Business Context and Reporting Period
Company: TriplePoint Venture Growth BDC Corp. (TPVG)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2016
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, focusing on secured growth capital loans, equipment financings, and direct equity investments.
Key Financial Metrics
| Metric | Q3 2016 (3 Months) | YTD 2016 (9 Months) | Q3 2015 (3 Months) | YTD 2015 (9 Months) |
|---|---|---|---|---|
| Total Investment Income | $12.5 million | $33.0 million | $9.2 million | $30.7 million |
| Net Investment Income | $6.5 million | $18.2 million | $4.7 million | $15.9 million |
| Net Realized Gains (Losses) | $1.1 million | ($20.9 million) | $0 | ($0.3 million) |
| Net Unrealized Gains (Losses) | $3.9 million | $6.9 million | $1.0 million | ($0.1 million) |
| Net Increase in Net Assets from Operations | $11.4 million | $4.2 million | $5.7 million | $15.5 million |
| Net Asset Value (NAV) per Share | $13.44 | $13.44 | $14.52 | $14.52 |
| Weighted Avg. Portfolio Yield (Debt) | 15.1% | 14.7% | 17.5% | 16.7% |
| Total Assets | $414.3 million | $414.3 million | $382.3 million (Dec 31, 2015) | $382.3 million (Dec 31, 2015) |
| Total Liabilities | $200.0 million | $200.0 million | $150.7 million (Dec 31, 2015) | $150.7 million (Dec 31, 2015) |
| Cash and Restricted Cash | $20.8 million | $20.8 million | $38.5 million (Dec 31, 2015) | $38.5 million (Dec 31, 2015) |
Material Changes vs. Prior Period
- Net Income Volatility: While Q3 2016 net increase in net assets ($11.4M) improved significantly over Q3 2015 ($5.7M), the YTD 2016 result ($4.2M) was substantially lower than YTD 2015 ($15.5M). This decline is primarily due to net realized losses of $20.9 million in 2016, driven by write-downs on Intermodal Data, Inc. ($14.3M) and HouseTrip Limited ($6.1M).
- Portfolio Yield: The weighted average portfolio yield on debt investments decreased to 14.7% YTD 2016 from 16.7% YTD 2015, attributed to prepayment activity and the mix of new fundings.
- Leverage: Borrowings under the revolving credit facility increased significantly from $18.0 million at year-end 2015 to $57.0 million at September 30, 2016, to fund new investments.
- Share Count: The company repurchased 485,986 shares for approximately $5.4 million during the nine months ended September 30, 2016, reducing the share count from 16.3 million to 16.0 million.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items: The $20.9 million in realized losses for the nine months ended September 30, 2016, is a material unusual item. Conversely, Q3 2016 included $1.1 million in realized gains from the acquisitions of Dollar Shave Club and Jet.com.
- Asset Quality: The weighted average investment ranking of the debt portfolio improved to 2.05 (on a scale of 1-5) from 2.23 at year-end 2015. However, two borrowers were downgraded to "Yellow" (Category 3) status during the quarter.
- Unfunded Commitments: Unfunded commitments decreased to $115.5 million from $190.0 million at year-end 2015. Approximately $38.0 million of these commitments are dependent on portfolio companies reaching specific milestones.
- Interest Rate Risk: The company has a net floating rate exposure. An increase in interest rates would currently benefit net investment income due to the spread between floating-rate assets and liabilities.
- Outlook: Management expects operating expenses to increase in absolute terms as the portfolio grows but decrease as a percentage of assets. The company continues to seek new investment opportunities, with $12.5 million in non-binding term sheets signed in October/November 2016.
Investor Verification Checklist
- Realized Losses: Verify the specific circumstances and recovery prospects regarding the $14.3 million loss on Intermodal Data, Inc. and the $6.1 million loss on HouseTrip Limited.
- Concentration Risk: Confirm that the four largest portfolio companies continue to represent approximately 42% of the portfolio and assess their individual credit health.
- Liquidity Position: Review the $143.0 million remaining capacity on the $200 million credit facility and the $20.8 million cash balance to ensure sufficient liquidity for upcoming commitments and distributions.
- Dividend Sustainability: Assess whether the $0.36 per share quarterly distribution is fully covered by taxable earnings, given the significant realized losses recorded in the period.
- Unfunded Commitments: Monitor the $115.5 million in unfunded commitments, specifically the $38.0 million contingent on milestones, to gauge future capital deployment needs.