Runway Growth Credit Fund Inc. - 10-Q Summary (Q3 2020)
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Runway Growth Credit Fund Inc., a Maryland corporation regulated as a Business Development Company (BDC) and a Regulated Investment Company (RIC). The report covers the quarterly period ended September 30, 2020. The Company is externally managed by Runway Growth Capital LLC and focuses on lending to and investing in small, fast-growing companies in the United States, primarily in technology, life sciences, and healthcare sectors.
Key Financial Metrics
| Metric | Q3 2020 (Three Months) | YTD 2020 (Nine Months) | Q3 2019 (Three Months) | YTD 2019 (Nine Months) |
|---|---|---|---|---|
| Total Investment Income | $14,215,723 | $40,837,641 | $11,834,485 | $40,380,804 |
| Net Investment Income | $9,522,580 | $27,040,009 | $7,504,743 | $26,948,778 |
| Net Increase in Net Assets from Operations | $10,909,028 | $26,230,561 | $4,721,354 | $19,171,066 |
| Net Asset Value (NAV) per Share | $14.46 | $14.46 | $14.52 | $14.52 |
| Total Debt (Credit Facilities) | $37,500,000 | $37,500,000 | $61,000,000 | $61,000,000 |
| Cash and Cash Equivalents | $1,377,916 | $1,377,916 | $45,799,672 | $45,799,672 |
| Portfolio Investments (Fair Value) | $520,103,330 | $520,103,330 | $467,981,699 | $467,981,699 |
Material Changes vs. Prior Period
- Operating Performance: Net investment income increased by 27% for the three months ended September 30, 2020, compared to the same period in 2019, driven by a larger deployed portfolio. However, Net Investment Income per share decreased slightly from $0.38 to $0.35 due to share count increases.
- Realized Gains/Losses: The Company reported a net realized gain of $1.14 million for Q3 2020, contrasting with a negligible loss in Q3 2019. For the nine months ended September 30, 2020, the Company reported a net realized loss of $5.37 million, primarily due to a loss on the senior secured loan to Aginity, Inc.
- Unrealized Appreciation: The portfolio saw a net change in unrealized appreciation of $243,742 for Q3 2020, a significant improvement from the $2.78 million depreciation in Q3 2019. YTD 2020 showed $4.56 million in unrealized appreciation.
- Liquidity and Debt: Cash and cash equivalents decreased significantly from $45.8 million at year-end 2019 to $1.4 million at September 30, 2020, as capital was deployed into new investments. Outstanding debt under credit facilities was reduced from $61.0 million to $37.5 million.
- Portfolio Composition: The portfolio grew to include 28 portfolio companies. Senior Secured Term Loans represent 76.0% of the portfolio, while Warrants represent 4.2%.
Guidance, Outlook, Risks, and Unusual Items
- COVID-19 Impact: Management highlights that the pandemic has introduced significant volatility and uncertainty. While the impact on investment ratings has been limited to date, future valuations may be negatively impacted by economic conditions. The Company notes that long-term impacts may not yet be fully reflected in current valuations.
- LIBOR Transition: The Company faces risks associated with the potential discontinuation of LIBOR after 2021. It is assessing the impact on its variable-rate debt portfolio and credit facilities, which may require renegotiation of terms.
- Asset Quality: As of September 30, 2020, seven loans to Mojix, Inc. (totaling $11.4 million principal) were placed on non-accrual status, representing 2.29% of total assets at fair value. This is an increase from the two loans to Aginity, Inc. on non-accrual at year-end 2019.
- Subsequent Events: Following the reporting period, the Company amended its Credit Agreement to increase aggregate commitments to $175 million (from $100 million) and added MUFG Union Bank as a lender. Additionally, the Company funded a $45 million investment in FiscalNote, Inc.
- Distributions: The Company declared a dividend of $0.38 per share on October 1, 2020, payable November 12, 2020. The Company maintains an "opt-out" dividend reinvestment plan.
Investor Verification Checklist
- Non-Accrual Status: Verify the current status and recovery prospects of the Mojix, Inc. loans ($11.4M principal) placed on non-accrual.
- Cash Position: Confirm the Company's ability to meet unfunded loan commitments ($26.1M) given the low cash balance ($1.4M) and reliance on credit facilities or capital drawdowns.
- Valuation Methodology: Review the Level 3 fair value inputs (discount rates, volatility) used for the $434.8M in private investments, particularly given the economic uncertainty.
- Debt Covenants: Ensure compliance with the Credit Agreement covenants, specifically the asset coverage ratio and tangible net worth requirements, especially if portfolio values decline further.
- LIBOR Exposure: Assess the specific terms of the portfolio loans regarding LIBOR floors and the Company's strategy for transitioning to alternative reference rates post-2021.