Business Context and Reporting Period
Company: TriplePoint Venture Growth BDC Corp. (TPVG)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2019
Business Overview: TPVG is an externally managed, closed-end, non-diversified business development company (BDC) regulated under the Investment Company Act of 1940. It invests primarily in venture growth-stage companies in technology, life sciences, and other high-growth industries, utilizing a strategy of lending with warrants to generate current income and capital appreciation.
Key Financial Metrics
| Metric (in thousands, except per share) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 |
|---|---|---|
| Total Assets | $525,267 | $467,054 |
| Investments at Fair Value | $496,021 | $433,417 |
| Net Investment Income | $20,038 | $14,747 |
| Net Increase in Net Assets from Operations | $34,930 | $16,338 |
| Net Asset Value (NAV) per Share | $14.19 | $13.45 |
| Net Investment Income per Share | $0.81 | $0.83 |
| Total Debt (Credit Facility + Notes) | $158,975 | $95,943 |
| Cash and Restricted Cash | $24,371 | $10,955 |
| Weighted Average Portfolio Yield (Debt) | 16.4% | 15.6% |
Material Changes vs. Prior Period
- Portfolio Growth: Total investments increased by approximately $62.6 million (14.4%) from $433.4 million to $496.0 million, driven by new fundings of $162.1 million in debt investments and $2.2 million in equity investments during the six-month period.
- Operating Performance: Net investment income rose 36% to $20.0 million, primarily due to a higher average portfolio balance. Total operating expenses increased to $16.4 million from $14.4 million, reflecting higher management and incentive fees due to asset growth.
- Unrealized Gains: The company recognized a net unrealized gain of $14.9 million, a significant improvement over the $0.8 million gain in the prior year. This was largely driven by mark-to-market appreciation in CrowdStrike, Inc. following its IPO and FarFetch UK Limited.
- Leverage: Borrowings under the Credit Facility increased significantly from $23.0 million to $85.8 million to fund new investments. The Credit Facility commitment was increased to $265.0 million in May 2019.
- Asset Quality: The weighted average credit rating of the debt portfolio declined slightly from 1.87 to 2.03. Two portfolio companies were downgraded to "Red" (serious concern) status, and two to "Orange" (needs close attention).
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management expects operating expenses to increase as the portfolio grows but anticipates expense ratios to decrease over time. The company continues to explore options for additional debt or equity capital to support investment growth.
- Recent Developments: On July 25, 2019, the Board declared a $0.36 per share quarterly dividend, with 51.6% representing a "spillover" dividend from 2018 earnings. In July 2019, the company funded $11.1 million in new investments.
- Risks and Contingencies:
- Credit Risk: Several portfolio companies are on non-accrual status or have been downgraded. Munchery, Inc. filed for Chapter 11 bankruptcy protection in February 2019. Roli, Ltd. and Mind Candy Limited have obligations past due, and the company is renegotiating terms.
- Interest Rate Risk: Approximately 70% of the debt portfolio bears floating interest rates. An increase in rates is expected to benefit net investment income, while a decrease could reduce it.
- Unfunded Commitments: The company has $350.1 million in unfunded commitments, of which $162.7 million expires in 2019. These commitments are subject to milestones and may not be drawn.
- Unusual Items: Net realized losses of $46 thousand for the six months ended June 30, 2019, were attributed to foreign currency fluctuations rather than investment dispositions.
Investor Verification Checklist
- Non-Accrual Status: Verify the current status and recovery prospects of the $35.3 million (cost) in non-accrual investments, specifically Munchery, Roli, and Mind Candy.
- Credit Facility Utilization: Confirm the impact of the increased leverage (Credit Facility utilization rose from ~11% to ~32% of commitment) on future interest expense and covenant compliance.
- Unfunded Commitments: Assess the likelihood of drawing down the $350.1 million in unfunded commitments, noting that $162.7 million expires in 2019.
- Concentration Risk: Review the portfolio concentration, noting that Business Applications Software and Financial Institution and Services represent the largest sectors (15.2% and 13.1% respectively).
- Dividend Sustainability: Evaluate the "spillover" dividend component and the company's ability to maintain the $0.36 quarterly distribution given the mix of cash and PIK (payment-in-kind) interest income.