Business Context and Reporting Period
Company: Runway Growth Credit Fund Inc. (a Business Development Company and Regulated Investment Company)
Reporting Period: Quarter ended March 31, 2020
Overview: The Company is an externally managed, non-diversified closed-end investment company focused on lending to and investing in small, fast-growing U.S. companies. As of March 31, 2020, the portfolio consisted of 27 portfolio companies, primarily in technology, healthcare, and consumer services sectors. The Company maintains a dividend reinvestment plan and has completed multiple closings under its Second Private Offering.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net Asset Value (NAV) per Share | $14.25 | $15.13 |
| Total Net Assets | $376.4 million | $238.0 million |
| Total Investments at Fair Value | $411.4 million | $312.4 million |
| Net Investment Income | $9.64 million ($0.37/share) | $8.07 million ($0.55/share) |
| Net Increase in Net Assets from Operations | $1.75 million ($0.07/share) | $5.83 million ($0.40/share) |
| Cash and Cash Equivalents | $16.8 million | $3.0 million |
| Debt Outstanding (Credit Facilities) | $0 | $61.0 million |
| Reverse Repurchase Agreements | $49.8 million | $74.6 million |
Material Changes vs. Prior Period
- Net Income Decline: Net increase in net assets from operations decreased by approximately 70% compared to Q1 2019. This was driven by a net realized loss of $6.7 million (primarily from the Aginity, Inc. loan) and net unrealized depreciation of $1.2 million, offsetting higher investment income.
- Debt Reduction: The Company repaid $83 million in borrowings under its Credit Agreement during the quarter, resulting in zero outstanding debt as of March 31, 2020, compared to $61 million at year-end 2019.
- Portfolio Composition: Senior Secured Term Loans comprised 79.2% of the portfolio at fair value. The Company funded $69.7 million in new investments and $13.5 million in follow-on investments.
- NAV Decline: NAV per share decreased from $14.58 at the beginning of the period to $14.25, reflecting realized losses and unrealized depreciation.
Outlook, Risks, and Management Commentary
- COVID-19 Impact: Management highlights significant uncertainty regarding the pandemic's impact on portfolio company performance and investment valuations. Valuations as of March 31, 2020, may not fully reflect future adverse impacts, and further write-downs are possible.
- Asset Quality: As of March 31, 2020, no loans were on non-accrual status. However, effective April 1, 2020, two loans to Mojix, Inc. (aggregate principal $11 million) were placed on non-accrual status.
- Liquidity: The Company holds $16.8 million in cash and has $30.6 million in unfunded loan commitments. Management believes available cash and capital commitments are sufficient to cover these obligations.
- Distributions: The Company declared a dividend of $0.40 per share for the quarter. On May 7, 2020, a subsequent dividend of $0.35 per share was declared. The Company may reduce or defer dividends to preserve cash if economic conditions worsen.
- Interest Rate Risk: 100% of the debt portfolio bears variable interest rates (LIBOR or Prime). The phase-out of LIBOR by 2021 presents uncertainty regarding future interest rate benchmarks.
Investor Verification Checklist
- Subsequent Non-Accruals: Verify the status and potential recovery value of the Mojix, Inc. loans placed on non-accrual status on April 1, 2020.
- Valuation Sensitivity: Assess the sensitivity of Level 3 asset valuations (87.8% of portfolio) to further market volatility and credit spread widening due to the pandemic.
- Capital Commitments: Confirm the ability of investors to meet capital drawdowns given current market liquidity constraints.
- Debt Facility Availability: Review the borrowing base and covenants of the $100 million Credit Agreement to ensure continued access to liquidity if needed.
- Dividend Sustainability: Monitor the ratio of net investment income to declared dividends to assess the risk of return of capital distributions.