Triplepoint Venture Growth BDC Corp. quarterly report, Q2 FY2023

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TriplePoint Venture Growth BDC Corp. — Q2 2023 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited. TriplePoint is an externally managed business development company investing primarily in debt, warrants and equity of venture growth-stage companies.

Financial results and liquidity

  • Q2 revenue and earnings: Investment and other income was $35.2 million, up from $27.4 million a year earlier. Net investment income was $18.8 million ($0.53 per share), versus $12.7 million ($0.41 per share). A $39.7 million net realized and unrealized investment loss drove a $20.9 million decrease in net assets from operations ($0.59 per share), compared with a $14.4 million decrease in Q2 2022.
  • First half: Investment and other income was $68.8 million, versus $54.8 million; net investment income was $37.4 million ($1.06 per share), versus $26.2 million ($0.84 per share). Net realized and unrealized losses of $50.6 million resulted in a $13.2 million decrease in net assets from operations ($0.37 per share), compared with an $8.7 million decrease in 2022.
  • Portfolio yield: Annualized weighted-average yield on debt investments was 14.7% for the first half, versus 15.0% in 2022. Excluding prepayments, yield was 14.4%, versus 12.8%.
  • Investment value and NAV: Investments were valued at $942.0 million, compared with $949.3 million at year-end. Net asset value was $379.4 million, or $10.70 per share, down from $419.9 million, or $11.88 per share. The first-half NAV total return was (3.4%).
  • Cash flow: First-half operating activities used $7.5 million; financing activities provided $37.7 million, principally reflecting $65.0 million of net revolving-facility borrowings, partly offset by $27.2 million of distributions paid. Cash and restricted cash totaled $89.4 million at quarter-end.
  • Debt and liquidity: Gross borrowings were $635.0 million: $240.0 million under the revolving facility and $395.0 million of notes. The facility had $110.0 million of unused capacity. Asset coverage was 160%, compared with the 150% statutory minimum. The company reported compliance with debt covenants.
  • Distributions: The company declared and paid $0.40 per share for Q2, or $0.80 per share for the first half. On July 26, the board declared another $0.40 per share, payable September 29, 2023.

Material changes versus comparable periods

  • Higher investment income and net investment income reflected a larger average income-bearing debt portfolio and higher yields. However, operating expenses rose to $16.3 million in Q2 from $14.8 million, and to $31.4 million for the first half from $28.6 million.
  • Interest expense and fee amortization rose to $9.9 million for Q2 from $6.1 million, and to $19.2 million for the first half from $11.2 million, primarily due to higher revolving borrowings and interest rates. Average revolving-facility borrowing costs, including unused fees, were 8.79% in Q2 2023 versus 5.01% in Q2 2022.
  • First-half unrealized investment losses increased to $52.4 million from $31.1 million. Debt investment fair value was $853.2 million, while debt cost was $933.3 million.
  • Credit stress increased: six portfolio companies were on non-accrual at June 30, with $102.6 million of cost and $40.1 million of fair value, compared with one company at year-end with $29.5 million of cost and $9.1 million of fair value. Four companies, with $28.4 million fair value of debt, were rated Red (5), versus none at year-end.
  • Unfunded commitments declined to $205.3 million across 27 companies from $324.0 million across 37 at year-end. Management estimates that 50%–75% of commitments are generally expected to be drawn before expiration.

Outlook, risks and unusual items

  • Management said available cash, remaining facility capacity, expected operating cash flows and other potential sources should be adequate for operations and unfunded commitments. The filing provides no specific earnings or investment-growth guidance.
  • Approximately 60.5% of debt-investment principal was floating-rate, while $240.0 million of borrowings were floating-rate. The company’s sensitivity analysis estimates a $3.2 million annual increase in net investment income for a 100-basis-point rate increase, and a $3.0 million decrease for a 100-basis-point decrease, assuming no changes in portfolio or borrowings. No interest-rate or foreign-currency hedges were in place.
  • Valuations are especially uncertain: nearly all investments were Level 3, relying on significant unobservable inputs and judgment. The filing notes that actual values may differ materially from reported fair values.
  • After quarter-end, VanMoof Global Holding B.V. and its Dutch subsidiaries were declared bankrupt. The company’s VanMoof debt was marked at $5.5 million fair value against $22.3 million cost at June 30.
  • A putative securities class action was filed in June 2023 against the company and certain directors and officers, alleging federal securities-law violations for a period from March 4, 2020 through May 1, 2023. The case was at a preliminary stage; damages sought were unspecified.
  • The company cautions that economic and credit-market conditions, higher rates, portfolio-company financing needs, potential defaults, foreign-currency exposure, and access to capital could adversely affect income, valuations, liquidity and distributions. It also reported prior-year federal excise-tax liability and potential future excise tax if distribution requirements are not met.

Key investor verification points

  • Review the non-accrual and Red-rated exposures, recovery assumptions and subsequent developments, including the VanMoof bankruptcy.
  • Assess the basis and sensitivity of Level 3 valuations, especially the $52.4 million first-half unrealized loss and the substantial cost-to-fair-value discount on debt.
  • Evaluate whether higher funding costs and $635.0 million of borrowings remain manageable given 160% asset coverage, $110.0 million of facility capacity and upcoming debt maturities.
  • Confirm expected draws and expirations for $205.3 million of unfunded commitments and their effect on liquidity and portfolio risk.
  • Monitor whether net investment income supports the $0.40 quarterly distribution and whether any distributions could be treated as return of capital for tax purposes.
  • Track the securities class action and any material updates to the company’s reported risks or controls.