation has a lot of different variables that could go into it. You know, one of the variables that impact the valuation and then also impact the weighted average effective interest rate that drives our interest income on the CLO equity is market performance. There were really two changes that impacted our cash flows this quarter from a market perspective. One was the change in the LIBOR curve. LIBOR effectively increased 35 basis points through the quarter. It creates a timing difference between the time period that our assets reset, that 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.
That created a reduction in our cash flows because of the LIBOR curve change. Secondly, we also saw a couple more investments that were deemed in default because we deem investments that are trading below 80 as being in default just for valuation purposes. Doesn't mean they are in default, just for valuation purposes. We saw an increase in those assets during the quarter, again from a market perspective and a marking perspective. The combination of those two decreased the projected cash flows over the life of the CLO, which then drives the weighted average effective interest rate down.
You know, obviously depending on what the market does over the next two months through the end of February, you know, that could drive a change in the interest rate again. Obviously, as you know, the test is as of quarter end, so it's sort of not really relevant what the market's doing now. It's really where the market is at the point in time at the end of February.
Got it. Great. That's good color. Thanks. That's all for me.
Our next question comes from Mickey Schleien with Ladenburg.
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. As we all know, that can be very difficult to underwrite. Could you describe what attracted you to LFR? In particular, how much leverage is there in this deal?
Good morning, Mickey, and thanks for the questions. You know, obviously these are private companies, so we don't get into too much of the details on, you know, the great details in particular of the business. I can say that, you know, in this case, we obviously have good experience in the restaurant space and the underwriting bar was quite high. This is a business that derives the majority of its cash flow as a franchisor. It's a business that's been around successfully since the sixties. Its unit economics for its underlying franchisees are stronger than most of its competitors in the space.
We did an awful lot of diligence to get very comfortable that we're in a, you know, good spot, very good spot in the balance sheet relative to our debt. It's, you know, 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.
Appreciate that, Mike. Henri, just curious, I suspect it 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?
That's a good question, Mick. It's always a balance. You know, we tend to try to sort of, you know, balance funding in the SBIC versus outside the SBIC when we have excess cash like we had this quarter. At the same time, once you fund outside the SBIC, you can't later put the investment into the SBIC. We try to never make decisions on funding, you know, with just a short-term view or short-term lens. We try to focus on sort of where we're gonna get the highest return over the long term. In this quarter where we had excess cash, we sort of balanced that.
Whereas normally if you don't have so much excess cash, it will just automatically always go into the SBIC because that's the highest return.
Right. I understand. Thank you, Henri. Henri, what if I'm not mistaken, there was a reversal for professional fee accruals. Can you just clarify that? What's the outlook for that line item?
Sure. Yeah. We, you know, we've always tried to optimize costs. This year, as we have been growing, we've actually been growing and building not just on the origination side, but also on the expense line item side and the actual back office side. We've optimized some of our processes and optimized some of our vendors in a way where some of our accruals were higher than they were needed to. We had a release of some of the expenses reflecting now the activity over the first nine months or so of the year. I think going forward, you know, definitely this quarter is 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 that we had in prior quarters. Our sort of optimization has, you know, allowed us to release some of the accruals we had. It was really across accounting, legal, and valuation.
I appreciate that, Henri. My last question. A lot of moving parts, so difficult for us to triangulate what you know where you stand on undistributed taxable income. Can you give us a sense of where that number is and how you intend to manage that?
Yeah, I think on the, you know, I haven't run the latest recalc as of right now. I think, you know, we went into the year, if you recall, with about a 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. You know, we'll sort of assess that. The big assessment of that is during our year-end period. You can expect there to be a spillover at the end of February.
I understand. Those are all my questions for today. I appreciate your time. Thank you.
Thank you.
Thanks, Mickey.
Our next question comes from Robert Dodd with Raymond James.
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 companies well. You know, the underwriting comfort is probably higher. But can you give us any idea given you've done so many and you know, I think something approaching two-thirds or three-quarters of your portfolio companies have had follow-on in the last 12 months, something like that. Should we expect there to be less follow-ons in 2022? Or do you expect that pace to stay elevated and those portfolio companies maybe to be serial acquirers?
On that, I mean, if there is a change in mix, would that change the dynamics of spread compression or yield compression? 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?
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, you know, we do a lot of small deals. We start out with, you know, sometimes as low as $5 million or $10 million of initial investment. We're often investing in growing companies and companies that grow through acquisition. So that's a very important part of what we do. 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.
As they grow, you know, better able to maintain perhaps some of our pricing than we would've if, you know, if they were kind of going out to the market de novo. We think it's a helpful, you know, strategy, but it's also really what we do, right? I mean, that's part of what our appeal is, that we'll get involved with a company that's got, you know, growth plans that are, you know, coming into fruition. Sometimes growth by acquisition, sometimes it's internal funding, sometimes it's more aggressive internal funding. We are the type of partner where, you know, we're kind of in an active dialogue with our growth investments on what they need and when they need it.
From their standpoint, they don't wanna take down more money on the front end than they need to. They don't wanna pay more interest and fees, et cetera. There's kind of a you know, sort of a partnership exercise going on between the investee and us, you know, as to when to fund what they need when. You know, they want some just-in-time funding and so there's kind of this combination of things. It's much more a reflection of our investment strategy and the types of companies we're investing in than some you know, than sort of a market phenomenon, if you will.
Now in terms of, you know, what proportions we'll have, I think, you know, our objective, our growth objective is to have more new platforms because new platforms then lead to more follow-on investments in those platforms. Then more investment opportunities with the sponsors of those new platforms. We're very interested in the new platforms, and we're also very interested in supporting our existing, you know, portfolio. Mike, do you have something to add to that?
No, I think you covered it by and large. It's a very good question. There's a sequence that you may see 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.
Mm-hmm.
We intentionally are looking for opportunities to invest in some of these smaller companies where we know we're gonna 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. So there's a pattern there. Now, you're right. At some point, especially for the private equity-owned platforms, they're gonna look to exit. You've seen that pattern as well, where we get to a certain size and you know oftentimes at some point they you know 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. Reloading our balance sheet with new platform opportunities is key to making that game plan work. We've been successful so far and expect that we're gonna continue to do that.
Got it. I appreciate that color. Thanks a lot. One more I gotta ask. I mean, you increased the dividend this quarter to 0.53. Earned that dividend this quarter, even in a quarter where prepay and activity was quite low. So, you know, clearly that dividend 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. You know, I think, you know, the dividend coverage is not gonna be a question. The question is, so what's the framework, Christian, as a member of the board? You know, you said the board evaluates the dividend at least quarterly.
Can you give us any color on, you know, what expectations might be the long word for it, but what the framework is for another dividend increase given what appears to be, you know, continuing expansion in earnings per the platform?
Yes, 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 that 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 a tax filing in November. We need to be in compliance. There's some flexibility around spillover amounts, 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.
Our first, you know, principle here is, you know, what are our underlying requirements for payout? You know, so we look at that. The second is liquidity. You know, as you may recall, back in, you know, in March of 2020 when, you know, the impact of COVID was so heavily felt both, you know, in the markets and in the country and the world, you know, we had zero spillover at that moment. That was a store of liquidity, if you will, that, you know, we could have gone to sort of four quarters worth of liquidity, you know, from that source had we needed it.
We did avail ourselves of some of that liquidity, which created some of the spillover. We look at spillover, our cost. You know, spillover is like a 4% cost of capital. You know, you get an excise tax of 4% on anything you have in spillover. You know, there's a cost to spillover, and then we have a cost to all of our other financing. We look at it in that context. We also look at it as our sources of liquidity, you know, if things go against us or go against the marketplace in general.
We also wanna have a dividend rate that is sustainable in the future and you know, barring you know, crazy events. What we're trying to do is establish a trajectory and a level of our dividends that you know, that our investors can have confidence that are sustainable. You know, those are kind of the main factors that go into it. As you can you know, well imagine, every quarter is a slightly different picture, you know, when it comes time to make that declaration. That's what goes into it. We do you know, do a fresh re-look at everything you know, certainly every quarter and actually more often than that.
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.
Well, you know, we appreciate everyone's time and attention to Saratoga, and we wanna thank everyone for joining us today, and we look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for participating. You may now disconnect.