Runway Growth Credit Fund Inc. - 10-Q Summary (Q2 2018)
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2018. Runway Growth Credit Fund Inc. is an externally managed, non-diversified, closed-end investment company regulated as a Business Development Company (BDC) and treated as a Regulated Investment Company (RIC). The Company invests primarily in senior secured term loans and warrants of small, fast-growing U.S. companies. As of June 30, 2018, the Company had 8,738,897 shares of common stock outstanding.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2018 | Three Months Ended June 30, 2018 |
|---|---|---|
| Net Asset Value (NAV) per Share | $14.92 | $14.92 |
| Total Net Assets | $130,378,215 | $130,378,215 |
| Total Investments (Fair Value) | $205,980,407 | $205,980,407 |
| Net Investment Income | $4,327,952 | $2,648,228 |
| Net Investment Income per Share | $0.50 | $0.30 |
| Net Increase in Net Assets from Operations | $3,592,518 | $2,189,209 |
| Operating Expenses | $3,451,661 | $1,760,814 |
| Cash and Cash Equivalents | $1,947,614 | $1,947,614 |
| Debt Outstanding (Credit Facilities) | $15,000,000 | $15,000,000 |
| Dividends Declared | $1,300,250 (Total) | $1,300,250 (Total) |
Material Changes vs. Prior Period
- Portfolio Growth: Total investments increased from $140.7 million at December 31, 2017, to $206.0 million at June 30, 2018. Non-control/non-affiliate investments grew from $68.2 million to $136.0 million.
- Profitability Turnaround: The Company reported a net investment income of $4.3 million for the six months ended June 30, 2018, compared to a net investment loss of $2.1 million for the same period in 2017. This shift was driven by significant capital deployment and increased interest income.
- Unrealized Losses: The Company recorded a net change in unrealized depreciation of $795,226 for the six months ended June 30, 2018, primarily due to a decrease in the fair value of the senior secured loan and warrants for Mojix, Inc. This contrasts with a minor unrealized gain in the prior year period.
- Leverage: The Company entered into new credit facilities in June 2018 and drew down $15 million, whereas no such borrowings existed in the prior year period.
Guidance, Outlook, and Risks
- Investment Activity: The Company remains active in deploying capital, with significant new loans funded in Q2 2018 to Aria Systems, CareCloud, Dtex Systems, Jibe, and Aginity. Subsequent events include a $500,000 tranche to Mojix and a $250,000 equity investment in Aria Systems in July 2018.
- Dividends: The Board declared a dividend of $0.25 per share on July 26, 2018, payable August 31, 2018. The Company maintains an opt-out dividend reinvestment plan.
- Key Risks:
- Valuation Risk: A significant portion of the portfolio (Level 3 assets) relies on unobservable inputs and management judgment, creating uncertainty in fair value.
- Credit Facility Risk: The $35 million credit facility with CIBC matures on June 21, 2019. The uncommitted portion can be called on demand. A default could require stockholders to fund remaining capital commitments immediately.
- Interest Rate Risk: 100% of the debt portfolio is variable-rate (LIBOR or Prime based). Rising rates increase borrowing costs, potentially compressing net investment income.
- Concentration: The portfolio is concentrated in specific industries (Application Software, Healthcare Technology) and a limited number of portfolio companies.
Investor Verification Checklist
- Mojix, Inc. Valuation: Verify the specific reasons for the unrealized depreciation in the Mojix loan and warrants, which drove the majority of the period's unrealized losses.
- Credit Facility Terms: Review the covenants and borrowing base limitations of the CIBC credit facilities to assess refinancing risk upon the June 2019 maturity.
- Capital Deployment: Confirm the status of the $21 million in unfunded loan commitments and the Company's ability to call capital from investors to meet these obligations.
- Dividend Sustainability: Assess whether the current net investment income generation is sufficient to support the declared dividend rate of $0.25 per share on a recurring basis.
- Level 3 Inputs: Review the specific unobservable inputs (discount rates, volatility) used in the fair value models for the portfolio's Level 3 assets.